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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-16334
_________________________
ALLIANCE IMAGING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State of Incorporation) (IRS Employer Identification Number)
1065 NORTH PACIFICENTER DRIVE, SUITE 200, ANAHEIM, CALIFORNIA 92806
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 921-5656
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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, as amended, 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 by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K Section 229.405 of Title 17, Code of Federal Regulations
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 24, 1997 (computed by reference to the last reported
sale price of registrant's common stock on NASDAQ on such date): $65,485,783
Number of shares outstanding of each of the registrant's classes of common
stock as of March 24, 1997: Common Stock, $.01 par value, 10,927,471 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders
of Alliance Imaging, Inc. are incorporated herein by reference in Part III.
Certain exhibits are incorporated herein by reference as set forth in Item
14(a)3, Index to Exhibits, in Part IV.
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PART I
ITEM 1. BUSINESS.
GENERAL
Alliance Imaging, Inc. (the Company) provides outsourced radiology
services and high technology diagnostic imaging systems and related technical
support services, as well as management and information services to hospitals
and other health care providers. The Company's magnetic resonance imaging
("MRI") services include the provision of high technology diagnostic imaging
systems, highly-trained technologists to operate the imaging systems,
equipment maintenance and upgrades, the management of day-to-day operations,
educational and marketing support, patient scheduling, billing and collection
services, managed care contracting and professional liability insurance. The
Company's MRI services are provided on both a mobile, shared-user basis and
on a full-time basis to single customers. Since its introduction in the
early 1980's, MRI experienced rapid growth due to wide clinical acceptance
and is now the preferred imaging modality for many diagnostic imaging
procedures. The sophisticated diagnostic imaging systems provided by the
Company produce highly detailed images of a patient's internal anatomical
structures to aid in the diagnosis of disease or injury and the selection of
therapy by health care providers. The Company believes that it is one of the
largest providers of hospital based fixed-site and shared-user MRI services
and imaging systems in the United States. The Company also provides computed
axial tomography ("CT") services and imaging systems, primarily in
California; revenues from such services and imaging systems accounted for
approximately 5% of the Company's revenues for the year ended December 31,
1996.
CUSTOMER BASE
The Company believes that many hospitals and other health care providers
require access to MRI services to remain competitive in the health care
marketplace. Many health care providers, however, lack sufficient scan
volume or financial resources to justify the purchase of an MRI system. Such
providers contract for mobile, shared-user systems or single-user, full-time
systems to gain access to MRI technology and to provide comprehensive MRI
services to their patients. In addition, many health care providers,
regardless of whether their patient utilization levels and financial
resources justify the purchase of an MRI system, prefer to contract with the
Company for full-time or shared-user imaging systems to: (i) obtain the use
of an MRI system without any capital investment or financial risk; (ii)
retain the ability to switch system types and avoid technological risk; (iii)
obtain MRI services in jurisdictions in which the use of the Company's
services facilitates the procurement of regulatory approvals; (iv) avoid
future uncertainty as to reimbursement policies; (v) eliminate the need to
recruit, train and manage qualified technologists; (vi) outsource their
entire MRI service to obtain access to needed technology while avoiding
financial investment or risk and obtaining management expertise; or (vii)
provide additional imaging services when patient demand exceeds their
in-house capability.
The Company's MRI and CT services, which include imaging systems,
technologists and support services, are provided on both a mobile,
shared-user basis and on a full-time basis to single customers. As of
December 31, 1996, the Company provided imaging systems and related
technologists and support services to 371 customers (316 for MRI services and
70 for CT services; some customers contract for both modalities) consisting
primarily of medium-sized hospitals (i.e., hospitals with 100-250 beds).
Currently, the Company provides services and equipment to customers in 36
states.
The Company's strategy includes providing new or upgraded MRI systems to
both mobile and single user customers under long-term contracts, expanding
the number of systems in fixed-site locations, replacing certain older mobile
systems with more technologically advanced systems and increasing the
utilization of its existing systems. The Company's business plan calls for
targeting customers in smaller and medium-sized cities and towns because the
Company believes that customers in those locations have a desire or need for
MRI services and systems but generally do not have the same access to MRI
services and systems as customers in larger metropolitan areas. The Company
actively targets smaller and medium-sized hospitals, clinics, multi-physician
specialty groups, health maintenance organizations and governmental
installations for future business. The Company also plans to expand into
regions of the country not currently served via internal growth as well as by
acquisition of regional MRI providers.
New applications for MRI technology are continuously being researched.
Several contrast agents for use in imaging of the abdomen and the central
nervous system are in various stages of Food and Drug Administration
approval. Management anticipates that such developments will significantly
broaden the technical capabilities of MRI. MRI is also becoming an
increasingly viable diagnostic tool in the field of angiography and
cardiology. New applications may increase usage of MRI by
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hospitals and other health care facilities, including health maintenance
organizations and multi-physician specialty groups. Smaller clinics or
medical centers, which may not be able to afford to purchase, install and
operate MRI systems, provide another potential customer base.
The profitability of the Company is based substantially on the degree to
which the Company can utilize its imaging systems. Currently, the Company
has its MRI systems contracted on average for five to six days a week. The
Company believes that as customers become familiar with the basic or expanded
technology and its applications, the corresponding MRI system's rate of usage
generally increases, causing the number of scans per day to increase and
eventually leading to requests for additional days of usage.
Part of the Company's strategy is to retain existing customers with high
scan volumes and system usage by providing them with full-time MRI systems
under long-term, fee-per-scan contracts in either existing mobile vans or
relocatable, modular buildings. Because initiation of MRI services at a new
customer's location is generally associated with lower scan volume and
revenue, the Company's financial performance is temporarily adversely
affected by non-renewal or early termination of customer contracts even if
such contracts are replaced relatively quickly. The Company is subject to
the risk that customers will cease using the Company's MRI services in order
to purchase or lease their own MRI systems. The Company disposed of most of
its older MRI systems in 1994 and 1995 and had no systems out of service at
December 31, 1996. While most of the Company's business is provided on a
contract basis to health care providers, a portion is being performed in a
provider, or direct patient billing, mode. For the year ended December 31,
1996, no single contract customer accounted for more than three percent of
revenues.
JOINT VENTURE
The Company, through a subsidiary, is a partner in a joint venture at
December 31, 1996. This partnership operates a fixed-site MRI system at a
large hospital in Georgia. It is supervised by a radiology medical group.
MARKETING
Currently, the Company's sales force consists of 14 members who identify
and contact candidates for the Company's services. Direct marketing plays a
primary role in the Company's development of new customers. Each of the
sales managers reports to one of five senior corporate managers who each have
overall management and sales responsibility for a specific region of the
country. The Company believes that having senior managers involved in sales
and contract negotiations enhances its ability to obtain new contracts.
CUSTOMER SUPPORT
As part of its full service package, the Company provides several levels
of support to a hospital or health care provider. The Company's
technologists who staff the MRI systems regularly work with the hospital
radiologists, referring physicians and nursing staff to perform the scans.
The technologists also work with regional technical advisors who are
specialists in MRI technology and consult on specialized technical problems,
hold periodic training sessions for the technologists, radiologists,
referring physicians and healthcare customers and provide problem-solving
services. These specialists play a central role in the Company's retention
of accounts and building of scan volume. Management believes that targeted
direct marketing at each hospital with assigned responsibility for support
services is a key element for broadening the awareness of MRI technology,
building scan volume and obtaining contract renewals.
OPERATIONS AND SCHEDULING
The Company's seven regional offices market, manage and staff the
operation of its imaging systems. The Company's regional offices are located
in: Orange and Roseville, California; Chicago, Illinois; Colorado Springs,
Colorado; Burlington, Connecticut; Pittsburgh, Pennsylvania; and Macon,
Georgia. Each region has individuals responsible for sales and operations
management. MRI systems are currently scheduled for as little as one-half
day and up to seven days per week at any particular facility. Generally,
technologists, and a driver, if required, are assigned to each of the
operating systems. Movement of the systems typically occurs at night via a
fleet of Company-owned or leased tractors. The drivers move the systems and
activate them upon arrival at each imaging site so that the systems are
operational when the Company's technologists arrive on the following
scheduled imaging day.
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CONTRACTS AND FEES
Contract fees are charged on a fee-per-scan, fee-per-day or fee-per-month
basis (with numerous variations within each billing method to accommodate
particular customers' needs). Generally, contracts billed on a fee-per-scan
or fee-per-day basis include the provision of technologists by the Company,
while contracts billed on a fee-per-month basis generally do not. Although a
typical contract offers daily flat-rate options, most customers currently pay
on a fee-per-scan basis. The amount of fees under this billing method
depends upon the type of imaging system provided, the term of the contract,
the types and number of scans performed as well as the day of the week on
which scans are performed. The contracts typically allow the Company to
reduce the number of days of service provided based upon the customer's exam
volume, or to terminate the contract if the Company is unable to realize a
profit on the services provided.
IMAGING SYSTEMS
The Company purchases all of its imaging systems from major medical device
manufacturers, primarily General Electric Medical Systems, Siemens Medical
Systems and Picker International. Generally, the Company orders its imaging
systems from such major manufacturers while simultaneously contracting with
health care providers for their use, thereby reducing the Company's system
utilization risk. The Company's MRI systems are installed in specially-designed
trailers or relocatable, modular suites. The trailers and relocatable modular
suites are designed jointly by the imaging system manufacturer and the housing
manufacturer and are designed to provide image quality identical to those found
in full-time health care facilities.
At December 31, 1996, the Company operated 86 MRI systems and nine CT
systems. Of the 86 MRI systems, 67 are high-field or mid-field premium
systems, 17 are other mid-field systems, and two are older systems (which the
Company expects to dispose of in the next 12 to 24 months as they complete
current contract assignments). Further, of the 86 MRI systems, 76 are housed
in mobile coaches and 10 are housed in relocatable modular buildings,
generally on hospital campuses.
Substantially all imaging systems are owned by the Company. The Company
periodically reviews the depreciable value of its imaging systems at least
annually and more frequently if the facts and circumstances suggest it may be
impaired.
Under its arrangements with manufacturers to trade in older MRI systems
as partial consideration for new systems, the Company sometimes operates the
system traded-in for a period of up to several months after the new system is
placed in service by the Company to allow the Company to fulfill existing
contractual obligations. Revenue associated with such traded-in systems was
not significant in 1996.
For its MRI and CT systems, the Company primarily relies upon the
manufacturer to provide maintenance and service under warranties and service
contracts. These service contracts require the Company to pay fixed monthly
fees or variable fees on a risk-sharing basis.
REIMBURSEMENT AND REGULATION
HEALTH CARE ENVIRONMENT
National attention has been focused on rising health care costs and
various plans have been proposed which attempt to improve the cost
effectiveness of health care delivery in the United States. Both government
and private third party payers continue to seek means of reducing the cost of
health care delivery. The Company expects that some of the resulting
governmental and private initiatives may benefit the Company while other
initiatives may be detrimental to the Company. The full impact of the
anticipated new initiatives cannot be assessed at this time.
REIMBURSEMENT
The majority of the Company's revenues are derived directly from health
care providers rather than from private insurers, other third party
reimbursers or governmental entities. Consequently, the Company historically
has not had material direct exposure to, or direct connection with, patient
billing, collections or reimbursement by insurance companies, other third
parties or Medicare. However, to a lesser extent, the Company's revenues are
generated from direct billings to patients or their medical payers which are
recorded net of contractual discounts and other arrangements for providing
services at less than established patient billing rates. Net revenues from
direct patient billing amounted to approximately 8% of revenue in 1996.
Most private health care insurers, including Blue Cross and Blue Shield,
reimburse approximately 70% to 100% of the health care provider's charge for
MRI and CT scans. Such insurers may impose limits on reimbursement for
imaging services or deny reimbursement for tests that do not follow
recommended diagnostic procedures. Since patient reimbursement
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may indirectly affect the levels of fees the Company can charge its customers
by constricting the health care providers' profit margin, widespread
application of restricted or denied reimbursement schedules could adversely
affect the Company's business. Conversely, at lower reimbursement rates, a
health care provider might find it financially unattractive to own an MRI or
CT system, but could benefit from purchasing the Company's services.
Congress has attempted to restrict rising federal reimbursement costs
under the Medicare program by setting predetermined payment amounts for
reimbursement of inpatient services according to each patient's diagnosis
related group ("DRG"). DRG payment rates for inpatient services became
effective in the early 1980's and have been adjusted downward since then.
Currently, those payment rates are not applicable to outpatient services;
instead, Medicare reimbursement for imaging services furnished in a hospital
outpatient setting is subject to alternative, generally more favorable,
payment limits. However, it is possible that DRG payment rates or other
limits might be implemented with respect to outpatient services in the
future. President Clinton has proposed, as part of the fiscal year 1998
federal budget, establishment of a prospective payment system for outpatient
services.
Because payments have generally been less restricted in non-hospital
outpatient settings, there has been rapid growth in MRI units at non-hospital
free-standing facilities which provide outpatient services. The Department
of Health and Human Services ("HHS"), as required by statute, has issued fee
schedules for reimbursing physicians who treat Medicare patients. Under
these fee schedules, physician reimbursement for professional services is
based on a value assigned to each service provided by a physician. The fee
schedules also generally apply to reimbursement for technical services (such
as those provided by the Company) except where furnished by hospitals or
certain other limited types of health care providers. The Company believes
that approximately 15% to 20% of its customers' MRI revenues are currently
derived from Medicare patients.
REGULATION
Many aspects of the medical industry in the United States are subject to
extensive federal and state government regulation. Although the Company
believes that its operations comply with applicable regulations, there can be
no assurance that subsequent adoption of laws or interpretations of existing
laws will not regulate, restrict or otherwise adversely affect the Company's
business. The federal government has announced its desire to reform
America's health care system; the extent to which such reform and any new
regulations will affect the Company's business cannot be assessed at this
time.
The marketing and operation of the Company's MRI and CT systems are
subject to state laws prohibiting the practice of medicine by non-physicians
and the rebate or division of fees between physicians and non-physicians.
Management believes that its operations do not involve the practice of
medicine because all professional medical services relating to its
operations, such as the interpretation of the scans and related diagnoses,
are separately provided by licensed physicians not employed by the Company.
Further, the Company believes that its operations do not violate state laws
respecting the rebate or division of fees.
The Company is subject to federal and state laws which govern financial
and other arrangements between healthcare providers. These include the
federal Medicare and Medicaid anti-kickback statute which prohibits bribes,
kickbacks, rebates and any other direct or indirect remuneration in return
for or to induce the referral of an individual to a person for the furnishing
or arranging of services, items or equipment for which payment may be made in
whole or in part under the Medicare, Medicaid or federal healthcare program.
Violation of the anti-kickback statute may result in criminal penalties and
exclusion from the Medicare and other federal healthcare programs. Many
states have enacted similar statutes which are not necessarily limited to
items and services paid for under the Medicare or a federally funded
healthcare program. In recent years, there has been increasing scrutiny by
law enforcement authorities, HHS, the courts and Congress of financial
arrangements between health care providers and potential sources of patient
and similar referrals of business to ensure that such arrangements are not
designed as mechanisms to pay for patient referrals. HHS interprets the
anti-kickback statute broadly to apply to distributions of partnership and
corporate profits to investors who refer federal healthcare program patients
to a corporation or partnership in which they have an ownership interest and
to payments for service contracts and equipment leases that are designed to
provide direct or indirect remuneration for patient referrals or similar
opportunities to furnish reimbursable items or services. In July 1991, HHS
issued "safe harbor" regulations that set forth certain provisions which, if
met, will assure that health care providers and other parties who refer
patients or other business opportunities, or who provide reimbursable items
or services, will be deemed not to violate the anti-kickback statute. The
Company is also subject to separate laws governing the submission of false
claims. The Company is a party to a partnership for the provision of MRI
services. The Company believes that the partnership is in compliance with
the anti-kickback statute. The Company believes that its other operations
likewise comply with the anti-kickback statutes.
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Federal law, commonly known as the "Stark Law," also imposes civil
penalties and exclusions for referrals for "designated health services" by
physicians to certain entities with which they have a financial relationship
(subject to certain exceptions). "Designated health services" include, among
others, MRI services. While implementing regulations have been issued
relating to referrals for clinical laboratory services, no implementing
regulations have been issued regarding the other designated health services,
including MRI services. In addition, several states in which the Company
operates have enacted or are considering legislation that prohibits
"physician self-referral" arrangements or requires physicians to disclose any
financial interest they may have with a health care provider to their
patients to whom they recommend that provider. Possible sanctions for
violating these provisions include loss of licensure and civil and criminal
statutes. Such state laws vary from state to state and seldom have been
interpreted by the courts or regulatory agencies. Nonetheless, strict
enforcement of these requirements is likely. The Company has structured its
operations to comply with these federal and state physician self-referral
laws.
The Company believes that the Medicare and Medicaid anti-kickback
statute, as interpreted by HHS (including through the "safe harbor"
regulations), and the physician self-referral laws may enhance the Company's
competitive position since many MRI service partnerships have been or may be
required to be restructured, significantly, altered or discontinued from
providing MRI services altogether. In addition, especially in the last
circumstance, the Company may be presented with attractive opportunities to
acquire MRI systems. However, because the anti-kickback and self-referral
statutes are broad, the "safe harbor" regulations narrow and the absence of
regulations to implement Stark overall are subject to pending and future
judicial interpretation, there is limited authority on which the Company may
rely. There can be no assurance that such laws will not be interpreted in
the future in a manner inconsistent with the Company's interpretation and
operations.
In some states, a certificate of need ("CON") or similar regulatory
approval is required prior to the acquisition of high-cost medical imaging
systems or provision of medical services by the Company or its customers.
CON regulations can limit or preclude the Company from providing diagnostic
imaging services or systems. The CON application process may be lengthy and
costly. A significant increase in the number of states regulating the
Company's business within the CON or state licensure framework could
adversely affect the Company. Conversely, repeal of existing CON regulations
in jurisdictions where the Company has obtained or operates under a CON could
also adversely affect the Company, since obtaining a CON provides the Company
with a competitive advantage in obtaining and retaining customers in such
jurisdictions. However, to the extent states retain or expand CON
regulations, this could provide an advantage to the Company in states where
it operates under CON regulations or is able to provide additional services
pursuant to such CON regulations. This is an area of continuing legislative
activity, and there can be no assurance that the Company will not be subject
to CON and licensing statutes in other states in which it operates.
EXPANSION INTO NEW MODALITIES AND SERVICES
The Company plans to expand the scope of its outsourcing offerings in
1997 by entering new diagnostic and therapeutic modalities which can be cross
sold to the existing customer base. In addition, the Company manages a large
portfolio of imaging systems providing management, operational and
information services. The Company believes that asset management services may
present opportunities for future expansion.
LIABILITY INSURANCE
While the Company's imaging systems are at a customer's facility, they
operate only under the direction of licensed physicians on the customer's
staff who direct the procedures, supervise the Company's technologists and
interpret the results of the examinations. Currently, there are no known
biological hazards associated with MRI. However, there is a risk of harm to
a patient who has a ferrous material or certain types of cardiac pacemakers
within his or her body. Patients are carefully screened to safeguard against
this risk. To protect against possible exposure for professional liability,
the Company maintains professional liability insurance.
EMPLOYEES
As of December 31, 1996, the Company had 383 employees, of whom
approximately 320 were trained diagnostic imaging technologists, patient
coordinators, technical support staff or other field operations personnel.
None of the Company's employees are represented by a labor organization and
the Company is not aware of any actively seeking such organization.
Relations with employees have been good.
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COMPETITION
The market for diagnostic imaging services and imaging systems is highly
competitive. In addition to direct competition from other contract
providers, the Company competes with free-standing imaging centers and health
care providers that have their own diagnostic imaging systems and with
equipment manufacturers that sell imaging equipment to health care providers
for full-time installation. Some of the Company's direct competitors which
provide contract MRI services may have access to greater financial resources
than the Company. In addition, some of the Company's customers are capable of
providing the same services to their patients directly, subject only to their
decision to acquire a high-cost diagnostic imaging system, assume the
associated financial risk and employ the necessary technologists. The
Company competes against other contract providers on the basis of quality of
services, quality and magnetic field strength of imaging systems, price,
availability and reliability.
COMPANY HISTORY
The Company's predecessors, an English partnership and an affiliated
California corporation, began operation in 1983 by providing mobile CT
services in southern California. Mobile MRI services commenced in 1985. The
Company's predecessors were merged into Alliance Imaging plc, an English
public limited company, in 1985. The Company was incorporated in Delaware in
May 1987 and in July 1987 acquired all the outstanding stock of Alliance
Imaging plc.
The Company's common stock was publicly traded from August 1987 until
November 1988, when the Company was acquired in a going-private transaction
(the "Acquisition"). The Acquisition was accomplished through stock purchase
agreements with individual stockholders and a cash tender offer by Casper
Acquisition Corp., a wholly-owned subsidiary of CTFG Acquisition Corp., which
was formed and owned by DLJ Capital Corp. and certain of the Company's
current stockholders and members of management, including Richard N. Zehner,
the Company's Chairman, President and Chief Executive Officer. In November
1991, the Company completed its second initial public offering of common
stock and has been a publicly traded company since that time.
ITEM 2. PROPERTIES.
For its executive and principal administrative offices, the Company
occupies approximately 13,500 square feet of space in an office building in
Orange, California. The Company also leases space for its regional offices,
and 15,600 square foot operations warehouse in California. The Company has
entered into an agreement to lease approximately 15,000 square feet of office
space in Anaheim, California and will move its executive and principal
administrative offices in May 1997.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no
litigation pending against it will have a material adverse effect on its
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The NASDAQ Stock Market under the symbol
SCAN. The high and low prices as reported by NASDAQ are set forth below for
the periods indicated. As of March 19, 1997, there were 181 record holders
and approximately 1,672 beneficial holders of the Company's common stock.
1996 1995
-------------------------- ----------------------
HIGH LOW HIGH LOW
-------- -------- ------- --------
First Quarter $4 1/8 $2 7/8 $1 7/16 $ 7/16
Second Quarter 6 1/8 3 13/16 2 1/2 1 1/4
Third Quarter 6 3/8 3 7/8 3 1/8 2
Fourth Quarter 5 15/16 4 5/8 3 3/8 2 3/8
The Company has never paid any cash dividends on its common stock and has no
current plans to do so; rather, the Company intends to retain available cash
to provide for the operation of its business, including capital expenditures,
and to fund future acquisitions.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data, except as noted
herein, has been taken or derived from the audited consolidated financial
statements of the Company and should be read in conjunction with the full
consolidated financial statements included herein.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues $ 68,482 $ 58,065 $ 57,875 $ 60,728 $ 63,695
Costs and expenses:
Operating expenses,
excluding depreciation 32,344 28,342 31,093 31,768 32,043
Depreciation expense 12,737 12,202 13,424 13,617 12,408
Selling, general and
administrative expenses 8,130 6,294 6,284 6,538 5,842
Amortization expense,
primarily goodwill 1,952 1,345 943 790 737
Interest expense, net 5,758 5,053 10,758 10,507 10,846
Asset impairment and other special charges - - 13,339 17,500 -
-------- -------- -------- -------- -------
Total costs and expenses 60,921 53,236 75,841 80,720 61,876
-------- -------- -------- -------- -------
Income (loss) before income taxes and
extraordinary gains 7,561 4,829 (17,966) (19,992) 1,819
Provision (benefit) for income taxes 1,060 727 1,100 (5,300) 766
-------- -------- -------- -------- -------
Income (loss) before extraordinary gains 6,501 4,102 (19,066) (14,692) 1,053
Extraordinary gains, net of taxes 6,300 - - - -
-------- -------- -------- -------- -------
Net income (loss) $ 12,801 $ 4,102 $(19,066) $(14,692) $ 1,053
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Net income (loss) per common share $ 1.18(1) $ 0.28 $ (2.68)(4) $ (2.07)(5) $ 0.15
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Weighted average common
shares outstanding 11,494 11,158 7,124 7,114 6,949
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
BALANCE SHEET DATA:
Total assets $128,510 $103,327 $ 102,527 $ 117,096 $133,920
Long-term debt 68,110(2) 50,049 52,314 49,320 44,945
Senior subordinated debentures
(long-term portion) 4,592(3) 15,883 16,633 35,000 35,000
Redeemable preferred stock 4,694(3) 16,430 15,500 - -
</TABLE>
(1) Includes $0.55 of extraordinary gains, net of taxes, and $0.15 excess of
carrying amount of preferred stock repurchased over consideration paid.
(2) Long-term debt of $12,872 plus $5,128 used to repurchase senior
subordinated debt and redeemable preferred stock on January 2, 1997 was
converted to preferred stock in March 1997.
(3) The 1996 balance of senior subordinated debentures and redeemable preferred
stock was repurchased by the Company on January 2, 1997 for $5,128.
(4) Includes $1.94 net loss per common share for special charges.
(5) Includes $1.81 net loss per common share for special charges.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's financial performance depends substantially upon the scan
volume of its magnetic resonance imaging (MRI) systems. Revenues are
generally derived from one to eight year contracts with health care
providers. Since a majority of the Company's expenses are fixed, increased
revenues as a result of higher scan volumes significantly improve the
Company's profitability. Conversely, 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 such contracts do not adversely impact the Company's
revenues and profitability. Although the Company has experienced increased
scan volumes in 1995 and 1996, it has also had periods of declining volumes
in prior 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 three years. Additionally, the Company continues to evaluate
the profitability of certain existing customer relationships with a view
toward eliminating unprofitable accounts and redeploying or otherwise
disposing of certain equipment.
The Company intends to continue its ongoing equipment trade-in and
upgrade program which has substantially improved the marketability and
productivity of its MRI and computed axial tomography (CT) systems. The
Company intends to either trade in older, less marketable MRI systems in
connection with new system purchases, or to upgrade them with new computers,
software and coils to enable its MRI systems to remain competitive in the
marketplace.
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania, and
certain related assets. Like the Company, Royal is a provider of
comprehensive MRI services to hospitals. The Company issued 3,876 shares of
preferred stock valued at $388,000, common stock warrants valued at $212,000
and paid $1,914,000 in cash as consideration for the acquisition of Royal.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Royal have been included in the Company's
consolidated financial statements from the date of acquisition. In addition,
the Company completed several smaller acquisitions in 1995 and 1996, which
were also accounted for as purchases.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
- --Revenues for 1996 were $68,482,000, an increase of $10,417,000, or 17.9%,
over 1995. Excluding revenues of $2,895,000 from operations which were sold
in the second half of 1995, the increase in revenues was $13,312,000, or
24.1%, with Royal accounting for $4,694,000, or 8.5%, of the increase. This
increase reflects a scan-based MRI revenue increase of $10,897,000, or 22.0%,
($4,532,000, or 9.2%, as a result of the Royal acquisition), resulting from a
23.4% increase in total scan volume partially offset by a 1.1% decrease in
the average revenue realized per MRI scan. Royal accounted for 9.8% of the
scan volume increase and 0.1% of the offsetting price per scan decrease. The
average number of scans per day for each MRI system increased 15.5% to 6.7
from 5.8 in 1995. Management attributes the non-Royal 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 some smaller acquisitions. Management
believes the decrease in average revenues realized per scan is the result of:
continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payers; obtaining contracts with customers
that have high scan volumes which justify lower scan prices; and many
customers achieving discount price levels by virtue of attaining higher scan
volumes. Revenue under fixed fee contracts increased $893,000, or 43.8%,
resulting from an increased number of MRI systems under such arrangements.
Other revenue increased $891,000 primarily as a result of the Company selling
its investment in London-based Alliance Medical, Ltd. and recording a gain of
$750,000. CT revenue increased $632,000, or 21.8%, primarily as a result of
the third quarter 1995 and fourth quarter 1996 acquisitions of two CT
businesses.
The Company operated 86 MRI systems at December 31, 1996 compared to 76
MRI systems at December 31, 1995. The average number of MRI systems operated
by the Company was 85 during 1996, compared to 74 during 1995.
10
<PAGE>
Operating expenses, excluding depreciation, totaled $32,344,000 in 1996,
an increase of $4,002,000, or 14.1%, from 1995. Excluding expenses of
$1,008,000 related to operations which were sold in the second half of 1995,
the increase in operating expenses was $5,010,000, or 18.3%, with Royal
contributing $2,333,000, or 8.5%, of the increase. Payroll and related
employee expenses increased $1,781,000, or 15.2%, which was in line with the
revenue increase. Equipment rental expense increased $898,000, or 60.4%. The
increase resulted from a higher number of rented MRI systems in operation and
the Company's leasing of 20 new tractors in 1996. Other operating expenses
increased $759,000, which was offset by a $761,000 decrease in preventive
maintenance contract and cryogen expense, primarily as a result of more
efficient systems and lower contract rates associated with the Company's
equipment upgrade program.
Depreciation expense during 1996 totaled $12,737,000, an increase of
$535,000, or 4.4%. Excluding depreciation expense of $638,000 related to
operations which were sold in the second half of 1995, depreciation expense
increased $1,173,000, or 10.1%, from the 1995 level principally due to a
higher amount of depreciable assets associated with equipment additions and
upgrades and the Royal acquisition. Amortization expense in 1996 increased
$607,000, or 45.1%, over the 1995 period as a result of the Royal acquisition
and four smaller acquisitions, in late 1995 and 1996.
Selling, general and administrative expenses totaled $8,130,000 in 1996,
an increase of $1,836,000, or 29.2%, from 1995. Excluding expenses of
$369,000 related to operations sold in the second half of 1995, selling,
general and administrative expenses increased $2,205,000, or 37.2%. Payroll
and related expenses increased $1,457,000, primarily as a result of increased
employee compensation related to increased sales commissions, performance
compensation in connection with the increase in net income, early achievement
of long term incentive plan objectives and increased staffing levels. Bad
debt expense increase $567,000 in 1996 compared to 1995.
Interest expense of $5,758,000 in 1996 was $705,000, or 14.0%, higher
than 1995, primarily as a result of higher average outstanding debt balances
during 1996 as compared to 1995. This increase related to debt assumed in
connection with the Royal acquisition and additional borrowings related to
equipment additions.
An income tax provision of $1,060,000 was recorded in 1996. The
Company's pre-tax income in 1996 is substantially offset by net operating
loss carryforwards; however, certain federal alternative minimum taxes and
state tax liabilities apply to this income, giving rise to the tax provision
recorded. In 1995, an income tax provision of $727,000 was recorded, also
related to certain federal alternative minimum taxes and state tax
liabilities. The Company's 1996 effective tax rate of approximately 14% of
pre-tax income before extraordinary gains was comparable with the 1995 rate.
At December 31, 1996, the Company had approximately $26,400,000 of net
operating loss carryovers available for federal regular income tax purposes
to offset future taxable income, subject to certain limitations.
Approximately $4,500,000 of this amount is available to reduce future income
tax provisions. The Company expects its future effective tax rate to
increase as these net operating loss carryovers are fully utilized.
The Company's net income before extraordinary gains was $6,501,000 in
1996 compared to net income of $4,102,000 in 1995, an increase of $2,399,000,
or 58.5%, primarily attributable to the increase in revenues achieved without
a proportionate increase in operating and selling, general and administrative
expenses. Earnings per common share directly related to operations
(excluding gains on sales of assets) totaled $0.43 in 1996, compared to $0.26
for 1995, an increase of 65.4%. Earnings per common share in 1996 also
included $0.05 related to the Company's fourth quarter sale of its investment
in Alliance Medical, Ltd. The Company reported extraordinary gains, net of
income taxes, in the fourth quarter of 1996 of approximately $6,300,000, or
$0.55 per common share, on early extinguishment of debt. In addition the
Company recorded earnings of $0.15 per common share related to the excess of
the carrying amount of the Series A 6% cumulative preferred stock repurchased
over the consideration paid and other charges. Earnings per common share
totaled $1.18 in 1996. The earnings per common share calculations reflect
preferred dividend requirements of $943,000 in 1996 and $930,000 for 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
- --Revenues for 1995 were $58,065,000, an increase of $190,000, or 0.3%, over
1994. This increase reflects a $1,557,000 increase in MRI revenue under fixed
fee contracts and an increase in CT and other revenue totaling $125,000,
offset by a $1,492,000, or 2.9%, decrease in scan-based MRI revenue. The
decrease in scan-based MRI revenue resulted from a 5.8% increase in scan
volume offset by an 8.2% decrease in average revenue realized per MRI scan.
Management attributes the volume increases 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. The average number
of scans per day for each MRI system remained steady at 5.8. Management
believes the decrease in average revenues realized per scan is the result of
continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payers, as well as obtaining contracts
with customers that have high scan volumes which justify lower scan prices.
The increase in MRI revenue under fixed fee contracts is a result of a higher
number of systems deployed in full-time temporary assignments, including
several older systems awaiting trade-in on new equipment.
11
<PAGE>
CT and other revenue increases are generally associated with the acquisition
of a mobile CT business and the gain on sale of equipment and a related
service contract, offset by lower other imaging revenue resulting from the
disposition of the Company's full-service imaging center in Fresno,
California as of September 30, 1995.
The Company operated 76 MRI systems at December 31, 1995, compared to 72
systems at December 31, 1994. The average number of MRI systems operated by
the Company was 74 in 1995, compared with 68.5 during 1994.
Operating expenses, excluding depreciation, totaled $28,342,000 in 1995,
a decrease of $2,751,000, or 8.8%, from 1994. Payroll and related employee
expenses decreased $302,000, or 2.4%, to $12,086,000 due to more efficient
staffing associated with cost reduction efforts and a larger number of
systems staffed by customer personnel in 1995. Maintenance and cryogen
contract expense declined $54,000, or 0.6%, to $9,313,000, as a result of an
increased number of newer, efficiently-operating systems in the fleet in 1995
and lower contract rates, partially offset by an increased number of systems.
Equipment rental expense decreased $931,000, or 38.1%, to $1,515,000, as
operating leases expired and the Company returned the related equipment to
the lessor. The leased equipment was generally replaced with low cost used
MRI systems purchased by the Company. Professional medical services,
supplies, site fees and repairs expenses collectively decreased $1,387,000,
or 31.6%, to $3,000,000, primarily as a result of reduced physician staffing
and other cost control efforts at the Company's full-service imaging center
in Fresno, California, which was disposed of effective September 30, 1995.
Depreciation expense during 1995 decreased $1,222,000, or 9.1%, from the
1994 level due to a lower amount of depreciable assets, resulting from
equipment write-downs in late 1994, partially offset by equipment additions
in 1995. Amortization expense in 1995 increased $402,000, or 42.6%, over 1994
because of the revision of the amortization period for goodwill from 40 to 25
years, effective October 1, 1994, and a small business acquisition in 1995.
Selling, general and administrative expenses were essentially unchanged
from the prior year. Payroll and related employee expenses increased
$627,000, or 15.6%, as a result of long-term deferred incentive compensation
costs and inflationary pressures. Bad debt expense decreased $590,000, or
96.9%, to $19,000 in 1995 as a result of revised billing practices and
continuing intensive collection efforts, primarily with respect to the
Company's retail accounts receivable.
Interest expense of $5,053,000 in 1995 was $5,705,000, or 53.0%, lower
than 1994 primarily as a result of the Company's comprehensive debt
restructuring, effective as of December 31, 1994, and lower average
outstanding debt balances in 1995.
The Company recorded special charges totaling $13,339,000 in the fourth
quarter of 1994 (see note 1 to financial statements). No such charges were
incurred in 1995. Including these charges, the loss before taxes totaled
($17,966,000) in 1994, compared to income before taxes of $4,829,000 in 1995,
an improvement of $22,795,000. This improvement resulted from significantly
reduced operating expenses (including depreciation), substantially lower
interest expense and the absence of special charges in 1995. Income before
taxes in 1995 increased $9,456,000 over 1994's loss before taxes without the
effects of special charges.
An income tax provision of $727,000 was recorded in 1995. The Company's
pre-tax income in 1995 is substantially offset by net operating loss
carryforwards; however, certain federal alternative minimum taxes and state
tax liabilities apply to this income, giving rise to the tax provision
recorded. In 1994, an income tax provision of $1,100,000 was recorded as a
result of federal alternative minimum tax and certain state income taxes
related to cancellation of debt income for tax purposes associated with the
Company's financial restructuring, as well as increased valuation allowances
for deferred tax assets. However, these reserved tax assets may be available
to reduce future income tax provisions. At December 31, 1995, the Company
had approximately $33,000,000 in federal net operating loss carryforwards
available to offset future taxable income, subject to certain limitations.
The Company's net income was $4,102,000 in 1995, compared to a net loss
of ($19,066,000) in 1994, an increase of $23,168,000, primarily attributable
to the increased operating profits, lower interest expense and absence of
special charges in 1995, as explained above. Net income in 1995 increased
$9,354,000 over 1994's net loss without the effect of the special charges and
related tax impact. This increase is attributable to 1995's higher operating
profit and lower interest expense. Earnings per common share totaled $.28 in
1995, compared to a loss per common share of ($2.68) in 1994 (which includes
($1.94) net loss per common share for special charges). The 1995 earnings
per common share calculation reflects preferred dividend requirements
totaling $930,000 which arose as part of the Company's financial
restructuring, effective December 31, 1994. There were no preferred dividend
requirements in 1994.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES -- At December 31, 1996, cash and short-term
investments were $10,867,000 compared to $11,128,000 at December 31, 1995,
and the aggregate of the Company's long-term debt and senior subordinated
debentures was $72,702,000 compared to $65,932,000 at December 31, 1995. 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 $21,731,000 in net cash from operating activities
during 1996, compared to $18,043,000 during 1995, an increase of $3,688,000,
or 20.4%. This cash flow was sufficient to meet the Company's debt service
obligations and capital expenditures not financed. During 1996, the Company
financed $23,889,000 of capital expenditures and repaid $13,630,000 of
long-term debt. In addition, the Company assumed $5,532,000 of long-term
debt in connection with the Royal acquisition and $1,135,000 of long-term
debt in connection with the acquisition of Sun MRI Services, Inc. (see
"Capital Expenditures" below). The Company believes its continuing cash flow
from operations as well as its cash balances and other credit sources will be
adequate for anticipated operating, debt service, preferred dividend and
capital expenditure requirements.
In November 1996, the Company arranged for the sale of all of its senior
notes by the original holders to new owners. In connection with the sale,
the Company prepaid $5,300,000 of the senior notes at a discount of
$1,810,000. In addition, the new holders and the Company agreed to remove or
modify various restrictive covenants contained in the note purchase agreement
governing the senior notes. The amended senior notes bear interest at a
stated annual rate of 7.5%, with interest payable monthly, and require
minimum mandatory quarterly principal payments of $150,000 in 1997 increasing
to $1,800,000 in 2003. Alternatively, the Company may (and currently expects
to) make voluntary monthly principal and interest payments of $335,000
through October 2002 to fully retire the notes. The Company may also prepay
the notes at any month end at specified discounts from their face amount. At
December 31, 1996 the Company's senior notes had a balance of $19,866,000.
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 is 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 lender become 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 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 connection with the Royal acquisition, the Company issued 3,876 shares
of a new Series C convertible preferred stock. The Series C convertible
preferred stock bears a dividend of 5% of its original liquidation value
($388,000) payable annually in cash and is redeemable at the Company's
option. Holders of Series C convertible preferred stock may convert their
stock into common stock at a price of $5 per common share.
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series C, 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 C, D or E convertible preferred
stock.
13
<PAGE>
CAPITAL EXPENDITURES -- The Company purchased 15 new high-field MRI systems
and upgraded 20 other MRI systems at a total approximate cost of $26,500,000
during 1996. Over 90% of this amount was financed by long-term
secured loans. During 1996 the Company also disposed of 15 less
technologically advanced mid-field MRI systems.
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. These transactions were primarily funded with $2,850,000 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.
The Company currently plans to purchase 18 new high-field MRI systems in
1997 and plans to upgrade several existing systems, subject to obtaining
related MRI service contracts with customers and obtaining financing for the
equipment acquisitions. The Company intends to use a combination of existing
cash reserves, cash flow from operations and long-term secured equipment
financing to finance its capital expenditures, although there can be no
assurance that such financing will be available to the Company. The Company
intends to continue focusing on acquiring state-of-the-art equipment while
disposing of older systems, and expects to dispose of most of its remaining
older systems during 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, or that consents from present lenders, if
required, could be obtained.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements:
<TABLE>
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and 1995 15
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 16
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 17-18
Consolidated Statements of Preferred Stock, Common Stock, Additional Paid-In Capital and
Accumulated Deficit for the years ended December 31, 1996, 1995 and 1994 19
Notes to Consolidated Financial Statements 20-28
Report of Independent Auditors 28
Quarterly Financial Data 29
</TABLE>
14
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31
DECEMBER 31, 1996 --------------------------
(NOTE 4) 1996 1995
----------------- ---- ----
<S> <C> <C> <C>
A S S E T S
Current assets:
Cash and short-term investments $ 10,867,000 $ 10,867,000 $ 11,128,000
Accounts receivable, net of allowance for
doubtful accounts of $513,000 in 1996 and
$367,000 in 1995 (NOTE 4) 8,889,000 8,889,000 5,583,000
Prepaid expenses 710,000 710,000 369,000
Other receivables 345,000 345,000 109,000
------------ ------------ ------------
Total current assets 20,811,000 20,811,000 17,189,000
Equipment, at cost (NOTE 4) 121,354,000 121,354,000 112,014,000
Less accumulated depreciation (43,735,000) (43,735,000) (52,368,000)
------------ ------------ ------------
77,619,000 77,619,000 59,646,000
Goodwill, net of accumulated amortization of
$7,568,000 in 1996 and $5,690,000 in 1995 27,990,000 27,990,000 23,971,000
Deposits and other assets 2,090,000 2,090,000 2,521,000
------------ ------------ ------------
Total assets $128,510,000 $128,510,000 $103,327,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,765,000 $ 1,765,000 $ 692,000
Accrued compensation and related expenses 3,465,000 3,465,000 2,310,000
Other accrued liabilities 7,441,000 6,341,000 5,025,000
Current portion of long-term debt (NOTE 4) 16,323,000 16,323,000 9,948,000
------------ ------------ ------------
Total current liabilities 28,994,000 27,894,000 17,975,000
Long-term debt, net of current portion (NOTE 4) 55,238,000 72,702,000 65,932,000
Other liabilities 2,029,000 2,029,000 596,000
Deferred income taxes (NOTE 3) 4,831,000 4,831,000 790,000
------------ ------------ ------------
Total liabilities 91,092,000 107,456,000 85,293,000
Commitments (NOTE 6)
Redeemable preferred stock, Series A, $.01 par value;
155,000 shares authorized; shares issued and
outstanding (at liquidation and redemption value) -
44,286 in 1996 and 155,000 in 1995 - 4,694,000 16,430,000
Convertible preferred stock, $.01 par value; 22,000
shares authorized; 3,876 shares (21,876 pro forma)
issued and outstanding (NOTE 5) 18,388,000 388,000 -
Common stock, $.01 par value; 25,000,000 shares
authorized; shares issued and outstanding -
10,913,388 in 1996 and 10,836,171 in 1995 (NOTE 5) 109,000 109,000 108,000
Additional paid-in capital 36,130,000 34,404,000 31,908,000
Accumulated deficit (17,209,000) (18,541,000) (30,412,000)
------------ ------------ ------------
Total liabilities and stockholders' equity $128,510,000 $128,510,000 $103,327,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
15
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $68,482,000 $58,065,000 $ 57,875,000
Costs and expenses:
Operating expenses, excluding depreciation 32,344,000 28,342,000 31,093,000
Depreciation expense 12,737,000 12,202,000 13,424,000
Selling, general and administrative expenses 8,130,000 6,294,000 6,284,000
Amortization expense, primarily goodwill 1,952,000 1,345,000 943,000
Interest expense, net of interest income
of $502,000 in 1996, $437,000 in
1995 and $253,000 in 1994 5,758,000 5,053,000 10,758,000
Asset impairment and other special charges - - 13,339,000
-------------- -------------- ---------------
Total costs and expenses 60,921,000 53,236,000 75,841,000
Income (loss) before income taxes and
extraordinary gains 7,561,000 4,829,000 (17,966,000)
Provision for income taxes (NOTE 3) 1,060,000 727,000 1,100,000
-------------- -------------- ---------------
Income (loss) before extraordinary gains 6,501,000 4,102,000 (19,066,000)
Extraordinary gains, net of taxes 6,300,000 - -
-------------- -------------- ---------------
Net income (loss) 12,801,000 4,102,000 (19,066,000)
Less: Preferred stock dividends 943,000 930,000 -
Add: Excess of carrying amount of preferred
stock repurchased over consideration paid 1,764,000 - -
-------------- -------------- ---------------
Income (loss) applicable to common stock $13,622,000 $ 3,172,000 $(19,066,000)
-------------- -------------- ---------------
-------------- -------------- ---------------
Weighted average common and common
equivalent shares outstanding 11,494,000 11,158,000 7,124,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Earnings per share:
Income before items below $ 0.48 $ 0.28 $ (2.68)
Excess of carrying amount of preferred
stock repurchased over consideration paid 0.15 - -
-------------- -------------- ---------------
Income (loss) before extraordinary gains 0.63 0.28 (2.68)
Extraordinary gains, net of taxes 0.55 - -
-------------- -------------- ---------------
Income (loss) applicable to common stock $ 1.18 $ 0.28 $ (2.68)
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 12,801,000 $ 4,102,000 $(19,066,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gains (6,300,000) - -
Depreciation and amortization 14,689,000 13,547,000 14,367,000
Amortization of deferred financing
charges 411,000 85,000 406,000
Distributions in excess of (undistributed)
income of investee (91,000) (262,000) 69,000
Special charges - - 13,339,000
Increase (decrease) in deferred income taxes 1,041,000 (173,000) 665,000
Gain on disposal of equipment - (335,000) -
Gain on sale of investment (750,000) - -
Changes in operating assets and liabilities:
Accounts receivable, net (2,474,000) 1,261,000 (527,000)
Prepaid expenses (306,000) (78,000) 167,000
Other receivables (49,000) (18,000) 151,000
Other assets (72,000) (96,000) (71,000)
Accounts payable, accrued compensation
and other accrued liabilities 2,115,000 (520,000) 3,344,000
Other liabilities 716,000 530,000 (60,000)
----------- ----------- -----------
Net cash provided by operating activities 21,731,000 18,043,000 12,784,000
INVESTING ACTIVITIES
Equipment purchases (26,510,000) (10,243,000) (20,093,000)
Decrease in deposits on equipment 264,000 448,000 232,000
Purchase of contracts and related assets of
Mobile M.R. Venture, Ltd. (455,000) - -
Purchase of common stock of Royal Medical Health
Services, Inc. and related assets, 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 contracts and related assets of
Advanced Healthcare Diagnostic Service, Inc. - (412,000) -
Proceeds from sale of investment 968,000 - -
Proceeds from sale of equipment - 2,418,000 -
----------- ----------- -----------
Net cash used in investing activities (27,936,000) (7,789,000) (19,861,000)
</TABLE>
17
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
FINANCING ACTIVITIES
Payment of preferred stock dividends (1,594,000) - -
Repurchase of senior subordinated debentures (5,714,000) - -
Partial prepayment of senior notes (3,537,000) - -
Repurchase of Series A preferred stock (6,307,000) - -
Principal payments on long-term debt (13,630,000) (12,763,000) (11,141,000)
Proceeds from long-term debt 23,889,000 11,116,000 12,276,000
Proceeds from senior bridge loan 12,872,000 - -
Increase in deferred financing charges (76,000) (54,000) -
Proceeds from exercise of employee stock options 41,000 97,000 -
------------ ------------ --------------
Net cash provided by (used in) financing
activities 5,944,000 (1,604,000) 1,135,000
------------ ------------ --------------
Net increase (decrease) in cash and short-
term investments (261,000) 8,650,000 (5,942,000)
Cash and short-term investments at
beginning of year 11,128,000 2,478,000 8,420,000
------------ ------------ --------------
Cash and short-term investments at
end of year $ 10,867,000 $ 11,128,000 $ 2,478,000
------------ ------------ --------------
------------ ------------ --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 5,562,000 $ 5,483,000 $ 8,690,000
Income taxes 378,000 629,000 104,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Net book value of assets exchanged $ 3,521,000 $ 1,104,000 $ 2,291,000
Issuance of common and Series A
preferred stock in connection with
debt restructuring - - 18,125,000
Preferred stock dividend accrued 266,000 930,000 -
Excess of carrying amount of preferred stock repurchased
over consideration paid 1,764,000 - -
</TABLE>
During the 1996 second quarter, the Company purchased all of the common stock of
Royal Medical Health Services, Inc. and related assets for cash consideration of
approximately $1,914,000. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired $ 8,601,000
Cash paid for common stock (1,914,000)
-----------
Liabilities assumed $ 6,687,000
-----------
-----------
As additional consideration for the above purchase, the Company issued
convertible preferred stock in the amount of $388,000 and common stock
warrants valued at $212,000. As a result of this transaction, the Company
recorded goodwill of approximately $3,945,000.
During the 1996 third quarter, the Company purchased all of the common stock
of Sun MRI Services, Inc. for cash consideration of approximately $391,000.
In connection with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 1,602,000
Cash paid for common stock (391,000)
-----------
Liabilities assumed $ 1,211,000
-----------
-----------
SEE ACCOMPANYING NOTES.
18
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF PREFERRED
STOCK, COMMON STOCK, ADDITIONAL PAID-IN-CAPITAL
AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Series A Redeemable
Preferred Stock
-------------------------------
Shares Amount
------ ------
<S> <C> <C>
Balance at December 31, 1993 - $ -
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) 155,000 15,500,000
Net loss for year ended December 31, 1994 - -
------------ ------------
Balance at December 31, 1994 155,000 15,500,000
Exercise of common stock options - -
Preferred stock dividends - 930,000
Net income for year ended December 31, 1995 - -
------------ ------------
Balance at December 31, 1995 155,000 16,430,000
Payment of 1995 preferred stock dividends - (930,000)
Exercise of common stock options - -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. - -
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - -
Preferred stock dividends - 930,000
Payment of 1996 preferred stock dividends - (664,000)
Repurchase of Series A preferred stock (110,714) (11,072,000)
Net income for year ended December 31, 1996 - -
------------ ------------
Balance at December 31, 1996 44,286 $ 4,694,000
------------ ------------
------------ ------------
<CAPTION>
Series C Convertible
Preferred Stock
---------------
Shares Amount
------- ------
<S> <C> <C>
Balance at December 31, 1993 - $ -
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) - -
Net loss for year ended December 31, 1994 - -
------ --------
Balance at December 31, 1994 - -
Exercise of common stock options - -
Preferred stock dividends - -
Net income for year ended December 31, 1995 - -
------ --------
Balance at December 31, 1995 - -
Payment of 1995 preferred stock dividends - -
Exercise of common stock options - -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. 3,876 388,000
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - -
Preferred stock dividends - -
Payment of 1996 preferred stock dividends - -
Repurchase of Series A preferred stock - -
Net income for year ended December 31, 1996 - -
------ --------
Balance at December 31, 1996 3,876 $388,000
------ --------
------ --------
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 7,114,371 $ 71,000 $29,356,000 $(14,518,000)
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) 3,500,000 35,000 2,457,000 -
Net loss for year ended December 31, 1994 - - - (19,066,000)
---------- -------- ----------- ------------
Balance at December 31, 1994 10,614,371 106,000 31,813,000 (33,584,000)
Exercise of common stock options 221,800 2,000 95,000 -
Preferred stock dividends - - - (930,000)
Net income for year ended December 31, 1995 - - - 4,102,000
---------- -------- ----------- ------------
Balance at December 31, 1995 10,836,171 108,000 31,908,000 (30,412,000)
Payment of 1995 preferred stock dividends - - - -
Exercise of common stock options 77,217 1,000 39,000 -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - - 259,000 -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - - 222,000 -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. - - - -
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - - 212,000
Preferred stock dividends - - - (930,000)
Payment of 1996 preferred stock dividends - - - -
Repurchase of Series A preferred stock - - 1,764,000 -
Net income for year ended December 31, 1996 - - - 12,801,000
---------- -------- ----------- ------------
Balance at December 31, 1996 10,913,388 $109,000 $34,404,000 $(18,541,000)
---------- -------- ----------- ------------
---------- -------- ----------- ------------
</TABLE>
See ACCOMPANYING NOTES.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF THE COMPANY -- Alliance Imaging, Inc. (the Company) provides
outsourced radiology services and high technology diagnostic imaging systems
and related technical support services, as well as management and information
services, to hospitals and other health care providers. Diagnostic imaging
services are provided on both a mobile, shared-user basis as well as on a
full-time basis to single customers. The Company operates entirely within
the United States and is one of the largest providers of magnetic resonance
imaging (MRI) and computed tomography (CT) services in the country. The
equipment used by the Company is sophisticated and subject to accelerated
obsolescence in the event of significant technological change.
BASIS OF FINANCIAL STATEMENT PRESENTATION -- The accompanying consolidated
financial statements include the accounts of Alliance Imaging, Inc. and its
consolidated subsidiaries. Significant intercompany transactions have been
eliminated. The Company has an interest in a partnership whose operations
are similar to the Company's. A subsidiary of the Company owns 49% of this
partnership as a general and limited partner; this partnership is accounted
for under the equity method.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
DEBT RESTRUCTURING -- Effective December 31, 1994, the Company completed a
comprehensive debt restructuring with the holders of its senior notes and
senior subordinated debentures. The restructuring included a reduction in
interest rates, an exchange of a portion of the debentures for issuance of
redeemable preferred and common stock and the extension of the repayment
terms on all of the remaining debt. These transactions were accounted for as
a troubled debt restructuring. Supplemental loss per common share for the
year ended December 31, 1994, based on historical loss per share adjusted to
give effect to the issuance of common shares in exchange for debt in the debt
restructuring and a reduction of related interest expense assuming the
exchange had occurred on January 1, 1994, is ($1.77) based on 10,614,000
weighted average common shares outstanding.
SPECIAL CHARGES -- During the fourth quarter of 1994, the Company recorded
special charges totaling $13,339,000 related to an equipment exchange
transaction, the impairment of certain equipment, debt restructuring and
employee severances. The Company entered into an agreement with one of its
major equipment vendors to exchange several older MRI scanners for more
technologically advanced scanners which had been refurbished. The fair value
of the assets received, net of related debt incurred, was less than the net
book value of the assets exchanged, resulting in a non-cash pre-tax charge of
$2,156,000. The Company also evaluated the carrying values of all of its
remaining older mid-field mobile MRI scanners. An impairment analysis of
these scanners resulted in an $8,670,000 non-cash pre-tax charge to reduce
the net book values to their estimated current market value. The Company
then identified assets to be held for sale or other disposition and recorded
a non-cash pre-tax charge of $1,831,000 to write these assets down to their
estimated net realizable value on disposition. In addition, the Company
recorded pre-tax special charges of $440,000 related to debt restructuring
and $242,000 for employee severances.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS -- The Company considers short-term
investments with original maturities of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE -- The Company provides shared and single-user
diagnostic imaging equipment and technical support services to the health
care industry and directly to patients on an outpatient basis. Substantially
all of the Company's accounts receivable are due from hospitals, other health
care providers and health insurance providers located throughout the United
States. Services are generally provided pursuant to long-term contracts and
directly to patients, and generally collateral is not required. Receivables
generally are collected within industry norms for third-party payers. Credit
losses are provided for in the consolidated financial statements.
20
<PAGE>
EQUIPMENT -- Equipment is stated at cost and is generally depreciated using
the straight-line method over an initial estimated life of three to eight
years to an estimated residual value, generally approximating between five
and 20 percent of original cost. If the Company continues to operate the
equipment beyond its initial estimated life, the residual value is then
depreciated to a nominal salvage value over three years.
Routine maintenance and repairs are charged to expense as incurred. Major
repairs and purchased software and hardware upgrades, which extend the life
or add value to the equipment, are capitalized and depreciated over the
remaining useful life.
With the exception of a small amount of office furniture and equipment,
substantially all of the property owned by the Company relates to diagnostic
imaging equipment, tractors and trailers used in the business.
GOODWILL -- The Company amortizes goodwill over a period of one to 25 years.
For acquired entities, the amortization period selected is primarily based
upon the estimated life of the customer contracts, including expected
renewals, and related other assets acquired, not to exceed 20 years. The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS No. 121), in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles held and used by
the Company to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test is to be performed at the lowest level
at which undiscounted net cash flows can be directly attributable to
long-lived assets. The Company adopted SFAS No. 121 in the first quarter of
1996 with no material effect on the Company's financial statements.
REVENUE RECOGNITION -- The majority of the Company's revenues are derived
directly from health care providers. To a lesser extent, revenues are
generated from direct billings to patients or their medical payers which are
recorded net of contractual discounts and other arrangements for providing
services at less than established patient billing rates. Net revenues from
direct patient billing amounted to approximately 8%, 10% and 13% of revenues
in the years ended December 31, 1996, 1995 and 1994, respectively. No single
customer accounted for 3% or more of consolidated revenues in each of the
three years in the period ended December 31, 1996. All revenues are
recognized at the time the service is performed.
INCOME TAXES -- The Company calculates deferred taxes and related income
tax expense using the liability method. This method determines deferred
taxes by applying the current tax rate to the cumulative temporary
differences between recorded carrying amounts and the corresponding tax basis
of assets and liabilities. A valuation allowance is established for deferred
tax assets unless their realization is considered more likely than not. The
Company's provision for income taxes is the sum of the change in the balance
of deferred taxes between the beginning and the end of the period plus income
taxes currently payable.
INVESTMENT TAX CREDITS -- The Company accounts for investment tax credits
under the flow through method.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- FASB Statement No. 107,
"Disclosures about Fair Value of Financial Instruments," requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimated cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
LONG-TERM DEBT: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental rates for similar types of borrowing arrangements.
21
<PAGE>
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and short-term investments $10,867,000 $10,867,000 $11,128,000 $11,128,000
Long-term debt 89,025,000 84,150,000 75,880,000 61,500,000
Redeemable preferred stock 4,694,000 2,788,000 16,430,000 (See Below)
</TABLE>
As more fully discussed in Note 4, the Company has repurchased all of its
redeemable preferred stock. The Company paid approximately $2,788,000 to
retire the December 31, 1996 balance and consequently believes $2,788,000
reasonably approximates the fair value of its redeemable preferred stock
balance at December 31, 1996. The original fair value of the Company's
redeemable preferred stock of $15,500,000 was determined by independent
valuation consultants as of December 31, 1994. Although it was not
practicable to reevaluate the estimated fair value of the preferred stock as
of December 31, 1995 because of the lack of a quoted market price and the
inability to estimate fair value without incurring excessive costs, the
Company believes the $16,430,000 carrying amount at December 31, 1995, which
represents the original fair value of the preferred stock increased for the
1995 cumulative dividend, reasonably approximates its fair value at that date.
EARNINGS PER COMMON SHARE -- Earnings per common share have been computed
based on the weighted average number of shares outstanding during each year
and the assumed exercise of dilutive stock options and warrants less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of the Company's common stock.
3. INCOME TAXES
The provision for income taxes shown in the consolidated statements of
operations consists of the following:
1996 1995 1994
---- ---- ----
Current:
Federal $ 2,958,000 $ 960,000 $ -
State 735,000 970,000 120,000
----------- ----------- ----------
3,693,000 1,930,000 120,000
Utilization of net
operating loss carryovers (2,649,000) (1,029,000) -
----------- ----------- ----------
1,044,000 901,000 120,000
Deferred:
Federal - (181,000) 181,000
State 731,000 7,000 799,000
----------- ----------- ----------
731,000 (174,000) 980,000
----------- ----------- ----------
$ 1,775,000 $ 727,000 $1,100,000
----------- ----------- ----------
----------- ----------- ----------
The provision for income taxes applicable to income before extraordinary
gains and attributed to the extraordinary gains is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision for taxes on income before extraordinary gains:
Current $ 329,000 $ 901,000 $ 120,000
Deferred 731,000 (174,000) 980,000
---------- ---------- ----------
Total provision for taxes on income before extraordinary
gains 1,060,000 727,000 1,100,000
Provision for taxes on extraordinary gains (current) 715,000 - -
---------- ---------- ----------
$1,775,000 $ 727,000 $1,100,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
22
<PAGE>
Significant components of the Company's deferred tax assets and (liabilities) at
December 31 are as follows:
1996 1995
---- ----
DEFERRED TAX LIABILITIES:
Equipment basis differences $(12,981,000) $(10,738,000)
Cancellation of indebtedness (2,258,000) -
------------ -----------
Total deferred tax liabilities (15,239,000) (10,738,000)
DEFERRED TAX ASSETS:
Net operating losses 9,900,000 12,549,000
Cancellation of indebtedness - 3,265,000
Accounts receivable 266,000 266,000
Basis differences associated with other assets 2,105,000 1,015,000
Other 330,000 1,174,000
------------ -----------
Total deferred tax assets 12,601,000 18,269,000
Valuation allowance (2,193,000) (8,631,000)
------------ -----------
Net deferred tax assets 10,408,000 9,638,000
------------ -----------
Net deferred taxes $ (4,831,000) (1,100,000)
Current deferred tax liability - 310,000
------------ -----------
Noncurrent deferred tax liability $ (4,831,000) $ (790,000)
------------ -----------
------------ -----------
The net change in the Company's valuation allowance on deferred tax
assets during the year ended December 31, 1996 totaled $4,664,000 and
$1,774,000 for federal and state purposes, respectively.
At December 31, 1996, for federal regular income tax purposes, the
Company had approximately $26,400,000 of operating loss carryovers expiring
through 2006. Due to a change in ownership in November 1991, utilization of
$19,700,000 of these net operating losses is subject to an annual limitation
of approximately $2,200,000. Any unutilized annual limitation may be carried
forward to future years. The annual limitation may be increased if built-in
gains which existed on the date of the change in ownership are recognized by
sale or other disposal of equipment. As a result of these limitations, the
Company has approximately $6,700,000 of operating loss carryovers available
in 1997 for federal regular income tax purposes. Future changes in the
ownership of the Company could result in additional limitations on the
utilization of its operating loss carryovers.
A reconciliation of the expected total provision for income taxes,
computed using the federal statutory rate on income before extraordinary
gains, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed expected provision (benefit) $2,646,000 $ 1,690,000 $(6,288,000)
State income taxes, net of federal
benefit 572,000 313,000 919,000
Amortization of goodwill 487,000 458,000 310,000
Alternative minimum tax 182,000 34,000 181,000
Increase (decrease) in valuation allowance
on federal deferred tax assets (2,798,000) (1,710,000) 5,936,000
Other (29,000) (58,000) 42,000
---------- ---------- -----------
$1,060,000 $ 727,000 $ 1,100,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
23
<PAGE>
4. INDEBTEDNESS
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Obligations to lending institutions, secured by equipment,
due in monthly installments through December 2001
with weighted average interest rates of 9.77% and
9.62% at December 31, 1996 and 1995, respectively $51,695,000 $32,547,000
Senior notes, secured by equipment (SEE BELOW) 19,866,000 26,700,000
Senior bridge loan, due March 31, 1997 if not
converted into preferred stock (SEE BELOW),
interest at 10% payable at maturity 12,872,000 -
Senior subordinated debentures, unsecured, due
in quarterly installments through 2005 with an
effective interest rate of 0% (7.5% stated
interest rate) 4,592,000 16,633,000
----------- -----------
89,025,000 75,880,000
Less current portion 16,323,000 9,948,000
----------- -----------
$72,702,000 $65,932,000
----------- -----------
----------- -----------
</TABLE>
Installment obligations to lending institutions and the senior notes are
collateralized by equipment with a net book value of $77,339,000 at December
31, 1996.
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 is convertible into 18,000 shares of a new
Series D convertible preferred stock (SEE NOTE 5). 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 redeemable preferred stock at a discount (plus
related accrued interest and dividends). As a result, in the fourth quarter
of 1996, the Company recorded an extraordinary gain of $4,935,000, net of
taxes of $560,000, from this early extinguishment of debt. In addition, the
excess of carrying amount of preferred stock repurchased over consideration
paid and other charges amounted to $1,764,000, which has been recognized as
an increase in additional paid-in capital. 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). Accordingly, in January 1997, the Company recorded
an extraordinary gain of $1,332,000, net of taxes of $920,000, from this
early extinguishment of debt. The excess of carrying amount of preferred
stock repurchased over consideration paid in January 1997 amounted to
$1,906,000.
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 lender become convertible into a new Series E
preferred stock on or after January 1, 1998 (SEE NOTE 5). The effects of
the conversion of the senior bridge loan into Series D convertible preferred
stock and the January 2, 1997 senior bridge loan and related securities
repurchase transactions, are presented on a pro forma basis as of December
31, 1996 in the accompanying pro forma consolidated balance sheet.
Supplemental earnings per share for the year ended December 31, 1996, based
on historical earnings per share adjusted to give effect to (1) the issuance
of the Series D preferred stock, and (2) the use of the $18 million proceeds
therefrom on a pro rata basis to repurchase the debentures and Series A
redeemable preferred stock repurchased in December 1996 and January 1997, and
assuming the transactions had occurred on January 1, 1996, is $0.45 per
share. This calculation ignores amounts reported in the historical results
for 1996 as gains arising from the repurchase of the senior notes and
debentures and as the earnings per share benefit arising from the excess of
the carrying value of the preferred stock repurchased over the consideration
paid. Therefore, this supplemental earnings per share calculation is most
comparable to the $0.48 per share "income before items below" reported in the
Company's 1996 historical results of operations.
24
<PAGE>
In November 1996, the Company arranged for the sale of all of its senior
notes by the original holders to new owners. In connection with the sale,
the Company prepaid $5,300,000 of the senior notes at a discount and recorded
an extraordinary gain of $1,365,000, net of taxes of $155,000, from this
early extinguishment of debt. In addition, the new holders and the Company
agreed to remove or modify various restrictive covenants contained in the
note purchase agreement governing the senior notes. The amended senior notes
bear interest at a stated annual rate of 7.5%, with interest payable monthly,
and require minimum mandatory quarterly principal payments of $150,000 in
1997 increasing to $1,800,000 in 2003. Alternatively, the Company may make
voluntary monthly principal and interest payments of $335,000 through October
2002 to fully retire the notes. The Company may also prepay the notes at any
month end at specified discounts from their face amount. The senior notes
agreement contains limitations on equipment additions, incurrence of debt and
other similar items.
The carrying amount of long-term debt as of December 31, 1996 is due as
follows (assuming voluntary prepayments of the Company's senior notes, and
excluding the senior bridge loan, which was converted to preferred stock in
March 1997, and the debentures refinanced thereby):
Year ending December 31:
1997 $16,323,000
1998 17,263,000
1999 14,914,000
2000 11,403,000
2001 8,097,000
2002 3,561,000
-----------
$71,561,000
-----------
-----------
Of the Company's total indebtedness at December 31, 1996, $83,552,000 is
an obligation of the Company and $5,473,000 is an obligation of the Company's
consolidated subsidiaries.
The Company has a $3 million revolving line of credit with a bank. The
line bears interest at the bank's prime rate (8.25% at December 31, 1996 and
8.5% at December 31, 1995) plus two percent, with a commitment fee of 0.375%
per year on the unused balance, and is secured by substantially all of the
Company's accounts receivable. The line of credit had not been utilized
through December 31, 1996.
5. PREFERRED AND COMMON STOCK
PREFERRED STOCK -- The Company is authorized to issue 1,000,000 shares of
preferred stock, undesignated as to series. The Board of Directors has the
authority to establish the voting powers, designations, preferences and other
special rights for each series of preferred stock issued.
In connection with the Company's debt refinancing effective December 31,
1996 (SEE NOTE 4), 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 (subject to increase, to a
maximum of 8%, under certain circumstances). 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 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 connection with the Royal acquisition (NOTE 8), the Company issued
3,876 shares of a new Series C convertible preferred stock. The Series C
convertible preferred stock bears a dividend of 5% of its original
liquidation value ($388,000) payable annually in cash and is redeemable at
the Company's option. Holders of Series C convertible preferred stock may
convert their stock into common stock at a price of $5 per common share.
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series C, 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 of Series C, D or E convertible preferred
stock.
25
<PAGE>
The holders of shares of preferred stock are not entitled to any voting
rights with respect to any matters voted upon by the common stockholders.
However, a majority of preferred stockholders (with each series voting as a
single class) must approve certain corporate transactions including the
authorization of additional classes or series of stock ranking prior to their
stock, any increase in the number of authorized shares of their preferred
stock series, any amendment to the terms of such preferred stock series and
similar actions.
STOCK OPTIONS AND AWARDS -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recognized.
The Company's 1991 Stock Option Plan provides that up to 2,000,000 shares
may be granted to management and key employees. Options are granted at their
fair market value at the date of grant. All options granted have 10 year
terms and vest and become fully exercisable at the end of 3 to 4 years of
continued employment. The weighted-average remaining contractual life of
options outstanding as of December 31, 1996 is 9.6 years. The following
table summarizes the activity under this plan.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ ----------------
Outstanding at December 31, 1993 509,000 $3.5423
Granted 738,400 0.4375
Canceled (505,000) 3.5535
-------- -------
Outstanding at December 31, 1994 742,400 0.4375
Granted 32,000 2.1172
Exercised (221,800) 0.4375
Canceled (11,600) 0.4375
-------- -------
Outstanding at December 31, 1995 541,000 0.5369
Granted 489,200 3.5625
Exercised (77,217) 0.5151
Canceled (2,000) 1.6875
-------- -------
Outstanding at December 31, 1996 950,983 $2.0926
-------- -------
-------- -------
At December 31, 1996, 430,700 of these options were exercisable at
$0.4375, 121,050 were exercisable at $3.5625, and 12,667 were exercisable at
prices between $1.6875 and $2.375.
In 1991, options for 30,000 shares not covered by the 1991 Stock Option
Plan were granted to three non-employee directors at an exercise price of
$8.25 per share. In 1993, options for 40,000 shares were granted at exercise
prices ranging from $1.125 to $2.50 per share. In 1995, options for an
additional 10,000 shares were granted at an exercise price of $1.6875 per
share. These options vest over a four year period. At December 31, 1996,
options for 40,000 shares had been canceled and options for 30,000 shares
were exercisable.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated as of the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996: risk-free interest rate of 5.72%; no
dividend yield; volatility factor of the expected market price of the
Company's common stock of .43; and a weighted-average expected life of the
option of 7 years. The weighted-average fair value of options granted during
1996 is $1.93.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
26
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' maximum vesting period.
The Company's pro forma information for the year ended December 31, 1996
follows:
Pro forma net income $12,577,000
Pro forma earnings per share $1.17
At December 31, 1996 the Company had 328,900 warrants outstanding to
purchase common stock with exercise prices ranging from $2.50 to $5.00 per
share over terms of three to ten years. The weighted-average grant-date fair
value of the warrants was $2.13.
6. COMMITMENTS
The Company has contracts with its equipment vendors for comprehensive
maintenance and cryogen coverage for its MRI and CT systems. The contracts
are between one and five years and extend through December 2001, but may be
canceled by the Company under certain circumstances. Contract payments are
approximately $9,200,000 per year. At December 31, 1996, the Company had
binding equipment purchase commitments totaling approximately $29,200,000.
The Company leases office and warehouse space and certain equipment under
non-cancelable operating leases. The office and warehouse leases generally
call for minimum monthly payments plus maintenance and inflationary
increases. The future minimum payments under such leases are as follows:
Year ending December 31:
1997 $1,478,000
1998 960,000
1999 668,000
2000 141,000
2001 34,000
----------
$3,281,000
----------
----------
The Company's total rental expense, which includes short-term equipment
rentals, for the years ended December 31, 1996, 1995 and 1994 was $3,380,000,
$1,923,000 and $2,781,000, respectively.
7. 401(K) SAVINGS PLAN
The Company established a 401(k) Savings Plan in January 1990. All employees
of the Company are eligible to participate after a six month waiting period.
Employees may contribute between 1% and 15% of their annual compensation.
The Company matches 33.3 cents for every dollar of employee contributions up
to 7% of their compensation, subject to the limitations imposed by the
Internal Revenue Code. The Company may also make discretionary contributions
depending on profitability. The Company incurred and charged to expense
$157,000, $140,000 and $119,000 during 1996, 1995 and 1994, respectively,
related to the plan.
8. ACQUISITION
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania.
Like the Company, Royal is a provider of comprehensive MRI services. The
Company issued 3,876 shares of Series C convertible preferred stock valued at
$388,000, common stock warrants valued at $212,000, and paid $1,914,000 in
cash as consideration for the acquisition of Royal and certain related
assets. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Royal have been included in the
Company's consolidated financial statements from the date of acquisition.
The unaudited pro forma information below presents combined results of
operations as if the Royal acquisition had occurred at the beginning of the
respective periods presented. The unaudited pro forma information is not
necessarily indicative of the results of operations of the combined company
had the acquisition actually occurred at the beginning of the periods
presented, nor is it necessarily indicative of future results.
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
---- ----
Revenues $70,518,000 $63,621,000
Income before extraordinary gains 6,487,000 4,492,000
Net income 12,787,000 4,492,000
Earnings per share:
Income before extraordinary gains $0.48 $0.32
Income applicable to common stock $1.18 $0.32
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Imaging, Inc.
We have audited the accompanying consolidated balance sheets of Alliance
Imaging, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of operations, cash flows and preferred stock, common stock,
additional paid-in capital and accumulated deficit for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Alliance Imaging, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 21, 1997, except
for Note 4, as to which the
date is March 26, 1997
28
<PAGE>
ALLIANCE IMAGING, INC.
QUARTERLY FINANCIAL DATA
Summarized quarterly unaudited financial data for the years ended December
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
March 31,1996 June 30, 1996 September 30, 1996 December 31, 1996
------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues $14,686,000 $16,616,000 $17,795,000 $19,385,000
Income before income taxes and
extraordinary gains 1,603,000 2,044,000 2,359,000 1,555,000
Extraordinary gains, net of taxes - - - 6,300,000
Net income 1,364,000 1,738,000 1,949,000 7,750,000
Earnings per common share:
Income before items below $ 0.10 $ 0.13 $ 0.15 $ 0.10
Excess of carrying amount of
preferred stock repurchased
over consideration paid - - - 0.15
------- ------- ------- -------
Income (loss) before
extraordinary gains $ 0.10 $ 0.13 $ 0.15 $ 0.25
Extraordinary gains, net - - - 0.55
------- ------- ------- -------
Income applicable to common
stock $ 0.10 $ 0.13 $ 0.15 $ 0.80
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
March 31,1995 June 30, 1995 September 30, 1995 December 31, 1995
------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues $14,481,000 $14,766,000 $15,058,000 $13,760,000
Income before income taxes 1,193,000 1,316,000 1,701,000 619,000
Net income 1,021,000 1,112,000 1,447,000 522,000
Net income per common share $ .07 $ .08 $ .11 $ .02
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A listing of the Consolidated Financial Statements, related notes and
Report of Independent Auditors is set forth in Item 8 of this report on Form
10-K.
2. Financial Statement Schedules:
The following Financial Statement Schedule for the years ended December 31,
1996, 1995 and 1994 is set forth on page 37 of this report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is
not present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
Consolidated Financial Statements and related notes for the year ended
December 31, 1996.
3. Index to Exhibits:
EXHIBIT NO. NOTE DESCRIPTION
- ----------- ---- -----------
3.1 (21) Restated Certificate of Incorporation of Alliance
Imaging, Inc.
3.2 (1) By-Laws of Alliance Imaging, Inc., 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.
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.
31
<PAGE>
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.
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 Redeemable
Preferred Stock.
4.13 (21) Amended Certificate of Designation concerning the
Registrant's Series E 4% Cumulative 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.
9.1 (1) Amended and Restated Voting Trust Agreement between
Donaldson, Lufkin & Jenrette Capital Corporation and
Meridian Trust Company dated December 29, 1988.
10.4 (20) Amended and Restated 1991 Stock Option Plan of Alliance
Imaging, Inc., including forms of agreement used
thereunder.
10.16 (1) Form of Indemnification Agreement between Alliance
Imaging, Inc. and its directors and/or officers.
10.18 (2) Lease Agreement dated September 13, 1991, by and
between Alliance Imaging, Inc. and Crestview Partners.
10.20 (5) Georgia Magnetic Imaging Center, Ltd. Limited
Partnership Agreement dated as of March 22, 1985.
32
<PAGE>
10.20.1 (5) Amendment to Georgia Magnetic Imaging Center, Ltd.
Limited Partnership Agreement dated as of July 1, 1993.
10.24 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Richard N. Zehner.
10.25 (7) Employment Agreement dated as of September 9, 1993,
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 (7) Employment Agreement dated as of September 9, 1993,
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.
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 (17) Long-Term Executive Incentive Plan dated as of March
28, 1995, adopted in final form November 28, 1995.
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.
33
<PAGE>
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 15, 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.
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.
23 (21) Consent of Independent Auditors.
- ------------------------
(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.
(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.
34
<PAGE>
(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 31, 1996.
(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) Filed herewith.
(b) Reports on Form 8-K in the fourth quarter of 1996:
None filed for the quarter ended December 31, 1996
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 31, 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 March 31, 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/VINCENT S. PINO Executive Vice President,
- ------------------------- Chief Operating Officer and Director
Vincent S. Pino
/S/TERRENCE M. WHITE Senior Vice President, Chief Financial Officer
- ------------------------- and Secretary (Principal Financial Officer)
Terrence M. White
/S/MICHAEL W. GRISMER Controller (Principal Accounting Officer)
- -------------------------
Michael W. Grismer
/S/JAMES E. BUNCHER Director
- -------------------------
James E. Buncher
/S/ROBERT B. WALEY-COHEN Director
- -------------------------
Robert B. Waley-Cohen
/S/JOHN C. WALLACE Director
- -------------------------
John C. Wallace
36
<PAGE>
ALLIANCE IMAGING, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
Beginning Charged to (Bad Debt at End
of Period Expense Write-offs) of Period
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for Doubtful Accounts $ 367,000 $ 567,000 $ (421,000) $ 513,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Year ended December 31, 1995
Allowance for Doubtful Accounts $ 388,000 $ -- $ (21,000) $ 367,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Year ended December 31, 1994
Allowance for Doubtful Accounts $ 360,000 $ 609,000 $ (581,000) $ 388,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
37
<PAGE>
Page 1
RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLIANCE IMAGING, INC.
a Delaware corporation
Alliance Imaging, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. That the name of this corporation is Alliance Imaging,
Inc. The corporation was incorporated under the same name in the State of
Delaware on May 27, 1987.
2. That the Restated Certificate of Incorporation attached
hereto as EXHIBIT A (the "Restated Certificate of Incorporation") merely
restates and integrates and does not further amend the provisions of this
corporation's certificate of incorporation, as heretofore amended and
supplemented, and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation.
3. That a Certificate of Elimination has been filed with
respect to this corporation's Series A 6.0% Cumulative Preferred Stock and
Series B Convertible Preferred Stock.
4. That the Certificates of Designation with respect to
the surviving and current Preferred Stock of this corporation as set forth in
Article FOUR, Section (ii) of the Restated Certificate of Incorporation are
attached to the Restated Certificate of Incorporation as ANNEX 1, ANNEX 2 and
ANNEX 3.
5. That the Restated Certificate of Incorporation was duly
adopted by resolution of the Board of Directors in accordance with Section
245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this
Restated Certificate of Incorporation to be signed by its Secretary this
25 day of March, 1997.
ALLIANCE IMAGING, INC.
By: ___________________________________
Terrence M. White, Secretary
<PAGE>
Page 1
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
ALLIANCE IMAGING, INC.
a Delaware Corporation
ONE: The name of this corporation is Alliance Imaging, Inc.
TWO: The address of this corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent
at such address is The Corporation Trust Company.
THREE: The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law
("DGCL").
FOUR: The total number of shares of all classes of stock
which this corporation shall have authority to issue is Twenty-Six Million
(26,000,000), consisting of:
(i) Twenty-Five Million (25,000,000) shares of
Common Stock of the par value of one cent ($.01) each (hereinafter referred
to as "Common Stock"); and
(ii) One Million (1,000,000) shares of Preferred
Stock of the par value of one cent ($.01) each (hereinafter referred to as
"Preferred Stock"), of which the indicated series are designated as follows:
(a) Four Thousand (4,000) shares of Series C
5% Cumulative Convertible Redeemable Preferred Stock of the par value of one
cent ($.01) each;
(b) Eighteen Thousand (18,000) shares of
Series D 4% Cumulative Redeemable Convertible Preferred Stock of the par
value of one cent ($.01) each; and
(c) Nine Thousand (9,000) shares of Series E
4% Cumulative Redeemable Convertible Preferred Stock of the par value of
one cent ($.01) each.
A. COMMON STOCK
1. Except where otherwise provided by law, by this
Certificate
<PAGE>
Page 2
of Incorporation, or by resolution of the Board of Directors pursuant to this
Article FOUR, the holders of the Common Stock issued and outstanding shall
have and possess the exclusive right to notice of stockholders' meetings and
the exclusive voting rights and powers.
2. Subject to all of the rights of the Preferred
Stock, dividends may be paid on the Common Stock, as and when declared by the
Board of Directors, out of any funds of this corporation legally available
for the payment of such dividends.
B. PREFERRED STOCK
The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in one or more series, and by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of
any such holders is required pursuant to the certificate or certificates
establishing the series of Preferred Stock.
FIVE: The following provisions are inserted for the
management of the business and the conduct of the affairs of this
corporation, and for further definition, limitation and regulation of the
powers of this corporation and of its directors and stockholders:
A. The business and affairs of this corporation shall
be managed by or under the direction of the Board of Directors. In addition
to the powers and authority expressly conferred upon them by the DGCL or by
this Certificate of Incorporation or the Bylaws of this corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by this corporation.
B. The Board of Directors may adopt, amend or repeal
the Bylaws of this corporation.
C. Election of directors need not be by written
ballot.
SIX: The officers of this corporation shall be chosen in
such a manner, shall hold their offices for such terms and shall carry out
such duties as are determined solely by the Board of Directors, subject to
the right of the Board of Directors to remove any officer or officers at any
time with or without cause.
<PAGE>
Page 3
SEVEN: No director of this corporation shall be
personally liable to this corporation or its stockholders for monetary
damages for any breach of fiduciary duty by such a director as a director.
Notwithstanding the foregoing sentence, a director shall be liable to the
extent provided by applicable law (i) for any breach of the director's duty
of loyalty to this corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv)
for any transaction from which such director derived an improper personal
benefit. This Article SEVEN is also contained in Article V, Section 5.1 of
this corporation's Bylaws. No amendment to or repeal of this Article SEVEN
shall apply to or have any effect on the liability or alleged liability of
any director of this corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal. If the DGCL is
amended hereafter to further eliminate or limit the personal liability of
directors, the liability of a director of this corporation shall be limited
or eliminated to the fullest extent permitted by the DGCL, as amended.
EIGHT: A. RIGHT TO INDEMNIFICATION. Each person who
was or is made a party to or is threatened to be made a party to or is
involuntarily involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he or she is or was a director or officer of this corporation, or
is or was serving (during his or her tenure as director and/or officer) at
the request of this corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, whether the basis of such Proceeding is an alleged action or
inaction in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and
held harmless by this corporation to the fullest extent authorized by the
DGCL (or other applicable law), as the same exists or may hereafter be
amended, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection with such Proceeding. Such director or officer shall have the
right to be paid by this corporation for expenses incurred in defending any
such Proceeding in advance of its final disposition; provided, however, that,
if the DGCL (or other applicable law) requires, the payment of such expenses
in advance of the final disposition of any such Proceeding shall be made only
upon receipt by this corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it should be
determined ultimately that he or she is not entitled to be indemnified under
this Article EIGHT or otherwise.
B. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
paragraph A of this Article EIGHT is not paid in full by this corporation
within ninety (90) days after a written claim has been received by this
corporation, the claimant may at any time thereafter bring suit against this
corporation to recover the unpaid amount of the claim, together with interest
thereon, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim, including
reasonable attorneys' fees incurred in connection therewith. It shall be a
defense to any such action (other than an action brought to enforce a claim
for
<PAGE>
Page 4
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to this corporation) that the claimant has not met the standards of
conduct which make it permissible under the DGCL (or other applicable law)
for this corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on this corporation. Neither the
failure of this corporation (or of its full Board of Directors, its directors
who are not parties to the Proceeding with respect to which indemnification
is claimed, its stockholders, or independent legal counsel) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the DGCL (or other applicable
law), nor an actual determination by any such person or persons that such
claimant has not met such applicable standard of conduct, shall be a defense
to such action or create a presumption that the claimant has not met the
applicable standard of conduct.
C. NON-EXCLUSIVITY OF RIGHTS. The rights conferred
by this Article EIGHT shall not be exclusive of any other right which any
director, officer, representative, employee or other agent may have or
hereafter acquire under the DGCL or any other statute, or any provision
contained in this corporation's Certificate of Incorporation or Bylaws, or
any agreement, or pursuant to a vote of stockholders or disinterested
directors, or otherwise.
D. INSURANCE AND TRUST FUND. In furtherance and not in
limitation of the powers conferred by statute:
(1) this corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of this corporation, or is serving at the request of this
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not this corporation would have the power
to indemnify him against such liability under the provisions of law; and
(2) this corporation may create a trust fund,
grant a security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and/or other similar
arrangements), as well as enter into contracts providing indemnification to
the fullest extent permitted by law and including as part thereof provisions
with respect to any or all of the foregoing, to ensure the payment of such
amount as may become necessary to effect indemnification as provided therein,
or elsewhere.
E. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THIS
CORPORATION. This corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, including
the right to be paid by this corporation the expenses incurred in defending
any Proceeding in advance of its
<PAGE>
Page 5
final disposition, to any employee or agent of this corporation to the
fullest extent of the provisions of this Section or otherwise with respect to
the indemnification and advancement of expenses of directors and officers of
this corporation.
F. AMENDMENT. This Article EIGHT is also contained
in Article V, Sections 5.2 through 5.7 of this corporation's Bylaws. Any
repeal or modification of this Article EIGHT shall not change the rights of
an officer or director to indemnification with respect to any action or
omission occurring prior to such repeal or modification.
NINE: This corporation reserves the right to alter,
amend, rescind or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
<PAGE>
Page 1
ALLIANCE IMAGING, INC.
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES D 4% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Alliance Imaging, Inc., a corporation organized and existing under
the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY
CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of
the Company (the "Board") by the Restated Certificate of Incorporation of the
Company, as amended (the "Certificate of Incorporation"), the Board, pursuant
to a unanimous written consent dated as of March 25, 1997, adopted the
following resolutions authorizing the issuance of Series D 4% Cumulative
Redeemable Convertible Preferred Stock of the Company, which resolutions are
still in full force and effect and are not in conflict with any provisions of
the Certificate of Incorporation or Bylaws of the Company:
RESOLVED, that pursuant to authority vested in the Board by the
Certificate of Incorporation, the Board does hereby establish a series of
Preferred Stock of the Company from the Company's authorized class of
1,000,000 shares of $0.01 par value preferred shares, such series to consist
of 18,000 shares, which number may be decreased (but not below the number of
shares thereof then outstanding) from time to time by the Board, and to the
extent that the voting rights, designation, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions of that series are not stated and expressed in
the Certificate of Incorporation, does hereby fix and state the voting
rights, designation, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof, as follows:
1. DEFINITIONS. Unless otherwise specified herein, the following
capitalized terms shall have the meanings ascribed to them below:
ACCUMULATED DIVIDENDS. "Accumulated Dividends" shall have the
meaning set forth in Section 4(d).
AFFILIATE. "Affiliate" shall mean, with respect to any Person, any
other Person which directly or indirectly controls or is controlled by or is
under common control with such Person, and, with respect to the Company only,
includes any other Person with whom the Company has any joint venture,
partnership, or other shared investment interest. As used in this
definition, "control" (including its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or
indirectly, of power to (i) direct or cause the direction of management or
policies of such Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) or (ii)
vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person.
APPLICABLE LAW. "Applicable Law" shall mean, with respect to any
Person, any federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees,
<PAGE>
Page 2
consultants or agents.
AVAILABLE ASSETS. "Available Assets" shall have the meaning set
forth in Section 5(a).
Capital Lease. "Capital Lease" shall mean any lease by a Person of
any property (whether real, personal or mixed) which, in conformity with GAAP
(including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), is accounted for as a capital lease on
the balance sheet of such person.
CAPITAL LEASE OBLIGATIONS. "Capital Lease Obligations" shall mean,
as to any Person, the obligations of such Person to pay rent or other amounts
under a Capital Lease and, for purposes of this Certificate of Designation,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board).
CHAMPUS. "CHAMPUS" has the meaning set forth in Section 8(d)(1)(C).
CHANGE IN CONTROL. "Change in Control" shall be deemed to have
occurred (i) at such time as any person (as defined in Section 13(d)(3) of
the Securities and Exchange Act of 1934) at any time shall directly or
indirectly acquire more than 40% of the voting power of the Common Stock of
the Company, (ii) at such time as during any one year period, individuals who
at the beginning of such period constitute the Company's Board cease to
constitute at least a majority of such Board, (iii) upon consummation of a
merger or consolidation of the Company into or with another corporation in
which the shareholders of the Company immediately prior to the consummation
of such transaction shall own less than Fifty Percent (50%) of the voting
securities of the surviving corporation (or the parent corporation of the
surviving corporation where the surviving corporation is wholly-owned by the
parent corporation) immediately following the consummation of such
transaction or (iv) the sale, transfer or lease (but not including a transfer
or lease by pledge or mortgage to a bona fide lender) of all or substantially
all of the assets of the Company, in any of cases (i), (ii), (iii) and (iv)
in a single transaction or series of transactions; PROVIDED, HOWEVER, that no
Change in Control shall be deemed to have occurred solely as a result of
General Electric Company, a New York corporation, directly or indirectly
acquiring more than 40% of the voting power of the Common Stock of the
Company.
CHANGE IN CONTROL SPECIAL DIVIDEND A. "Change in Control Special
Dividend A" shall have the meaning set forth in Section 8(c)(1).
CHANGE IN CONTROL SPECIAL DIVIDEND B. "Change in Control Special
Dividend B" shall have the meaning set forth in Section 9(b). Common Stock.
"Common Stock" shall mean the Company's Common Stock, $0.01 par value per
share.
COMPANY CHANGE IN CONTROL TRANSACTION. "Company Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(A).
CONVERSION DATE. "Conversion Date" shall have the meaning set forth
in Section 6(a).
CONVERSION PRICE. "Conversion Price" shall have the meaning set
forth in Section 7, as adjusted from time to time as set forth therein.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
<PAGE>
Page 3
DIVIDEND PAYMENT DATE. "Dividend Payment Date" shall have the
meaning set forth in Section 4(c).
DIVIDEND PERIOD. "Dividend Period" shall have the meaning set forth
in Section 4(b).
EXCLUDED STOCK. "Excluded Stock" shall have the meaning set forth
in Section 7(b).
Face Amount. The "Face Amount" of each share of Series D Preferred
Stock (regardless of its par value) shall be One Thousand Dollars
($1,000.00), as the Series D Preferred Stock is presently constituted, such
amount to be proportionately adjusted to reflect any combination,
consolidation, reclassification or like adjustment of or to the Series D
Preferred Stock.
FEDERAL HEALTH CARE PROGRAM. "Federal Health Care Program" shall
have the meaning set forth in Section 8(d)(1)(E).
FUNDED DEBT. "Funded Debt" shall mean as applied to any Person, all
Indebtedness of such Person, in a principal amount of at least One Million
Dollars ($1,000,000) in each instance, which by its terms or by the terms of
any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year (including an option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year) from the date of the creation thereof; PROVIDED that
"Funded Debt" shall include, as at any date of determination, any portion of
such Funded Debt outstanding on such date which matures on demand or within
one year from such date (whether by sinking fund, other required prepayment
or final payment at maturity) and which is not directly or indirectly
renewable, extendible or refundable, at the option of the debtor to a date
more than one year from such date; PROVIDED, FURTHER, that "Funded Debt"
shall include all Indebtedness pursuant to that certain Note Purchase
Agreement dated as of April 14, 1989, as amended to and including the Issue
Date; and PROVIDED, FURTHER, that except with respect to Indebtedness
pursuant to that certain Note Purchase Agreement dated as of April 14, 1989,
as amended to and including the Issue Date, "Funded Debt" shall not include
(i) Indebtedness secured by equipment, trailers or modular buildings used in
the business of the Company or (ii) Indebtedness convertible into equity
securities of the Company on commercially reasonable terms.
FUNDED DEBT DEFAULT. "Funded Debt Default" shall mean any date 30
days after the Company shall have Knowledge that it is in default with
respect to any Funded Debt, unless during such 30 day period either (i) such
default shall have been waived by the lender with respect to such Funded Debt
or (ii) the agreement or agreements governing such Funded Debt shall have
been amended to eliminate such default, in either of cases (i) or (ii)
without any economic consideration (other than such consideration required by
the terms of the documentation with respect to such Funded Debt as in effect
prior to any amendment of such documentation described in clause (ii) above)
provided to the lender with respect to such Funded Debt by the Company.
GAAP. "GAAP" means generally accepted accounting principles.
GENERAL ELECTRIC. "General Electric" shall have the meaning set
forth in Section 8(d)(1)(E).
<PAGE>
Page 4
GOVERNMENTAL AUTHORITY. "Governmental Authority" shall mean any
federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing, in all such cases
whether domestic or foreign.
HOLDER SPECIAL REPURCHASE EVENT NOTICE. "Holder Special Repurchase
Event Notice" shall have the meaning set forth in Section 8(d)(3)(A).
INDEBTEDNESS. "Indebtedness" shall mean, as to any Person without
duplication, (a) all items which, in accordance with GAAP, would be included
as a liability on the balance sheet of such Person and its Majority-Owned
Subsidiaries (including any obligation of such Person to the issuer of any
letter of credit for reimbursement in respect of any drafts drawn under such
letter of credit), excluding obligations in respect of deferred taxes and
deferred employee compensation and benefits, and anything in the nature of
capital stock, surplus capital and retained earnings; (b) the amount
available for drawing under all letters of credit issued for the account of
such Person; (c) obligations (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by liens; (d)
Capital Lease Obligations of such Person; and (e) all guarantees of such
Person, PROVIDED, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person,
PROVIDED the same are not more than 45 days overdue or are being contested in
good faith.
ISSUE DATE. "Issue Date" shall mean, with respect to any shares of
Series D Preferred Stock, the date such shares of Series D Preferred Stock
are issued.
JUNIOR SECURITIES. "Junior Securities" shall have the meaning set
forth in Section 3.
Knowledge. "Knowledge" or "knowledge," with respect to any Person,
shall mean the actual knowledge of such Person, after reasonable inquiry.
For purposes hereof, a Person shall be deemed to have actual knowledge of the
contents of all books and records with respect to which such Person has
reasonable access. Without limiting the generality of the foregoing, with
respect to any Person that is a corporation, partnership or other business
entity, actual knowledge shall be deemed to include the actual knowledge of
all principal employees of any such Person (which, for purposes of the
Company, shall include without limitation Richard N. Zehner, Vincent S. Pino,
Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan, Ph.D.,
Cheryl A. Ford, and Michael W. Grismer) as well as the Chief Executive
Officer, President, Chief Financial Officer and all Vice Presidents in the
case of corporate Persons, and general partners in the case of general or
limited partnerships, as the case may be.
LIQUIDATION EVENT. "Liquidation Event" shall mean any of the
following: (i) a liquidation or winding up of the Company, (ii) a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) of the voting securities
of the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned
<PAGE>
Page 5
by the parent corporation) immediately following the consummation of such
transaction, or (iii) the sale, transfer or lease (but not including a
transfer or lease by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company; in any of cases (i), (ii) or
(iii) in a single transaction or series of transactions.
LIQUIDATION PREFERENCE AMOUNT. "Liquidation Preference Amount"
shall have the meaning set forth in Section 5(a).
MAJORITY-OWNED SUBSIDIARY. "Majority-Owned Subsidiary" means with
respect to any Person any Subsidiary of such Person of which at least a
majority of the outstanding shares, partnership interests or other equity
interests therein is at the time directly or indirectly owned or controlled
by such Person or any other Subsidiary which is a consolidated subsidiary of
such Person under GAAP or one or more of the Majority-Owned Subsidiaries of
such Person or by such Person and one or more of the Majority-Owned
Subsidiaries of such Person.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with
respect to any Person or designated group of Persons, a change in, or effect
on, or group of such changes in or effects on, the operations, financial
condition or results of operations, prospects, assets or liabilities of the
Person or group of Persons, as the case may be, taken as a whole, that
results in a material adverse effect on, or a material adverse change in, the
operations, financial condition, results of operations, prospects, assets or
liabilities of the Person or group of Persons, as the case may be, taken as a
whole, excluding adverse changes in the general economy.
Market Price. The "Market Price" of a share of Common Stock on or
with respect to any day shall mean (i) the closing sales price on the
immediately preceding trading day of a share of Common Stock on the principal
national securities exchange or automated quotation system on which the
shares of Common Stock are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange or automated
quotation system, the average of the last reported bid and asked prices on
such immediately preceding trading day in the over-the-counter market as
furnished by the National Association of Securities Dealers, Inc., or, if
such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected in good
faith by the Company or, if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc., selected in good
faith by the Company, or (ii) if the shares of Common Stock are not then
traded on any such exchange or system, the amount determined in good faith by
the Board to represent the fair value of a share of Common Stock.
OTHER CHANGE IN CONTROL TRANSACTION. "Other Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(B).
PERSON. "Person" shall mean any natural person, firm, corporation,
partnership, limited liability company, association, trust or other entity.
RECORD DATE. "Record Date" shall have the meaning set forth in
Section 4(c).
REDEMPTION DATE. "Redemption Date" shall have the meaning set forth
in Section 9(c).
Redemption Price. "Redemption Price" shall have the meaning set
forth in Section 9(d).
Regular Dividends. "Regular Dividends" shall have the meaning set
forth
<PAGE>
Page 6
in Section 4(a).
Series D Preferred Stock. "Series D Preferred Stock" shall have the
meaning set forth in Section 2.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall mean the
Company's Series E 4% Cumulative Redeemable Convertible Preferred Stock
designated pursuant to the Certificate of Designation, Preferences and Rights
of Series E 4% Cumulative Redeemable Convertible Preferred Stock dated as of
even date herewith.
SPECIAL DIVIDEND EVENT TRIGGER DATE. "Special Dividend Event
Trigger Date" shall have the meaning set forth in Section 4(b).
SPECIAL DIVIDENDS. "Special Dividends" shall have the meaning set
forth in Section 2.
SPECIAL REPURCHASE EVENT. "Special Repurchase Event" shall have the
meaning set forth in Section 8(d)(3).
Special Repurchase Event Election. "Special Repurchase Event
Election" shall have the meaning set forth in Section 8(d)(3)(B).
SSA. "SSA" shall have the meaning set forth in Section 8(d)(1)(C).
State Health Care Program. "State Health Care Program" shall have the meaning
set forth in Section 8(d)(1)(E).
STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" shall mean
that certain Stock Purchase Agreement dated as of March 25, 1997 between
General Electric and the Company.
Subsidiary. "Subsidiary" shall mean with respect to any Person each
corporation, partnership, joint venture or other entity in which such Person
has, directly or indirectly, any equity interest in the capital stock
thereof, any partnership interest, or any other equity interest therein.
2. DESIGNATION OF SERIES; ISSUANCE AND FACE AMOUNT. This series of
Preferred Stock is designated "Series D 4% Cumulative Redeemable Convertible
Preferred Stock" (hereinafter the "Series D Preferred Stock"), and the number
of shares which shall constitute such series shall be 18,000, which number
may be decreased (but not below the number thereof then outstanding) from
time to time by the Board. The shares of Series D Preferred Stock shall be
issued by the Company for their Face Amount (as herein defined), in such
amounts, at such times and to such persons as shall be specified by the
Board, from time to time.
3. RANK. The Series D Preferred Stock shall, with respect to dividend
rights and rights on any Liquidation Event, rank senior to all Junior
Securities. "Junior Securities" shall mean (i) the Company's Series A 6.0%
Cumulative Preferred Stock, (ii) the Company's Series B Cumulative Preferred
Stock, (iii) the Company's Series C Convertible Preferred Stock, (iv) Common
Stock, and (v) any other classes or series of stock or other equity
securities of the Company; PROVIDED, HOWEVER, that the term "Junior
Securities" shall not include the Series E Preferred Stock. Shares of the
Company's Series E Preferred Stock shall, with respect to dividend rights and
rights on any Liquidation Event, rank on a pari passu basis with shares of
the Series D Preferred Stock.
4. DIVIDENDS.
a. REGULAR DIVIDENDS. The holders of record of the Series D
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Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cumulative preferential cash dividends accruing from the
Issue Date at the rate of Four Percent (4%) per annum of the Face Amount per
share ("Regular Dividends").
b. SPECIAL DIVIDENDS.
(1) Each of the following shall be a "Special Dividend Event
Trigger Date":
(A) At any time after April 1, 2007, if for fifteen (15)
days out of any twenty (20) consecutive trading days on which the
Common Stock is traded, the Market Price per share of Common Stock
shall be less than 83.3% of the then-applicable Conversion Price ,
then the last such trading date shall be a Special Dividend Event
Trigger Date.
(B) The date of any Funded Debt Default shall be a Special
Dividend Event Trigger Date.
(2) Upon any Special Dividend Event Trigger Date, the holders of
record of the Series D Preferred Stock shall be entitled to receive, out
of funds legally available for such purpose, in addition to Regular
Dividends, a special dividend in the following per annum percentages of
the Face Amount per share ("Special Dividends"):
- -------------------------------------------------------------------------------
Special
Time Period Dividend Percentage
- -------------------------------------------------------------------------------
First full calendar month after Special
Dividend Event Trigger Date 1%
- -------------------------------------------------------------------------------
Second full calendar month after Special
Dividend Event Trigger Date 2%
- -------------------------------------------------------------------------------
Third full calendar month after Special Dividend Event
Trigger Date 3%
- -------------------------------------------------------------------------------
Fourth full calendar month after Special
Dividend Event Trigger Date and all time periods
thereafter 4%
- -------------------------------------------------------------------------------
(3) At any time after the Special Dividend Percentage becomes 4%
under Section 4(b)(2) above, the Company may purchase all (but not less
than all) of the outstanding shares of Series D Preferred Stock owned by
each holder at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends. To exercise its right to purchase the
shares of Series D Preferred Stock under this Section 4(b)(3), the
Company shall send a written notice within ten (10) days after the first
day of the fourth full calendar month after a Special Dividend Event
Trigger Date to each holder either electing to repurchase such holder's
shares pursuant to the provisions of this Section 4(b)(3) or declining
to so elect (the "Special Dividend Event Repurchase Offer").
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(4) Within 10 days after receipt of a Special Dividend Event
Repurchase Offer, each holder shall send a written notice to the Company
either accepting or rejecting such Special Dividend Event Repurchase
Offer. The Company shall purchase all of the shares of each holder
accepting the Special Dividend Event Repurchase Offer within 10 days
after receipt of the notice from the holder referred to in the previous
sentence at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends.
(5) With respect to the shares held by any holder of shares of
Series D Preferred Stock that does not accept a Special Dividend
Repurchase Offer, Special Dividends with respect to such shares shall
cease to accrue as of the first day of the first calendar month
following the date of the Special Dividend Event Repurchase Offer
(subject to Section 4(b)(6) below). Any holder of shares of Series D
Preferred Stock that does not timely send a written notice to the
Company either accepting or rejecting a Special Dividend Event
Repurchase Offer shall be deemed to have rejected such offer.
(6) Notwithstanding any holder's rejection or deemed rejection
of a Special Dividend Repurchase Offer, upon any later Special Dividend
Event Trigger Date Special Dividends on the shares of Series D Preferred
Stock owned by such holder shall accrue as set forth in Section 4(b)(2)
above.
c. TIME OF PAYMENT.
(1) Regular Dividends shall be cumulative from the Issue Date
and shall be payable in arrears, when and as declared by the Board, on
March 31, June 30, September 30, and December 31 of each year (each such
date being herein referred to as a "Dividend Payment Date"), commencing
on June 30, 1997. The quarterly period between consecutive Dividend
Payment Dates shall hereinafter be referred to as a "Dividend Period."
Each such Regular Dividend shall be paid to the holders of record of the
Series D Preferred Stock as their names appear on the share register of
the Company on the corresponding Record Date. As used above, the term
"Record Date" means, with respect to the Regular Dividend payable on
March 31, June 30, September 30 and December 31, respectively, of each
year, the preceding March 15, June 15, September 15 and December 15, or
such other record date designated by the Board of the Company with
respect to the Regular Dividend payable on such respective Dividend
Payment Date. Regular Dividends on account of arrears for any past
Dividend Periods may be declared and paid at any time, without reference
to any Dividend Payment Date, to holders of record on such date, not
exceeding 50 days preceding the payment date thereof, as may be fixed by
the Board.
(2) Special Dividends shall be cumulative from the date of the
first day of the first full calendar month after any Special Dividend
Event Trigger Date and shall be payable in arrears, when and as declared
by the Board, on each Dividend Payment Date. Each such Special Dividend
shall be paid to the holders of record of the Series D Preferred Stock
as their names appear on the share register of the Company on the
corresponding Record Date. Special Dividends on account of arrears for
any past Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such
date, not exceeding 50 days preceding the payment date thereof, as may
be fixed by the Board.
d. ACCUMULATION. In the event that full cash Regular Dividends
(and any full cash Special Dividends) are not paid to the holders of all
outstanding shares of Series D Preferred Stock, and funds available shall be
insufficient to permit payment in full in cash to all such holders of the
preferential amounts to which they are they entitled, the entire amount
available for payment of cash dividends shall be distributed among the
holders of the Series D Preferred Stock ratably in proportion to the full
amount to which they would otherwise be respectively entitled, and any
remainder not paid in cash to the holders of the Series D Preferred Stock
shall cumulate as provided in this subsection 4(d). If, on any Dividend
Payment Date, the holders of the Series D Preferred Stock shall not have
received the full Regular Dividends and full Special Dividends provided for
in this Section 4, then such dividends shall cumulate, whether or not earned
or declared, with additional dividends thereon to accrue at the rate of eight
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Page 9
percent (8%) per annum for each succeeding full Dividend Period during which
such dividends shall remain unpaid. Unpaid dividends for any period less
than a full Dividend Period shall cumulate on a day-to-day basis and shall be
computed on the basis of a 360 day year. "Accumulated Dividends" shall mean,
as of any date, all Regular Dividends and Special Dividends that are either
undeclared or unpaid as of such date.
e. RESTRICTIONS WITH RESPECT TO JUNIOR SECURITIES.
(1) So long as any Series D Preferred Stock shall remain
outstanding, no regular periodic cash dividend whatsoever shall be
declared or paid upon or set apart for payment on any class of Junior
Securities, unless in each instance at such time no Accumulated
Dividends, Change in Control Dividend A or Change in Control Dividend B
shall be accrued but unpaid.
(2) So long as any Series D Preferred Stock shall remain
outstanding, no shares of Junior Securities shall be redeemed or
purchased for cash by the Company or any parent or subsidiary thereof
nor shall any moneys be paid to or made available for a sinking fund for
redemption or purchase of any shares of Junior Securities.
(3) The restrictions set forth in Sections 4(e)(1) and 4(e)(2)
above shall not apply to (i) up to $100,000 per calendar year applied to
redemption or purchase by the Company of Junior Securities owned by
employees of the Company in connection with the separation of such
employees from their employment with the Company, or (ii) any particular
cash dividend, redemption or purchase if the holders of a majority of
then outstanding shares of Series D Preferred Stock consent in writing
to the declaration or payment of such cash dividend, redemption or
purchase, as the case may be.
5. LIQUIDATION PREFERENCE.
a. GENERAL. Upon a Liquidation Event, the holders of Series D
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its shareholders, whether
from capital, surplus or earnings ("Available Assets"), before any payment
shall be made in respect of any Junior Security, an amount equal to the Face
Amount per share PLUS an amount equal to all Accumulated Dividends, if any
(in the aggregate, the "Liquidation Preference Amount"). If upon a
Liquidation Event, the Available Assets shall be insufficient to pay the
holders of the Series D Preferred Stock the full Liquidation Preference
Amount, the holders of the Series D Preferred Stock shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
b. NOTICE REQUIRED. Written notice of any voluntary or
involuntary Liquidation Event, stating the payment date and the place where
the distributable amount shall be payable, shall be given by mail, postage
prepaid, not less than thirty (30) days prior to the payment date stated
therein, to the holders of record of the Series D Preferred Stock at their
respective addresses as the same shall then appear on the books of the
Company.
6. CONVERSION.
a. EXERCISE OF CONVERSION RIGHT. Each holder of Series D
Preferred Stock shall have the right, at its option, at any time from the
Issue Date through December 31, 2006, to convert, subject to the terms and
provisions of this Section 6, all or any portion of its Series D Preferred
Stock then outstanding into such number of fully paid and non-assessable
shares of Common Stock as results from dividing (i) the sum of (A) the Face
Amount of all shares of Series D Preferred Stock to be converted plus (B) any
Accumulated Dividends on such shares, by (ii) the applicable Conversion Price
<PAGE>
Page 10
(as defined below) on the Conversion Date (as defined below). Such
conversion shall be deemed to have been made at the close of business on the
date that the certificate or certificates for shares of Series D Preferred
Stock shall have been surrendered for conversion and written notice shall
have been received as provided in Section 6(b) (the "Conversion Date"), so
that the person or persons entitled to receive the shares of Common Stock
upon conversion of such shares of Series D Preferred Stock shall be treated
for all purposes as having become the record holder or holders of such shares
of Common Stock at such time and such conversion shall be at the Conversion
Price in effect at such time. Upon conversion of any shares of Series D
Preferred Stock pursuant to this Section 6, the rights of the holder of such
shares upon the Conversion Date shall be the rights of a holder of Common
Stock only, and each such holder shall not have any rights in its former
capacity as a holder of shares of Series D Preferred Stock.
b. NOTICE TO COMPANY. In order to convert all or any portion of
its outstanding Series D Preferred Stock into shares of Common Stock, the
holder of such Series D Preferred Stock shall deliver the shares of Series D
Preferred Stock to be converted to the Company at its principal office,
together with written notice that it elects to convert those shares of Series
D Preferred Stock into shares of Common Stock in accordance with the
provisions of this Section 6. Such notice shall specify the number of shares
of Series D Preferred Stock to be converted and the name or names in which
the holder wishes the certificates for shares of Common Stock to be
registered, together with the address or addresses of the person or persons
so named, and, if so required by the Company, shall be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder of the shares of Series D
Preferred Stock to be converted or by its attorney duly authorized in writing.
c. DELIVERY OF CERTIFICATE. As promptly as practicable after the
surrender as hereinabove provided of shares of Series D Preferred Stock for
conversion into shares of Common Stock, the Company shall deliver or cause to
be delivered to the holder, or the holder's designees, certificates
representing the number of fully paid and non-assessable shares of Common
Stock into which the shares of Series D Preferred Stock are entitled to be
converted, together with a cash adjustment in respect of any fraction of a
share to which the holder shall be entitled as provided in Section 6(d), and,
if less than the entire number of shares of Series D Preferred Stock
represented by the certificate or certificates surrendered is to be
converted, a new certificate for the number of shares of Series D Preferred
Stock not so converted. So long as any shares of Series D Preferred Stock
remain outstanding, the Company shall not close its Common Stock transfer
books. The issuance of certificates for shares of Common Stock upon the
conversion of shares of Series D Preferred Stock shall be made without charge
to the holder for any tax in respect of the issuance of such certificates
(other than any transfer, withholding or other tax if the shares of Common
Stock are to be registered in a name different from that of the registered
holder of Series D Preferred Stock).
d. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series D Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the
Market Price of a whole share of Common Stock as of the Conversion Date.
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Page 11
e. RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of shares of Series D
Preferred Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series D Preferred Stock
then outstanding. The Company shall take at all times such corporate action
as shall be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of
shares of Series D Preferred Stock in accordance with the provisions of this
Section 6.
f. REGISTRATION. If any shares of Common Stock to be reserved for
the purpose of conversion of Series D Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or
otherwise, before such shares may be validly issued or delivered upon
conversion, the Company shall, in good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the
case may be.
g. SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of Common
Stock that may be issued upon conversion of the Series D Preferred Stock
shall upon issuance by the Company be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
h. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
converted pursuant to the provisions of this Section 6 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
7. CONVERSION PRICE. As used herein, the "Conversion Price" shall
initially be $6.00 per share of Common Stock, subject to adjustment as set
forth below. No payment or adjustment shall be made for any dividends on the
Common Stock issuable in such conversion. The Conversion Price shall be
subject to adjustment from time to time as follows:
a. COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If the
Company shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance,
the Conversion Price in effect immediately prior to each such issuance shall
immediately be reduced to the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the Conversion Price in
effect immediately prior to such issuance and (B) the consideration, if any,
received by the Company upon such issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance. For the
purposes of any adjustment of the Conversion Price pursuant to this Section
7(a), the following provisions shall be applicable:
(1) CASH. In the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Company shall be
deemed to be the amount of the cash proceeds received by the Company for
such Common Stock before deducting therefrom any discounts, commissions,
taxes or other expenses allowed, paid or incurred by the Company for any
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Page 12
underwriting or otherwise in connection with the issuance and sale
thereof.
(2) CONSIDERATION OTHER THAN CASH. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole
or in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board; provided that such fair value as
determined by the Board shall not exceed the aggregate Market Price of
the shares of Common Stock being issued as of the date the Board
authorizes the issuance of such shares.
(3) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii) securities
by their terms convertible into or exchangeable for Common Stock
(whether or not at the time so convertible or exchangeable) or (iii)
options, warrants or rights to purchase such convertible or exchangeable
securities (whether or not at the time exercisable):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights
to purchase or acquire Common Stock shall be deemed to have been
issued at the time such options, warrants or rights were issued and
for a consideration equal to the consideration (determined in the
manner provided in subsections (1) and (2) above), if any, received
by the Company upon the issuance of such options, warrants or
rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been issued
at the time such securities were issued or such options, warrants
or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such
securities and related options, warrants or rights (excluding any
cash received on account of accrued interest or accrued dividends),
plus the additional consideration (determined in the manner
provided in subsections (1) and (2) above), if any, to be received
by the Company upon the conversion or exchange of such securities,
or upon the exercise of any related options, warrants or rights to
purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof;
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options,
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Page 13
warrants or rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be
received by the Company upon such exercise, conversion or exchange,
including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price as then in
effect shall forthwith be readjusted to such Conversion Price as
would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised prior to
such change, or of such convertible or exchangeable securities not
converted or exchanged prior to such change, upon the basis of such
change;
(D) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or
exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had an adjustment been
made upon the issuance of such options, warrants, rights or such
convertible or exchangeable securities on the basis of the issuance
of only the number of shares of Common Stock actually issued upon
the exercise of such options, warrants or rights, or upon the
conversion or exchange of such convertible or exchangeable
securities, if any; and
(E) if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the Conversion
Price shall be made for the actual issuance of Common Stock upon
the exercise, conversion, or exchange thereof;
provided, however, that no increase in the Conversion Price shall
be made pursuant to subsections (A) or (B) of this subsection (3).
b. EXCLUDED STOCK. For purposes of Section 7(a), "Excluded Stock"
shall mean (i) shares of Common Stock issued or reserved for issuance by the
Company as a stock dividend payable in shares of Common Stock, or upon any
subdivision or split up of the outstanding shares of Common Stock or Series D
Preferred Stock, or upon conversion of shares of the Series D Preferred
Stock, (ii) under options and warrants outstanding on the date hereof, (iii)
750,000 shares of Common Stock reserved for issuance to key employees and
directors of the Company pursuant to the Company's employee stock option plan
in effect as of the date hereof; (iv) shares of Series E Preferred Stock and
shares of Common Stock issuable upon the conversion thereof, and (v) 77,520
shares of Common Stock issuable upon the conversion of the shares of Series C
Convertible Preferred Stock outstanding on the date hereof.
c. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the
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Page 14
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any shares of Series D Preferred Stock surrendered for conversion
after such date shall be entitled to receive the number of shares of Common
Stock which he would have owned or been entitled to receive had such shares
of Series D Preferred Stock been converted immediately prior to such date.
Successive adjustments in the Conversion Price shall be made whenever any
event specified above shall occur.
d. OTHER DISTRIBUTIONS. In case the Company shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock, (ii) of
evidence of indebtedness of the Company or any subsidiary of the Company,
(iii) of assets, or (iv) of rights or warrants, in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price per
share on such record date, less (B) the fair market value (as determined by
the Board) of said shares or evidences of indebtedness or assets or rights or
warrants to be so distributed, by (2) the number of shares of Common Stock
outstanding on such record date; PROVIDED, HOWEVER, that, so long as there
are no Accumulated Dividends on the Series D Preferred Stock or the Series E
Preferred Stock then outstanding for any previous Dividend Payment Date, the
provisions of this Section 7(d) shall not apply to distributions consisting
of cash dividends on the shares of Common Stock up to an amount equal to 50%
of consolidated net income of the Company and its Majority-Owned Subsidiaries
as of the calendar year immediately preceding the proposed record date for
such dividend. Any adjustment provided for by this Section 7(d) shall be
made successively whenever such a record date is fixed.
e. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of
any consolidation with or merger of the Company with or into another
corporation or other entity, or in case of any sale, lease or conveyance to
another entity of the assets of the Company as an entirety or substantially
as an entirety, each share of Series D Preferred Stock shall after the date
of such consolidation, merger, sale, lease or conveyance be convertible into
the number of shares of stock or other securities or property (including
cash) to which the Common Stock issuable (at the time of such consolidation,
merger, sale, lease or conveyance) upon conversion of such share of Series D
Preferred Stock would have been entitled upon such consolidation, merger,
sale, lease or conveyance; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the
holders of the shares of Series D Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any
shares of stock or other securities or property thereafter deliverable on the
conversion of the shares of Series D Preferred Stock. Nothing in this
Section 7(e) shall be construed in any way to derogate from the right of the
holders of the Series D Preferred Stock to require the Company to repurchase
their shares at the Change in Control Repurchase Price upon a Change in
Control, as set forth in Section 8(c) hereof.
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f. NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in subsections (a), (c), (d), and (e)
of this Section 7, the Company shall give notice to each holder of shares of
Series D Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the approximate date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion of
shares of Series D Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 10
days prior to the date so fixed, and in the case of all other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action.
g. STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series D Preferred
Stock pursuant to this Section 7, the Company shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. Each such statement shall be signed by the Company's public
accountants.
h. TREASURY STOCK. For the purposes of this Section 7, the sale
or other disposition of any Common Stock theretofore held in the Company's
treasury shall be deemed to be an issuance thereof.
i. GOOD FAITH. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the shares of Series D Preferred Stock shares against
impairment of any kind.
8. VOTING RIGHTS; PROTECTIVE PROVISIONS; CHANGE OF CONTROL; SPECIAL
REPURCHASE EVENTS.
a. GENERAL. Except as specifically set forth in the DGCL or
provided in the balance of this Section 8, the holders of shares of Series D
Preferred Stock shall not be entitled to any voting rights with respect to
any matters voted upon by stockholders.
b. PROTECTIVE PROVISIONS. So long as any shares of Series D
Preferred Stock are outstanding, the written consent or the affirmative vote
at a meeting called for that purpose of the holders of a majority of the
shares of Series D Preferred Stock then outstanding, voting separately as a
class, shall be necessary to validate or effectuate any of the following: (i)
amend, repeal, alter or change any of the rights, preferences or privileges
of the shares of Series D Preferred Stock; (ii) create (by reclassification
of an existing class or series, or otherwise) any new class or series of
shares of the Company's capital stock, except for classes or series of shares
ranking, with respect to dividend rights and rights on any Liquidation Event,
junior to the Series D Preferred Stock and the Series E Preferred Stock;
(iii) issue any shares of the
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Page 16
Company's capital stock, except for classes or series of shares ranking, with
respect to dividend rights and rights on any Liquidation Event, junior to the
Series D Preferred Stock and the Series E Preferred Stock; or (iv) take any
action that materially and adversely affects the legal rights, preferences or
privileges of the shares of Series D Preferred Stock. At any time when there
are any Accumulated Dividends or any Change in Control Special Dividend A
accrued but unpaid for any reason, the holders of a majority of the shares of
Series D Preferred Stock then outstanding, voting separately as a class,
shall be necessary to validate or effectuate (i) any acquisition by the
Company of all or substantially all of the assets of another Person, (ii) any
acquisition by the Company of all or substantially all of the equity
interests in any Person, and (iii) any merger or recapitalization transaction
to which the Company is a party.
c. HOLDER'S ELECTION UPON CHANGE OF CONTROL.
(1) GENERALLY. In the event of any Change in Control, each
holder of shares of Series D Preferred Stock shall have the right, at
such holder's election as set forth below, to receive in respect of each
share owned by such holder a sum equal to (i) the then applicable Face
Value, PLUS (ii) Accumulated Dividends, PLUS (iii) a "Change of Control
Special Dividend A" equal to 18% of the then applicable Face Value.
(2) COMPANY'S NOTIFICATION OBLIGATION.
(A) The Company shall notify each holder of shares of
Series D Preferred Stock in writing within 15 days before any
Change in Control pursuant to a transaction to which the Company is
a party (a "Company Change of Control Transaction") setting forth a
description of the nature of the Change in Control and the date at
which such Change in Control is anticipated to take place.
(B) The Company shall notify each holder of shares of
Series D Preferred Stock in writing as soon as the Company has
Knowledge of any Change of Control pursuant to a transaction that
is not a Company Change of Control Transaction (an "Other Change of
Control Transaction") setting forth a description of the nature of
the Change in Control and the date at which such Change in Control
took place or is anticipated to take place.
(C) The notices described in clauses (A) and (B) above are
collectively denominated "Change in Control Notices".
(3) HOLDER'S ELECTION. Within five (5) days after receipt of
the Change of Control Notice, each holder shall notify the Company in
writing whether or not such holder will require such holder's shares of
Series D Preferred Stock to be redeemed by the Company pursuant to this
Section. If a holder does not timely notify the Company in writing
pursuant to the previous sentence, such holder will be deemed to have
waived its right to require such holder's shares of Series D Preferred
Stock to be redeemed by the Company pursuant to this Section; provided,
however, that such waiver shall only apply to the Change of Control
relating to the relevant Change of Control Notice, and not any
subsequent Change of Control or Change of Control Notice.
(4) COMPANY CHANGE OF CONTROL. The Company shall redeem the
shares of each holder of Series D Preferred Stock so electing such a
redemption in connection with a Company Change of Control Transaction by
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making cash payments to such holder in respect of each share owned by
such holder as follows: (i) a sum equal to the then applicable Face
Value PLUS Accumulated Dividends on or prior to the date of the Company
Change in Control Transaction as a condition precedent to the
effectiveness of such Company Change in Control Transaction, and (ii) a
sum equal to the Change in Control Special Dividend A as soon as funds
are legally available for payment thereof after the date of the Company
Change in Control Transaction. Any Company Change of Control
Transaction shall be void and of no force and effect if the payments set
forth in clause (i) of this Section 8(c)(4) are not made on or prior to
the date of such Company Change in Control Transaction.
(5) OTHER CHANGES OF CONTROL. The Company shall redeem the
shares of each holder of Series D Preferred Stock so electing such a
redemption in connection with an Other Change of Control Transaction as
promptly as practicable after receipt of such holder's notice of such
election by making cash payments to such holder in respect of each share
owned by such holder as follows: (i) a sum equal to the then applicable
Face Value PLUS Accumulated Dividends plus a sum equal to the Change in
Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Other Change in Control
Transaction.
d. SPECIAL REPURCHASE EVENTS.
(1) REPRESENTATIONS. The Company represents and warrants to
each holder of shares of Series D Preferred Stock as follows:
(A) Except as otherwise disclosed in the Disclosure
Schedule to the Stock Purchase Agreement (as such term is defined
therein), neither the Company nor any of its Affiliates since
inception has provided any research, educational or study grants or
other financial support of any kind to any hospital, physician, or
health care provider.
(B) Neither the Company nor any of its Affiliates since
inception has received notice that the Company or any Subsidiary
has been, or to the Company's knowledge has been, the subject of
any investigative proceeding before any federal or state regulatory
authority or the agent of any such authority, including without
limitation federal and state health authorities.
(C) Neither the Company nor any Affiliate, nor the
officers, directors, employees or agents of any of the Company or
any Affiliate, and none of the Persons who provide professional
services under agreements with any of the Company or any Affiliate
as agents of such entities have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or
permissive exclusion from Medicare or Medicaid, under Sections
1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United
States Code, the federal Civilian Health and Medical Plan of the
Uniformed Services statute ("CHAMPUS"), or the regulations
promulgated pursuant to such statutes or regulations or related
state or local statutes or which are prohibited by any private
accrediting organization from which the Company or any of its
Affiliates seeks accreditation or by generally recognized
professional standards of care or conduct, including but not
limited to the following activities:
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(a) knowingly and willfully making or causing to be made
a false statement or representation of a material fact in any
application for any benefit or payment;
(b) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for
an item or service that the Person presenting or causing to be
presented knows or should know was not provided as claimed, or (ii)
for an item or service and the Person presenting knows or should
know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting
or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring, or to induce the referral of, an
individual to a Person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in
whole or in part by CHAMPUS, Medicare or Medicaid, or any other
State Health Care Program or any Federal Health Care Program, or
(iii) in return for, or to induce, the purchase, lease, or order,
or the arranging for or recommending of the purchase, lease, or
order, of any good, facility, service, or item for which payment
may be made in whole or in party by CHAMPUS, Medicare or Medicaid
or any other State Health Care Program or any Federal Health Care
Program; or
(e) knowingly and willfully making or causing to be made
or inducing or seeking to induce the making of any false statement
or representation (or omitting to state a material fact required to
be stated therein or necessary to make the statements contained
therein not misleading) or a material fact with respect to (i) the
conditions or operations of a facility in order that the facility
may qualify for CHAMPUS, Medicare, Medicaid or any other State
Health Care Program certification or any Federal Health Care
Program certification, or (ii) information required to be provided
under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C.
Section 1320a-3).
(D) Neither the Company nor any other Person who after the
Issue Date will have a direct or indirect ownership interest (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in
the Company or any Affiliate of 5% or more (other than General
Electric Company, a New York corporation ("General Electric")), or
who will have an ownership or control interest (as defined in SSA
Section 1124(a)(3), or any regulations promulgated thereunder) in
the Company or any Affiliate (other than General Electric), or who
will 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
Company or any Affiliate and (ii) to the best Knowledge of the
Company and any Affiliate, no Person or entity with any
relationship with such entity (including without
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limitation a parent company or shareholder of, or partner in an
Affiliate) who after the Issue Date will have an indirect ownership
interest (as that term is defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Company or any Affiliate of 5% or more
(other than General Electric): (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:
(a) 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;
(b) criminal offenses under federal or state law relating
to patient neglect or abuse in connection with the delivery of a
health care item or service;
(c) criminal offenses under federal or state law relating
to fraud, theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct in connection with the delivery of a
health care item or service or with respect to any act or omission
in a program operated by or financed in whole or in part by any
federal, state or local governmental agency;
(d) federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense
described in (a) through (c) above; or
(e) criminal offenses under federal or state law relating
to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
(2) COVENANTS. The Company covenants that as long as any
shares of Series D Preferred Stock are outstanding:
(A) The operations of the Company and its Affiliates will
be conducted in accordance with all Applicable Laws, including,
without limitation, all such laws, regulations, orders and
requirements promulgated by any Governmental Authority or relating
to consumer protection, equal opportunity, health care industry
regulation, third party reimbursement (including Medicare and
Medicaid), environmental protection, fire, zoning and building and
occupational safety matters, except for violations that
individually or in the aggregate would not and, insofar as may
reasonably be foreseen, in the future will not, have a Material
Adverse Effect on the Company or any Subsidiary.
(B) Without limiting the generality of the foregoing, the
operations of the Company and its Affiliates will be conducted in
accordance with all laws, regulations, orders and requirements
relating to health care industry regulation and third party
reimbursement (including Medicare and Medicaid).
(C) Without limiting the generality of the foregoing, the
Company and all Affiliates shall comply in all material respects
with all directives, orders, instructions,
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bulletins and other announcements received from third party payors
and their agents (including without limitation Medicare carriers
and fiscal intermediaries) regarding participation in third party
payment programs, and including without limitation preparation and
submission of claims for reimbursement. Nothing in this Section
8(d)(2)(C) shall be construed as or is intended to create any third
party beneficiaries.
(3) SPECIAL REPURCHASE EVENTS. The failure of any
representation or warranty of the Company contained in Section 8(d)((1)
to be true on the Issue Date in any material respect, or the Company's
breach of any of the covenants set forth in Section 8(d)(2), shall be a
"Special Repurchase Event". Upon any Special Repurchase Event, each
holder of shares of Series D Preferred Stock shall have the right, at
such holder's election as set forth below, to receive in respect of each
share owned by such holder a sum equal to (i) the then applicable Face
Value, PLUS (ii) Accumulated Dividends.
(A) The Company shall notify each holder of Series D
Preferred Stock in writing as soon as commercially practicable upon
the occurrence of any Special Repurchase Event (a "Company Special
Repurchase Event Notice"), and each holder may notify the Company
in writing within 30 days after such holder has actual knowledge of
the occurrence of any Special Repurchase Event (a "Holder Special
Repurchase Event Notice"). Upon receipt of a Holder Special
Repurchase Event Notice, the Company shall send copies of such
Holder Special Repurchase Event Notice to all other holders, if
any, of shares of Series D Preferred Stock. A Company Special
Repurchase Event Notice or a Holder Special Repurchase Event Notice
shall be denominated herein a "Special Repurchase Event Notice".
(B) Within ten (10) days after receipt of any Special
Repurchase Event Notice (or a copy thereof), each holder shall send
a written notice to the Company either electing to have such
holder's shares repurchased pursuant to the provisions of this
Section 8(d) or declining to so elect (the "Special Repurchase
Event Election"). Within 10 days after receipt of each holder's
Special Repurchase Event Election, the Company shall repurchase
each share of Series D Preferred Stock of each such holder electing
to have such holder's shares repurchased pursuant to the provisions
of this Section 8(d) at a price per share equal to the Face Amount
per share plus Accumulated Dividends.
(4) CUMULATIVE REMEDIES. The remedies provided to the holders
of the shares of Series D Preferred Stock set forth in this Section 8(d)
with respect to any misrepresentation or breach of covenant contained
herein shall be without prejudice to any other remedies of such holders
for such misrepresentation or breach, including without limitation (in
the case of General Electric) any remedies of General Electric under the
Stock Purchase Agreement.
9. REDEMPTION.
a. OPTIONAL REDEMPTION. The Company may at any time from and
after January 1, 2007, and from time to time thereafter, redeem out of funds
legally available therefor all of the shares of Series D Preferred Stock at
its election expressed by resolution of the Board, upon not less than thirty
(30) days' prior notice to the holders of record of the Series D Preferred
Stock to be redeemed, given by mail, at the
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Redemption Price (as hereinafter defined) on the Redemption Date (as
hereinafter defined). The Company shall not redeem less than all the
outstanding shares of Series D Preferred Stock under this Section 9(a).
b. COMPANY'S ELECTION UPON CHANGE IN CONTROL. In the event of any
Change in Control, the Company may redeem out of funds legally available
therefor all of the shares of Series D Preferred Stock at its election
expressed by resolution of the Board upon not less than thirty (30) days'
prior notice to the holders of record of the Series D Preferred Stock to be
redeemed, given by mail. Upon such resolution of the Board, each holder of
shares of Series D Preferred Stock shall have the right to receive on the
Redemption Date (as defined below) in respect of each share owned by such
holder a sum equal to (i) the then applicable Face Value, PLUS (ii)
Accumulated Dividends, PLUS (iii) a "Change of Control Special Dividend B"
equal to 23% of the then applicable Face Value. The Company shall not redeem
less than all of the outstanding shares of Series D Preferred Stock under
this Section 9(b).
c. REDEMPTION DATE. The "Redemption Date" shall be the date fixed
for redemption in the notice of redemption under Sections 9(a) or 9(b) above.
The Redemption Date with respect to any Company Change in Control
Transaction shall be a date on or before the effective date of such Change in
Control.
d. REDEMPTION PRICE. The price at which outstanding shares of
Series D Preferred Stock shall be redeemed pursuant to Section 9(a) shall be
the Face Amount per share, as then in effect, together with all Accumulated
Dividends on such shares to the Redemption Date (the "Redemption Price").
e. NOTICE OF REDEMPTION. Each notice of redemption shall state
(i) the Redemption Date, (ii) the number of shares of Series D Preferred
Stock to be redeemed, (iii) as the case may be, pursuant to Sections 9(a) and
9(b) above, either (x) the Redemption Price or (y) the sum equal to (A) the
then applicable Face Value, PLUS (B) Accumulated Dividends, PLUS (C) the
Change of Control Special Dividend B equal to 23% of the then applicable Face
Value applicable to the shares to be redeemed, (iv) the place or places where
such shares are to be surrendered, and (v) that dividends on shares to be
redeemed will cease to accrue on the Redemption Date. No defect in any such
notice to any holder of Series D Preferred Stock shall affect the validity of
the proceedings for the redemption of any other shares of such Series D
Preferred Stock.
f. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
redeemed pursuant to the provisions of this Section 9 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
g. CONDITION PRECEDENT TO CHANGE IN CONTROL. If the Company fails
to pay all amounts payable to the holders of shares of Series D Preferred
Stock due in respect of a redemption pursuant to Section 9(b) hereof prior on
or prior to the Redemption Date, any related Company Change of Control
Transaction shall be void and of no force and effect.
h. RESTRICTIONS ON REDEMPTIONS. No shares of Series D Preferred
Stock shall be redeemed under this Section 9: (i) at any time that such
redemption is prohibited by the DGCL; or (ii) at any time that the terms and
provisions of any contract or other agreement of the Company in effect as of
the Issue Date providing financing or
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working capital to the Company specifically prohibits such redemption or
provides that such redemption would constitute a breach thereof or a default
thereunder.
10. NO SINKING FUND. No sinking fund shall be established for the
retirement or redemption of shares of Series D Preferred Stock.
11. PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of shares of Series D
Preferred Stock shall have any preemptive or subscription rights in respect
of any securities of the Company that may be issued.
12. NO OTHER RIGHTS. The shares of Series D Preferred Stock shall not
have any designations, preferences or relative, participating, optional or
other special rights except as expressly set forth in the Company's
Certificate of Incorporation, this Certificate or as otherwise required by
law.
RESOLVED, FURTHER, that the Secretary of the Company be, and he hereby is,
authorized, empowered and directed to execute an Amended Certificate of
Designation, Preferences and Rights of Series D Preferred Stock and that such
Certificate be delivered to and filed with the Secretary of State of the
State of Delaware pursuant to the provisions of Section 103 and Section
151(g) of the DGCL, both as amended.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate
of Designation to be executed by its Secretary as of March 25, 1997.
ALLIANCE IMAGING, INC.
By:________________________________
Terrence M. White,
Secretary
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ALLIANCE IMAGING, INC.
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES E 4% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Alliance Imaging, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY
CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of
the Company (the "Board") by the Restated Certificate of Incorporation of the
Company, as amended (the "Certificate of Incorporation"), the Board, pursuant
to a unanimous written consent dated as of March 25, 1997, adopted the
following resolutions authorizing the issuance of Series E 4% Cumulative
Redeemable Convertible Preferred Stock of the Company, which resolutions are
still in full force and effect and are not in conflict with any provisions of
the Certificate of Incorporation or Bylaws of the Company:
RESOLVED, that pursuant to authority vested in the Board by the
Certificate of Incorporation, the Board does hereby establish a series of
Preferred Stock of the Company from the Company's authorized class of
1,000,000 shares of $0.01 par value preferred shares, such series to consist
of 9,000 shares, which number may be decreased (but not below the number of
shares thereof then outstanding) from time to time by the Board, and to the
extent that the voting rights, designation, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions of that series are not stated and expressed in
the Certificate of Incorporation, does hereby fix and state the voting
rights, designation, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof, as follows:
1. DEFINITIONS. Unless otherwise specified herein, the following
capitalized terms shall have the meanings ascribed to them below:
ACCUMULATED DIVIDENDS. "Accumulated Dividends" shall have the
meaning set forth in Section 4(d).
AFFILIATE. "Affiliate" shall mean, with respect to any Person, any
other Person which directly or indirectly controls or is controlled by or is
under common control with such Person, and, with respect to the Company only,
includes any other Person with whom the Company has any joint venture,
partnership, or other shared investment interest. As used in this
definition, "control" (including its correlative meanings, "controlled by"
and "under common control with") shall mean possession,
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Page 2
directly or indirectly, of power to (i) direct or cause the direction of
management or policies of such Person (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise) or (ii) vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person.
APPLICABLE LAW. "Applicable Law" shall mean, with respect to any
Person, any federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees, consultants or
agents.
AVAILABLE ASSETS. "Available Assets" shall have the meaning set
forth in Section 5(a).
AVERAGE MARKET PRICE. The "Average Market Price" of a share of
Common Stock at any date shall mean the average of the daily closing prices
per share of Common Stock for fifteen (15) consecutive trading days ending on
the trading day immediately preceding such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such
15 day period). The closing price for each trading day shall mean (i) the
closing sales price on such trading day of a share of Common Stock on the
principal national securities exchange or automated quotation system on which
the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange or
automated quotation system, the average of the last reported bid and asked
prices on such trading day in the over-the-counter market as furnished by the
National Association of Securities Dealers, Inc., or, if such firm is not
then engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business selected in good faith by the
Company or, if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc., selected in good faith by
the Company, or (ii) if the shares of Common Stock are not then traded on any
such exchange or system, the amount determined in good faith by the Board to
represent the fair value of a share of Common Stock.
BASE CONVERSION PRICE. "Base Conversion Price" shall have the
meaning set forth in Section 7, as adjusted from time to time as set forth
therein.
CAPITAL LEASE. "Capital Lease" shall mean any lease by a Person of
any property (whether real, personal or mixed) which, in conformity with GAAP
(including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), is accounted for as a capital lease on
the balance sheet of such person.
CAPITAL LEASE OBLIGATIONS. "Capital Lease Obligations" shall mean,
as to any Person, the obligations of such Person to pay rent or other amounts
under a Capital Lease and, for purposes of this Certificate of Designation,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with
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GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board).
CHAMPUS. "CHAMPUS" has the meaning set forth in Section 8(d)(1)(C).
CHANGE IN CONTROL. "Change in Control" shall be deemed to have
occurred (i) at such time as any person (as defined in Section 13(d)(3) of
the Securities and Exchange Act of 1934) at any time shall directly or
indirectly acquire more than 40% of the voting power of the Common Stock of
the Company, (ii) at such time as during any one year period, individuals who
at the beginning of such period constitute the Company's Board cease to
constitute at least a majority of such Board, (iii) upon consummation of a
merger or consolidation of the Company into or with another corporation in
which the shareholders of the Company immediately prior to the consummation
of such transaction shall own less than Fifty Percent (50%) of the voting
securities of the surviving corporation (or the parent corporation of the
surviving corporation where the surviving corporation is wholly-owned by the
parent corporation) immediately following the consummation of such
transaction or (iv) the sale, transfer or lease (but not including a transfer
or lease by pledge or mortgage to a bona fide lender) of all or substantially
all of the assets of the Company, in any of cases (i), (ii), (iii) and (iv)
in a single transaction or series of transactions; PROVIDED, HOWEVER, that no
Change in Control shall be deemed to have occurred solely as a result of
General Electric Company, a New York corporation, directly or indirectly
acquiring more than 40% of the voting power of the Common Stock of the
Company.
CHANGE IN CONTROL SPECIAL DIVIDEND A. "Change in Control Special
Dividend A" shall have the meaning set forth in Section 8(c)(1).
CHANGE IN CONTROL SPECIAL DIVIDEND B. "Change in Control Special
Dividend B" shall have the meaning set forth in Section 9(b).
COMMON STOCK. "Common Stock" shall mean the Company's Common Stock,
$0.01 par value per share.
COMPANY CHANGE IN CONTROL TRANSACTION. "Company Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(A).
COMPANY SPECIAL REPURCHASE EVENT NOTICE. "Company Special
Repurchase Event Notice" shall have the meaning set forth in Section
8(d)(3)(A).
CONVERSION DATE. "Conversion Date" shall have the meaning set forth
in Section 6(a).
CONVERSION PRICE. "Conversion Price" shall have the meaning set
forth in Section 7, as adjusted from time to time as set forth therein.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
DIVIDEND PAYMENT DATE. "Dividend Payment Date" shall have the
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Page 4
meaning set forth in Section 4(b).
DIVIDEND PERIOD. "Dividend Period" shall have the meaning set forth
in Section 4(b).
EXCLUDED STOCK. "Excluded Stock" shall have the meaning set forth
in Section 7(b).
FACE AMOUNT. The "Face Amount" of each share of Series E Preferred
Stock (regardless of its par value) shall be One Thousand Dollars
($1,000.00), as the Series E Preferred Stock is presently constituted, such
amount to be proportionately adjusted to reflect any combination,
consolidation, reclassification or like adjustment of or to the Series E
Preferred Stock.
FEDERAL HEALTH CARE PROGRAM. "Federal Health Care Program" shall
have the meaning set forth in Section 8(d)(1)(E).
FUNDED DEBT. "Funded Debt" shall mean as applied to any Person, all
Indebtedness of such Person, in a principal amount of at least One Million
Dollars ($1,000,000) in each instance, which by its terms or by the terms of
any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year (including an option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year) from the date of the creation thereof; PROVIDED that
"Funded Debt" shall include, as at any date of determination, any portion of
such Funded Debt outstanding on such date which matures on demand or within
one year from such date (whether by sinking fund, other required prepayment
or final payment at maturity) and which is not directly or indirectly
renewable, extendible or refundable, at the option of the debtor to a date
more than one year from such date; PROVIDED, FURTHER, that "Funded Debt"
shall include all Indebtedness pursuant to that certain Note Purchase
Agreement dated as of April 14, 1989, as amended to and including the Issue
Date; and PROVIDED, FURTHER, that except with respect to Indebtedness
pursuant to that certain Note Purchase Agreement dated as of April 14, 1989,
as amended to and including the Issue Date, "Funded Debt" shall not include
(i) Indebtedness secured by equipment, trailers or modular buildings used in
the business of the Company or (ii) Indebtedness convertible into equity
securities of the Company on commercially reasonable terms.
FUNDED DEBT DEFAULT. "Funded Debt Default" shall mean any date 30
days after the Company shall have Knowledge that it is in default with
respect to any Funded Debt, unless during such 30 day period either (i) such
default shall have been waived by the lender with respect to such Funded Debt
or (ii) the agreement or agreements governing such Funded Debt shall have
been amended to eliminate such default, in either of cases (i) or (ii)
without any economic consideration (other than such consideration required by
the terms of the documentation with respect to such Funded Debt as in effect
prior to any amendment of such documentation described in clause (ii)
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Page 5
above) provided to the lender with respect to such Funded Debt by the Company.
GAAP. "GAAP" means generally accepted accounting principles.
GENERAL ELECTRIC. "General Electric" shall have the meaning set
forth in Section 8(d)(1)(E).
GOVERNMENTAL AUTHORITY. "Governmental Authority" shall mean any
federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing, in all such cases
whether domestic or foreign.
HOLDER SPECIAL REPURCHASE EVENT NOTICE. "Holder Special Repurchase
Event Notice" shall have the meaning set forth in Section 8(d)(3)(A).
INDEBTEDNESS. "Indebtedness" shall mean, as to any Person without
duplication, (a) all items which, in accordance with GAAP, would be included
as a liability on the balance sheet of such Person and its Majority-Owned
Subsidiaries (including any obligation of such Person to the issuer of any
letter of credit for reimbursement in respect of any drafts drawn under such
letter of credit), excluding obligations in respect of deferred taxes and
deferred employee compensation and benefits, and anything in the nature of
capital stock, surplus capital and retained earnings; (b) the amount
available for drawing under all letters of credit issued for the account of
such Person; (c) obligations (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by liens; (d)
Capital Lease Obligations of such Person; and (e) all guarantees of such
Person, PROVIDED, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person,
PROVIDED the same are not more than 45 days overdue or are being contested in
good faith.
ISSUE DATE. "Issue Date" shall mean, with respect to any shares of
Series E Preferred Stock, the date such shares of Series E Preferred Stock
are issued.
JUNIOR SECURITIES. "Junior Securities" shall have the meaning set
forth in Section 3.
KNOWLEDGE. "Knowledge" or "knowledge," with respect to any Person,
shall mean the actual knowledge of such Person, after reasonable inquiry.
For purposes hereof, a Person shall be deemed to have actual knowledge of the
contents of all books and records with respect to which such Person has
reasonable access. Without limiting the generality of the foregoing, with
respect to any Person that is a corporation, partnership or other business
entity, actual knowledge shall be deemed to include the actual knowledge of
all principal employees of any such Person (which, for purposes of the
Company, shall include without limitation Richard N. Zehner, Vincent S.
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Pino, Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan,
Ph.D., Cheryl A. Ford, and Michael W. Grismer) as well as the Chief Executive
Officer, President, Chief Financial Officer and all Vice Presidents in the
case of corporate Persons, and general partners in the case of general or
limited partnerships, as the case may be.
LIQUIDATION EVENT. "Liquidation Event" shall mean any of the
following: (i) a liquidation or winding up of the Company, (ii) a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) of the voting securities
of the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iii) the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of the
assets of the Company; in any of cases (i), (ii) or (iii) in a single
transaction or series of transactions.
LIQUIDATION PREFERENCE AMOUNT. "Liquidation Preference Amount"
shall have the meaning set forth in Section 5(a).
MAJORITY-OWNED SUBSIDIARY. "Majority-Owned Subsidiary" means with
respect to any Person any Subsidiary of such Person of which at least a
majority of the outstanding shares, partnership interests or other equity
interests therein is at the time directly or indirectly owned or controlled
by such Person or any other Subsidiary which is a consolidated subsidiary of
such Person under GAAP or one or more of the Majority-Owned Subsidiaries of
such Person or by such Person and one or more of the Majority-Owned
Subsidiaries of such Person.
MARKET PRICE. The "Market Price" of a share of Common Stock on or
with respect to any day shall mean (i) the closing sales price on the
immediately preceding trading day of a share of Common Stock on the principal
national securities exchange or automated quotation system on which the
shares of Common Stock are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange or automated
quotation system, the average of the last reported bid and asked prices on
such immediately preceding trading day in the over-the-counter market as
furnished by the National Association of Securities Dealers, Inc., or, if
such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected in good
faith by the Company or, if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc., selected in good
faith by the Company, or (ii) if the shares of Common Stock are not then
traded on any such exchange or system, the amount determined in good faith by
the Board to represent the fair value of a share of Common Stock.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with
respect to any Person or designated group of Persons, a change in, or effect
on, or group of such changes in or effects on, the operations, financial
condition or results of operations, prospects, assets or liabilities of the
Person or group of Persons, as the
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case may be, taken as a whole, that results in a material adverse effect on,
or a material adverse change in, the operations, financial condition, results
of operations, prospects, assets or liabilities of the Person or group of
Persons, as the case may be, taken as a whole, excluding adverse changes in
the general economy.
OTHER CHANGE IN CONTROL TRANSACTION. "Other Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(B).
PERSON. "Person" shall mean any natural person, firm, corporation,
partnership, limited liability company, association, trust or other entity.
RECORD DATE. "Record Date" shall have the meaning set forth in
Section 4(c).
REDEMPTION DATE. "Redemption Date" shall have the meaning set forth
in Section 9(c).
REDEMPTION PRICE. "Redemption Price" shall have the meaning set
forth in Section 9(d).
REGULAR DIVIDENDS. "Regular Dividends" shall have the meaning set
forth in Section 4(a).
SERIES D PREFERRED STOCK. "Series D Preferred Stock" shall mean the
Company's Series D 4% Cumulative Redeemable Convertible Preferred Stock
designated pursuant to the Certificate of Designation, Preferences and Rights
of Series D 4% Cumulative Redeemable Convertible Preferred Stock dated as of
even date herewith.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall have the
meaning set forth in Section 2.
SPECIAL DIVIDEND EVENT TRIGGER DATE. "Special Dividend Event Trigger
Date" shall have the meaning set forth in Section 4(b).
SPECIAL DIVIDENDS. "Special Dividends" shall have the meaning set
forth in Section 2.
SPECIAL REPURCHASE EVENT. "Special Repurchase Event" shall have the
meaning set forth in Section 8(d)(3).
SPECIAL REPURCHASE EVENT ELECTION. "Special Repurchase Event
Election" shall have the meaning set forth in Section 8(d)(3)(B).
SSA. "SSA" shall have the meaning set forth in Section 8(d)(1)(C).
STATE HEALTH CARE PROGRAM. "State Health Care Program" shall have
the meaning set forth in Section 8(d)(1)(E).
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Page 8
STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" shall mean
that certain Stock Purchase Agreement dated as of March 25, 1997 between
General Electric and the Company.
SUBSIDIARY. "Subsidiary" shall mean with respect to any Person each
corporation, partnership, joint venture or other entity in which such Person
has, directly or indirectly, any equity interest in the capital stock
thereof, any partnership interest, or any other equity interest therein.
2. DESIGNATION OF SERIES; ISSUANCE AND FACE AMOUNT. This series of
Preferred Stock is designated "Series E 4% Cumulative Redeemable Convertible
Preferred Stock" (hereinafter the "Series E Preferred Stock"), and the number
of shares which shall constitute such series shall be 9,000, which number may
be decreased (but not below the number thereof then outstanding) from time to
time by the Board. The shares of Series E Preferred Stock shall be issued by
the Company for their Face Amount (as herein defined), in such amounts, at
such times and to such persons as shall be specified by the Board, from time
to time.
3. RANK. The Series E Preferred Stock shall, with respect to dividend
rights and rights on any Liquidation Event, rank senior to all Junior
Securities. "Junior Securities" shall mean (i) the Company's Series A 6.0%
Cumulative Preferred Stock, (ii) the Company's Series B Cumulative Preferred
Stock, (iii) the Company's Series C Convertible Preferred Stock, (iv) Common
Stock, and (v) any other classes or series of stock or other equity
securities of the Company; PROVIDED, HOWEVER, that the term "Junior
Securities" shall not include the Series D Preferred Stock. Shares of the
Company's Series E Preferred Stock shall, with respect to dividend rights and
rights on any Liquidation Event, rank on a pari passu basis with shares of
the Series D Preferred Stock.
4. DIVIDENDS.
a. REGULAR DIVIDENDS. The holders of record of the Series E
Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cumulative preferential cash dividends accruing from the
Issue Date at the rate of Four Percent (4%) per annum of the Face Amount per
share ("Regular Dividends").
b. SPECIAL DIVIDENDS.
(1) Each of the following shall be a "Special Dividend Event
Trigger Date":
(A) At any time after April 1, 2007, if for fifteen (15) days out of
any twenty (20) consecutive trading days on which the Common Stock is
traded, the Market Price per share of Common Stock shall be less than
83.3% of the then-applicable Conversion Price , then the last such
trading date shall be a Special Dividend Event Trigger Date.
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(b) The date of any Funded Debt Default shall be a Special Dividend
Event Trigger Date.
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Page 10
(2) Upon any Special Dividend Event Trigger Date, the holders of
record of the Series E Preferred Stock shall be entitled to receive, out of
funds legally available for such purpose, in addition to Regular Dividends,
a special dividend in the following per annum percentages of the Face
Amount per share ("Special Dividends"):
- --------------------------------------------------------------------------------
Special Dividend
Time Period Percentage
- --------------------------------------------------------------------------------
First full calendar month after Special Dividend Event
Trigger Date 1%
- --------------------------------------------------------------------------------
Second full calendar month after Special
Dividend Event Trigger Date 2%
- --------------------------------------------------------------------------------
Third full calendar month after Special Dividend Event
Trigger Date 3%
- --------------------------------------------------------------------------------
Fourth full calendar month after Special Dividend Event
Trigger Date and all time periods thereafter 4%
- --------------------------------------------------------------------------------
(3) At any time after the Special Dividend Percentage becomes 4%
under Section 4(b)(2) above, the Company may purchase all (but not less
than all) of the outstanding shares of Series E Preferred Stock owned by
each holder at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends. To exercise its right to purchase the
shares of Series E Preferred Stock under this Section 4(b)(3), the Company
shall send a written notice within ten (10) days after the first day of the
fourth full calendar month after a Special Dividend Event Trigger Date to
each holder either electing to repurchase such holder's shares pursuant to
the provisions of this Section 4(b)(3) or declining to so elect (the
"Special Dividend Event Repurchase Offer").
(4) Within 10 days after receipt of a Special Dividend Event
Repurchase Offer, each holder shall send a written notice to the Company
either accepting or rejecting such Special Dividend Event Repurchase Offer.
The Company shall purchase all of the shares of each holder accepting the
Special Dividend Event Repurchase Offer within 10 days after receipt of the
notice from the holder referred to in the previous sentence at a purchase
price per share equal to the Face Amount per share plus Accumulated
Dividends.
(5) With respect to the shares held by any holder of shares of
Series E Preferred Stock that does not accept a Special Dividend Repurchase
Offer, Special Dividends with respect to such shares shall cease to accrue
as of the first day of the first calendar month following the date of the
Special Dividend Event Repurchase Offer (subject to Section 4(b)(6) below).
Any holder of shares
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of Series E Preferred Stock that does not timely send
a written notice to the Company either accepting or rejecting a Special
Dividend Event Repurchase Offer shall be deemed to have rejected such
offer.
(6) Notwithstanding any holder's rejection or deemed rejection
of a Special Dividend Repurchase Offer, upon any later Special Dividend
Event Trigger Date Special Dividends on the shares of Series E Preferred
Stock owned by such holder shall accrue as set forth in Section 4(b)(2)
above.
c. TIME OF PAYMENT.
(1) Regular Dividends shall be cumulative from the Issue Date
and shall be payable in arrears, when and as declared by the Board, on
March 31, June 30, September 30, and December 31 of each year (each such
date being herein referred to as a "Dividend Payment Date"), commencing on
the first such date immediately following the Issue Date. The quarterly
period between consecutive Dividend Payment Dates shall hereinafter be
referred to as a "Dividend Period." Each such Regular Dividend shall be
paid to the holders of record of the Series E Preferred Stock as their
names appear on the share register of the Company on the corresponding
Record Date. As used above, the term "Record Date" means, with respect to
the Regular Dividend payable on March 31, June 30, September 30 and
December 31, respectively, of each year, the preceding March 15, June 15,
September 15 and December 15, or such other record date designated by the
Board of the Company with respect to the Regular Dividend payable on such
respective Dividend Payment Date. Dividends on account of arrears for any
past Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date,
not exceeding 50 days preceding the payment date thereof, as may be fixed
by the Board.
(2) Special Dividends shall be cumulative from the date of the
first day of the first full calendar month after any Special Dividend Event
Trigger Date and shall be payable in arrears, when and as declared by the
Board, on each Dividend Payment Date. Each such Special Dividend shall be
paid to the holders of record of the Series E Preferred Stock as their
names appear on the share register of the Company on the corresponding
Record Date. Special Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 50
days preceding the payment date thereof, as may be fixed by the Board.
d. ACCUMULATION. In the event that full cash Regular Dividends (and
any full cash Special Dividends) are not paid to the holders of all outstanding
shares of Series E Preferred Stock, and funds available shall be insufficient to
permit payment in full in cash to all such holders of the preferential amounts
to which they are they entitled, the entire amount available for payment of cash
dividends shall be distributed among the holders of the Series E Preferred Stock
ratably in proportion to the full
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Page 12
amount to which they would otherwise be respectively entitled, and any
remainder not paid in cash to the holders of the Series E Preferred Stock
shall cumulate as provided in this subsection 4(d). If, on any Dividend
Payment Date, the holders of the Series E Preferred Stock shall not have
received the full Regular Dividends and full Special Dividends provided for
in this Section 4, then such dividends shall cumulate, whether or not earned
or declared, with additional dividends thereon to accrue at the rate of eight
percent (8%) per annum for each succeeding full Dividend Period during which
such dividends shall remain unpaid. Unpaid dividends for any period less
than a full Dividend Period shall cumulate on a day-to-day basis and shall be
computed on the basis of a 360 day year. "Accumulated Dividends" shall mean,
as of any date, all Regular Dividends and Special Dividends that are either
undeclared or unpaid as of such date.
e. RESTRICTION WITH RESPECT TO JUNIOR SECURITIES.
(1) So long as any Series E Preferred Stock shall remain
outstanding, no regular periodic cash dividend whatsoever shall be declared
or paid upon or set apart for payment on any class of Junior Securities,
unless in each instance at such time no Accumulated Dividends, Change in
Control Dividend A or Change in Control Dividend B shall be accrued but
unpaid.
(2) So long as any Series E Preferred Stock shall remain
outstanding, no shares of Junior Securities shall be redeemed or purchased
for cash by the Company or any parent or subsidiary thereof nor shall any
moneys be paid to or made available for a sinking fund for redemption or
purchase of any shares of Junior Securities.
(3) The restrictions set forth in Sections 4(e)(1) and 4(e)(2)
above shall not apply to (i) up to $100,000 per calendar year applied to
redemption or purchase by the Company of Junior Securities owned by
employees of the Company in connection with the separation of such
employees from their employment with the Company, or (ii) any particular
cash dividend, redemption or purchase if the holders of a majority of then
outstanding shares of Series E Preferred Stock consent in writing to the
declaration or payment of such cash dividend, redemption or purchase, as
the case may be.
5. LIQUIDATION PREFERENCE.
a. GENERAL. Upon a Liquidation Event, the holders of Series E
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its shareholders, whether
from capital, surplus or earnings ("Available Assets"), before any payment
shall be made in respect of any Junior Security, an amount equal to the Face
Amount per share PLUS an amount equal to all Accumulated Dividends, if any
(in the aggregate, the "Liquidation Preference Amount"). If upon a
Liquidation Event, the Available Assets shall be insufficient to pay the
holders of the Series E Preferred Stock the full Liquidation Preference
Amount, the holders of the Series E Preferred Stock shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares
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held by them upon such distribution if all amounts payable on or with respect
to said shares were paid in full.
b. NOTICE REQUIRED. Written notice of any voluntary or
involuntary Liquidation Event, stating the payment date and the place where
the distributable amount shall be payable, shall be given by mail, postage
prepaid, not less than thirty (30) days prior to the payment date stated
therein, to the holders of record of the Series E Preferred Stock at their
respective addresses as the same shall then appear on the books of the
Company.
6. CONVERSION.
a. EXERCISE OF CONVERSION RIGHT. Each holder of Series E
Preferred Stock shall have the right, at its option, at any time from the
Issue Date through December 31, 2006, to convert, subject to the terms and
provisions of this Section 6, all or any portion of its Series E Preferred
Stock then outstanding into such number of fully paid and non-assessable
shares of Common Stock as results from dividing (i) the sum of (A) the Face
Amount of all shares of Series E Preferred Stock to be converted plus (B) any
Accumulated Dividends on such shares, by (ii) the applicable Conversion Price
(as defined below) on the Conversion Date (as defined below). Such
conversion shall be deemed to have been made at the close of business on the
date that the certificate or certificates for shares of Series E Preferred
Stock shall have been surrendered for conversion and written notice shall
have been received as provided in Section 6(b) (the "Conversion Date"), so
that the person or persons entitled to receive the shares of Common Stock
upon conversion of such shares of Series E Preferred Stock shall be treated
for all purposes as having become the record holder or holders of such shares
of Common Stock at such time and such conversion shall be at the Conversion
Price in effect at such time. Upon conversion of any shares of Series E
Preferred Stock pursuant to this Section 6, the rights of the holder of such
shares upon the Conversion Date shall be the rights of a holder of Common
Stock only, and each such holder shall not have any rights in its former
capacity as a holder of shares of Series E Preferred Stock.
b. NOTICE TO COMPANY. In order to convert all or any portion of
its outstanding Series E Preferred Stock into shares of Common Stock, the
holder of such Series E Preferred Stock shall deliver the shares of Series E
Preferred Stock to be converted to the Company at its principal office,
together with written notice that it elects to convert those shares of Series
E Preferred Stock into shares of Common Stock in accordance with the
provisions of this Section 6. Such notice shall specify the number of shares
of Series E Preferred Stock to be converted and the name or names in which
the holder wishes the certificates for shares of Common Stock to be
registered, together with the address or addresses of the person or persons
so named, and, if so required by the Company, shall be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder of the shares of Series E
Preferred Stock to be converted or by its attorney duly authorized in writing.
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Page 14
c. DELIVERY OF CERTIFICATE. As promptly as practicable after the
surrender as hereinabove provided of shares of Series E Preferred Stock for
conversion into shares of Common Stock, the Company shall deliver or cause to
be delivered to the holder, or the holder's designees, certificates
representing the number of fully paid and non-assessable shares of Common
Stock into which the shares of Series E Preferred Stock are entitled to be
converted, together with a cash adjustment in respect of any fraction of a
share to which the holder shall be entitled as provided in Section 6(d), and,
if less than the entire number of shares of Series E Preferred Stock
represented by the certificate or certificates surrendered is to be
converted, a new certificate for the number of shares of Series E Preferred
Stock not so converted. So long as any shares of Series E Preferred Stock
remain outstanding, the Company shall not close its Common Stock transfer
books. The issuance of certificates for shares of Common Stock upon the
conversion of shares of Series E Preferred Stock shall be made without charge
to the holder for any tax in respect of the issuance of such certificates
(other than any transfer, withholding or other tax if the shares of Common
Stock are to be registered in a name different from that of the registered
holder of Series E Preferred Stock).
d. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series E Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the
Market Price of a whole share of Common Stock as of the Conversion Date.
e. RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of shares of Series E
Preferred Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series E Preferred Stock
then outstanding. The Company shall take at all times such corporate action
as shall be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of
shares of Series E Preferred Stock in accordance with the provisions of this
Section 6.
f. REGISTRATION. If any shares of Common Stock to be reserved
for the purpose of conversion of Series E Preferred Stock require
registration or listing with, or approval of, any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or
delivered upon conversion, the Company shall, in good faith and as
expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
g. SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of
Common Stock that may be issued upon conversion of the Series E Preferred
Stock shall upon issuance by the Company be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
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Page 15
h. RETIREMENT OF SHARES. Any shares of Series E Preferred Stock
converted pursuant to the provisions of this Section 6 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
7. CONVERSION PRICE. As used herein, the "Conversion Price" shall
initially be the greater of (i) the Average Market Price as of the Issue Date
and (ii) the Base Conversion Price, subject to adjustment as set forth below.
The "Base Conversion Price" shall be $6.00 per share of Common Stock (as such
Common Stock is constituted as of the date of this Certificate, such amount
to be proportionately adjusted in the event of any stock dividend, stock
split, subdivision, reclassification, combination or similar event with
respect to the Common Stock). No payment or adjustment shall be made for any
dividends on the Common Stock issuable in such conversion. The Conversion
Price shall be subject to adjustment from time to time as follows:
a. COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If the
Company shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance,
the Conversion Price in effect immediately prior to each such issuance shall
immediately be reduced to the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the Conversion Price in
effect immediately prior to such issuance and (B) the consideration, if any,
received by the Company upon such issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance. For the
purposes of any adjustment of the Conversion Price pursuant to this Section
7(a), the following provisions shall be applicable:
(1) CASH. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such Common
Stock before deducting therefrom any discounts, commissions, taxes or
other expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale
thereof.
(2) CONSIDERATION OTHER THAN CASH. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole or
in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof
as determined by the Board; provided that such fair value as determined by
the Board shall not exceed the aggregate Market Price of the shares of
Common Stock being issued as of the date the Board authorizes the issuance
of such shares.
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(3) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii) securities by
their terms convertible into or exchangeable for Common Stock (whether or
not at the time so convertible or exchangeable) or (iii) options, warrants
or rights to purchase such convertible or exchangeable securities (whether
or not at the time exercisable):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued at the time such options, warrants or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections (1) and (2)
above), if any, received by the Company upon the issuance of
such options, warrants or rights plus the minimum purchase
price provided in such options, warrants or rights for the
Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options,
warrants or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such
securities and related options, warrants or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration (determined in
the manner provided in subsections (1) and (2) above), if any,
to be received by the Company upon the conversion or exchange
of such securities, or upon the exercise of any related
options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof;
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or
rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to
be received by the Company upon such exercise, conversion or
exchange, including, but not limited to, a change resulting
from the anti-dilution provisions thereof, the Conversion Price
as then in effect shall forthwith be readjusted to such
Conversion Price as
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would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised prior
to such change, or of such convertible or exchangeable securities
not converted or exchanged prior to such change, upon the basis
of such change;
(D) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert
or exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options,
warrants, rights or such convertible or exchangeable securities
on the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities, if any; and
(E) if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further adjustment
of the Conversion Price shall be made for the actual issuance
of Common Stock upon the exercise, conversion, or exchange
thereof;
provided, however, that no increase in the Conversion Price shall be made
pursuant to subsections (A) or (B) of this subsection (3).
b. EXCLUDED STOCK. For purposes of Section 7(a), "Excluded
Stock" shall mean (i) shares of Common Stock issued or reserved for issuance
by the Company as a stock dividend payable in shares of Common Stock, or upon
any subdivision or split-up of the outstanding shares of Common Stock or
Series E Preferred Stock, or upon conversion of shares of Series E Preferred
Stock; (ii) shares of Common Stock reserved for issuance under options and
warrants outstanding on the date hereof; (iii) 750,000 shares of Common Stock
reserved for issuance to key employees and directors of the Corporation
pursuant to the Company's employee stock option plan in effect as of the date
hereof; (iv) shares of Series E Preferred Stock and shares of Common Stock
issuable upon the conversion thereof, and (v) 77,520 shares of Common Stock
issuable upon the conversion of the shares of Series C Convertible Preferred
Stock outstanding on the date hereof.
c. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify the outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect at the time
of the record date for such dividend or distribution
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or the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of any shares of Series
E Preferred Stock surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such shares of Series E Preferred Stock
been converted immediately prior to such date. Successive adjustments in the
Conversion Price shall be made whenever any event specified above shall occur.
d. OTHER DISTRIBUTIONS. In case the Company shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock, (ii) of
evidence of indebtedness of the Company or any subsidiary of the Company,
(iii) of assets, or (iv) of rights or warrants, in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price per
share on such record date, less (B) the fair market value (as determined by
the Board) of said shares or evidences of indebtedness or assets or rights or
warrants to be so distributed, by (2) the number of shares of Common Stock
outstanding on such record date; PROVIDED, HOWEVER, that, so long as there
are no Accumulated Dividends on the Series E Preferred Stock or the Series E
Preferred Stock then outstanding for any previous Dividend Payment Date, the
provisions of this Section 7(d) shall not apply to distributions consisting
of cash dividends on the shares of Common Stock up to an amount equal to 50%
of consolidated net income of the Company and its Subsidiaries as of the
calendar year immediately preceding the proposed record date for such
dividend. Any adjustment provided for by this Section 7(d) shall be made
successively whenever such a record date is fixed.
e. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of
any consolidation with or merger of the Company with or into another
corporation or other entity, or in case of any sale, lease or conveyance to
another entity of the assets of the Company as an entirety or substantially
as an entirety, each share of Series E Preferred Stock shall after the date
of such consolidation, merger, sale, lease or conveyance be convertible into
the number of shares of stock or other securities or property (including
cash) to which the Common Stock issuable (at the time of such consolidation,
merger, sale, lease or conveyance) upon conversion of such share of Series E
Preferred Stock would have been entitled upon such consolidation, merger,
sale, lease or conveyance; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the
holders of the shares of Series E Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any
shares of stock or other securities or property thereafter deliverable on the
conversion of the shares of Series E Preferred Stock. Nothing in this
Section 7(e) shall be construed in any way to derogate from the right of the
holders of the Series E Preferred Stock to require the Company to repurchase
their shares at the Change in Control Repurchase Price upon a Change in
Control, as set forth in Section 8(c) hereof.
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f. NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in subsections (a), (c), (d), and (e)
of this Section 7, the Company shall give notice to each holder of shares of
Series E Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the approximate date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion of
shares of Series E Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 10
days prior to the date so fixed, and in the case of all other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action.
g. STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series E Preferred
Stock pursuant to this Section 7, the Company shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. Each such statement shall be signed by the Company's public
accountants.
h. TREASURY STOCK. For the purposes of this Section 7, the sale
or other disposition of any Common Stock theretofore held in the Company's
treasury shall be deemed to be an issuance thereof.
i. GOOD FAITH. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the shares of Series E Preferred Stock shares against
impairment of any kind.
8. VOTING RIGHTS; PROTECTIVE PROVISIONS; CHANGE OF CONTROL; REPURCHASE
UPON CERTAIN EVENTS.
a. GENERAL. Except as specifically set forth in the DGCL or
provided in the balance of this Section 8, the holders of shares of Series E
Preferred Stock shall not be entitled to any voting rights with respect to
any matters voted upon by stockholders.
b. PROTECTIVE PROVISIONS. So long as any shares of Series E
Preferred Stock are outstanding, the written consent or the affirmative vote
at a meeting called for that purpose of the holders of a majority of the
shares of Series E Preferred Stock then outstanding, voting separately as a
class, shall be necessary to validate or
<PAGE>
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effectuate any of the following: (i) amend, repeal, alter or change any of
the rights, preferences or privileges of the shares of Series E Preferred
Stock; (ii) create (by reclassification of an existing class or series, or
otherwise) any new class or series of shares of the Company's capital stock,
except for classes or series of shares ranking, with respect to dividend
rights and rights on any Liquidation Event, junior to the Series E Preferred
Stock and the Series E Preferred Stock; (iii) issue any shares of the
Company's capital stock, except for classes or series of shares ranking, with
respect to dividend rights and rights on any Liquidation Event, junior to the
Series E Preferred Stock and the Series E Preferred Stock; or (iv) take any
action that materially and adversely affects the legal rights, preferences or
privileges of the shares of Series E Preferred Stock. At any time when there
are any Accumulated Dividends or any Change in Control Special Dividend A
accrued but unpaid for any reason, the holders of a majority of the shares of
Series E Preferred Stock then outstanding, voting separately as a class,
shall be necessary to validate or effectuate (i) any acquisition by the
Company of all or substantially all of the assets of another Person, (ii) any
acquisition by the Company of all or substantially all of the equity
interests in any Person, and (iii) any merger or recapitalization transaction
to which the Company is a party.
c. HOLDER'S ELECTION UPON CHANGE OF CONTROL.
(1) GENERALLY. In the event of any Change in Control, each
holder of shares of Series E Preferred Stock shall have the right, at such
holder's election as set forth below, to receive in respect of each share
owned by such holder a sum equal to (i) the then applicable Face Value,
PLUS (ii) Accumulated Dividends, PLUS (iii) a "Change of Control Special
Dividend A" equal to 18% of the then applicable Face Value.
(2) COMPANY'S NOTIFICATION OBLIGATION.
(A) The Company shall notify each holder of shares of Series E
Preferred Stock in writing within 15 days before any Change in Control
pursuant to a transaction to which the Company is a party (a "Company
Change of Control Transaction") setting forth a description of the
nature of the Change in Control and the date at which such Change in
Control is anticipated to take place.
(B) The Company shall notify each holder of shares of Series E
Preferred Stock in writing as soon as the Company has Knowledge of any
Change of Control pursuant to a transaction that is not a Company
Change of Control Transaction (an "Other Change of Control
Transaction") setting forth a description of the nature of the Change
in Control and the date at which such Change in Control took place or
is anticipated to take place.
(C) The notices described in clauses (A) and (B) above are
collectively denominated "Change in Control Notices".
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Page 21
(3) HOLDER'S ELECTION. Within five (5) days after receipt of
the Change of Control Notice, each holder shall notify the Company in
writing whether or not such holder will require such holder's shares of
Series E Preferred Stock to be redeemed by the Company pursuant to this
Section. If a holder does not timely notify the Company in writing
pursuant to the previous sentence, such holder will be deemed to have
waived its right to require such holder's shares of Series E Preferred
Stock to be redeemed by the Company pursuant to this Section; provided,
however, that such waiver shall only apply to the Change of Control
relating to the relevant Change of Control Notice, and not any subsequent
Change of Control or Change of Control Notice.
(4) COMPANY CHANGE OF CONTROL. The Company shall redeem the
shares of each holder of Series E Preferred Stock so electing such a
redemption in connection with a Company Change of Control Transaction by
making cash payments to such holder in respect of each share owned by such
holder as follows: (i) a sum equal to the then applicable Face Value PLUS
Accumulated Dividends on or prior to the date of the Company Change in
Control Transaction as a condition precedent to the effectiveness of such
Company Change in Control Transaction, and (ii) a sum equal to the Change
in Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Company Change in Control
Transaction. Any Company Change of Control Transaction shall be void and
of no force and effect if the payments set forth in clause (i) of this
Section 8(c)(4) are not made on or prior to the date of such Company Change
in Control Transaction.
(5) OTHER CHANGES OF CONTROL. The Company shall redeem the
shares of each holder of Series E Preferred Stock so electing such a
redemption in connection with an Other Change of Control Transaction as
promptly as practicable after receipt of such holder's notice of such
election by making cash payments to such holder in respect of each share
owned by such holder as follows: (i) a sum equal to the then applicable
Face Value PLUS Accumulated Dividends plus a sum equal to the Change in
Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Other Change in Control Transaction.
d. SPECIAL REPURCHASE EVENTS.
(1) REPRESENTATIONS. The Company represents and warrants to
each holder of shares of Series E Preferred Stock as follows:
(A) Except as otherwise disclosed in the Disclosure Schedule to the
Stock Purchase Agreement (as such term is defined therein), neither
the Company nor any of its Affiliates since inception has provided any
research, educational or study grants or other financial support of
any kind to any hospital, physician, or health care provider.
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Page 22
(B) Neither the Company nor any of its Affiliates since inception has
received notice that the Company or any Subsidiary has been, or to the
Company's knowledge has been, the subject of any investigative
proceeding before any federal or state regulatory authority or the
agent of any such authority, including without limitation federal and
state health authorities.
(C) Neither the Company nor any Affiliate, nor the officers,
directors, employees or agents of any of the Company or any Affiliate,
and none of the Persons who provide professional services under
agreements with any of the Company or any Affiliate as agents of such
entities have engaged in any activities which are prohibited, or are
cause for civil penalties or mandatory or permissive exclusion from
Medicare or Medicaid, under Sections 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal Civilian
Health and Medical Plan of the Uniformed Services statute ("CHAMPUS"),
or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited
by any private accrediting organization from which the Company or any
of its Affiliates seeks accreditation or by generally recognized
professional standards of care or conduct, including but not limited
to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for an
item or service that the Person presenting or causing to be presented
knows or should know was not provided as claimed, or (ii) for an item
or service and the Person presenting knows or should know that the
claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring, or to induce the referral of, an individual to a
Person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by
CHAMPUS, Medicare or Medicaid, or any other State Health Care Program
or any Federal Health Care Program, or (iii) in return for, or to
induce, the purchase, lease, or order, or the
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Page 23
arranging for or recommending of the purchase, lease, or order, of
any good, facility, service, or item for which payment may be made
in whole or in party by CHAMPUS, Medicare or Medicaid or any other
State Health Care Program or any Federal Health Care Program; or
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein
not misleading) or a material fact with respect to (i) the conditions
or operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or any other State Health Care Program
certification or any Federal Health Care Program certification, or
(ii) information required to be provided under Section 1124(A) of the
Social Security Act ("SSA") (42 U.S.C. Section 1320a-3).
(D) Neither the Company nor any other Person who after the Issue Date
will have a direct or indirect ownership interest (as those terms are
defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Affiliate of 5% or more (other than General Electric Company, a New
York corporation ("General Electric")), or who will have an ownership
or control interest (as defined in SSA Section 1124(a)(3), or any
regulations promulgated thereunder) in the Company or any Affiliate
(other than General Electric), or who will 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 Company or any Affiliate and (ii) to
the best Knowledge of the Company and any Affiliate, no Person or
entity with any relationship with such entity (including without
limitation a parent company or shareholder of, or partner in an
Affiliate) who after the Issue Date will have an indirect ownership
interest (as that term is defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Company or any Affiliate of 5% or more (other
than General Electric): (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:
(a) 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;
(b) criminal offenses under federal or state law relating to
patient
<PAGE>
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neglect or abuse in connection with the delivery of a health
care item or service;
(c) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a
program operated by or financed in whole or in part by any federal,
state or local governmental agency;
(d) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described
in (a) through (c) above; or
(e) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
(2) COVENANTS. The Company covenants that as long as any shares
of Series E Preferred Stock are outstanding:
(A) The operations of the Company and its Affiliates will be
conducted in accordance with all Applicable Laws, including, without
limitation, all such laws, regulations, orders and requirements
promulgated by any Governmental Authority or relating to consumer
protection, equal opportunity, health care industry regulation, third
party reimbursement (including Medicare and Medicaid), environmental
protection, fire, zoning and building and occupational safety matters,
except for violations that individually or in the aggregate would not
and, insofar as may reasonably be foreseen, in the future will not,
have a Material Adverse Effect on the Company or any Subsidiary.
(B) Without limiting the generality of the foregoing, the operations
of the Company and its Affiliates will be conducted in accordance with
all laws, regulations, orders and requirements relating to health care
industry regulation and third party reimbursement (including Medicare
and Medicaid).
(C) Without limiting the generality of the foregoing, the Company and
all Affiliates shall comply in all material respects with all
directives, orders, instructions, bulletins and other announcements
received from third party payors and their agents (including without
limitation Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, and including without
limitation preparation and submission of claims for reimbursement.
Nothing in this Section 8(d)(2)(C) shall be construed as or is
intended to create any third party beneficiaries.
<PAGE>
Page 25
(3) SPECIAL REPURCHASE EVENTS. The failure of any
representation or warranty of the Company contained in Section 8(d)((1) to
be true on the Issue Date in any material respect, or the Company's breach
of any of the covenants set forth in Section 8(d)(2), shall be a "Special
Repurchase Event". Upon any Special Repurchase Event, each holder of
shares of Series E Preferred Stock shall have the right, at such holder's
election as set forth below, to receive in respect of each share owned by
such holder a sum equal to (i) the then applicable Face Value, PLUS (ii)
Accumulated Dividends.
(A) The Company shall notify each holder of Series E Preferred Stock
in writing as soon as commercially practicable upon the occurrence of
any Special Repurchase Event (a "Company Special Repurchase Event
Notice"), and each holder may notify the Company in writing within 30
days after such holder has actual knowledge of the occurrence of any
Special Repurchase Event (a "Holder Special Repurchase Event Notice").
Upon receipt of a Holder Special Repurchase Event Notice, the Company
shall send copies of such Holder Special Repurchase Event Notice to
all other holders, if any, of shares of Series E Preferred Stock. A
Company Special Repurchase Event Notice or a Holder Special Repurchase
Event Notice shall be denominated herein a "Special Repurchase Event
Notice".
(B) Within ten (10) days after receipt of any Special Repurchase
Event Notice (or a copy thereof), each holder shall send a written
notice to the Company either electing to have such holder's shares
repurchased pursuant to the provisions of this Section 8(d) or
declining to so elect (the "Special Repurchase Event Election").
Within 10 days after receipt of each holder's Special Repurchase Event
Election, the Company shall repurchase each share of Series E
Preferred Stock of each such holder electing to have such holder's
shares repurchased pursuant to the provisions of this Section 8(d) at
a price per share equal to the Face Amount per share plus Accumulated
Dividends.
(4) CUMULATIVE REMEDIES. The remedies provided to the holders of the
shares of Series E Preferred Stock set forth in this Section 8(d) with
respect to any misrepresentation or breach of covenant contained herein
shall be without prejudice to any other remedies of such holders for such
misrepresentation or breach, including without limitation (in the case of
General Electric) any remedies of General Electric under the Stock Purchase
Agreement.
9. REDEMPTION.
a. OPTIONAL REDEMPTION. The Company may at any time from and after
January 1, 2007, and from time to time thereafter, redeem out of funds legally
available therefor all of the shares of Series E Preferred Stock at its
election expressed by resolution of the Board, upon not less than thirty (30)
days' prior notice to the holders of record of the Series E Preferred Stock to
be redeemed, given by mail, at the
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Redemption Price (as hereinafter defined) on the Redemption Date (as
hereinafter defined). The Company shall not redeem less than all the
outstanding shares of Series E Preferred Stock under this Section 9(a).
b. COMPANY'S ELECTION UPON CHANGE IN CONTROL. In the event of any
Change in Control, the Company may redeem out of funds legally available
therefor all of the shares of Series E Preferred Stock at its election
expressed by resolution of the Board upon not less than thirty (30) days' prior
notice to the holders of record of the Series E Preferred Stock to be redeemed,
given by mail. Upon such resolution of the Board, each holder of shares of
Series E Preferred Stock shall have the right to receive on the Redemption Date
(as defined below) in respect of each share owned by such holder a sum equal to
(i) the then applicable Face Value, PLUS (ii) Accumulated Dividends, PLUS (iii)
a "Change of Control Special Dividend B" equal to 23% of the then applicable
Face Value. The Company shall not redeem less than all of the outstanding
shares of Series E Preferred Stock under this Section 9(b).
c. REDEMPTION DATE. The "Redemption Date" shall be the date fixed
for redemption in the notice of redemption under Sections 9(a) or 9(b) above.
The Redemption Date with respect to any Company Change in Control Transaction
shall be a date on or before the effective date of a Change in Control.
d. REDEMPTION PRICE. The price at which outstanding shares of
Series E Preferred Stock shall be redeemed pursuant to Section 9(a) shall be
the Face Amount per share, as then in effect, together with all Accumulated
Dividends on such shares to the Redemption Date (the "Redemption Price").
e. NOTICE OF REDEMPTION. Each notice of redemption shall state (i)
the Redemption Date, (ii) the number of shares of Series E Preferred Stock to
be redeemed, (iii) as the case may be, pursuant to Sections 9(a) and 9(b)
above, either (x) the Redemption Price or (y) the sum equal to (A) the then
applicable Face Value, PLUS (B) Accumulated Dividends, PLUS (C) the Change of
Control Special Dividend B equal to 5% of the then applicable Face Value
applicable to the shares to be redeemed, (iv) the place or places where such
shares are to be surrendered, and (v) that dividends on shares to be redeemed
will cease to accrue on the Redemption Date. No defect in any such notice to
any holder of Series E Preferred Stock shall affect the validity of the
proceedings for the redemption of any other shares of such Series E Preferred
Stock.
f. RETIREMENT OF SHARES. Any shares of Series E Preferred Stock
redeemed pursuant to the provisions of this Section 9 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as to
series, subject to reissuance by the Company as shares of Preferred Stock of
one or more series, as may be determined from time to time by the Board.
g. CONDITION PRECEDENT TO CHANGE IN CONTROL. If the Company fails
to pay all amounts payable to the holders of shares of Series E Preferred Stock
due in respect of a redemption pursuant to Section 9(b) hereof prior on or
prior to the Redemption Date, any related Company Change of Control Transaction
shall be void
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and of no force and effect.
h. RESTRICTIONS ON REDEMPTIONS. No shares of Series E Preferred
Stock shall be redeemed under this Section 9: (i) at any time that such
redemption is prohibited by the DGCL; or (ii) at any time that the terms and
provisions of any contract or other agreement of the Company in effect as of
the Issue Date providing financing or working capital to the Company
specifically prohibits such redemption or provides that such redemption would
constitute a breach thereof or a default thereunder.
10. NO SINKING FUND. No sinking fund shall be established for the
retirement or redemption of shares of Series E Preferred Stock.
11. PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of shares of Series E
Preferred Stock shall have any preemptive or subscription rights in respect of
any securities of the Company that may be issued.
12. NO OTHER RIGHTS. The shares of Series E Preferred Stock shall not
have any designations, preferences or relative, participating, optional or
other special rights except as expressly set forth in the Company's Certificate
of Incorporation, this Certificate or as otherwise required by law.
<PAGE>
Page 28
RESOLVED, FURTHER, that the Secretary of the Company be, and he hereby is,
authorized, empowered and directed to execute an Amended Certificate of
Designation, Preferences and Rights of Series E Preferred Stock and that such
Certificate be delivered to and filed with the Secretary of State of the State
of Delaware pursuant to the provisions of Section 103 and Section 151(g) of the
DGCL, both as amended.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate of
Designation to be executed by its Secretary as of March 25, 1997.
ALLIANCE IMAGING, INC.
By:____________________________________
Terrence M. White,
Secretary
<PAGE>
ELEVENTH AMENDMENT
TO NOTE PURCHASE AGREEMENT
This ELEVENTH AMENDMENT TO NOTE PURCHASE AGREEMENT (this "ELEVENTH
AMENDMENT") is dated as of March 25, 1997 and entered into by and among Alliance
Imaging, Inc., a Delaware corporation (the "COMPANY"), General Electric Company,
a New York corporation acting through GE Medical Systems ("GE"), and DVI
Financial Services Inc. ("DVI" and, together with GE, the "HOLDERS"), and is
made with reference to that certain Note Purchase Agreement dated as of
April 14, 1989, as amended by that certain First Amendment to Note Purchase
Agreement dated as of September 20, 1990, that certain Second Amendment to Note
Purchase Agreement dated as of June 3, 1991, that certain Third Amendment to
Note Purchase Agreement dated as of December 1, 1991, that certain Fourth
Amendment to Note Purchase Agreement dated as of December 31, 1992, that certain
Fifth Amendment to Note Purchase Agreement dated as of June 30, 1993, that
certain Sixth Amendment to Note Purchase Agreement dated as of March 18, 1994,
that certain Seventh Amendment to Note Purchase Agreement dated as of
December 31, 1994, that certain Eighth Amendment to Note Purchase Agreement
dated as of December 31, 1994, that certain Ninth Amendment to Note Purchase
Agreement dated as of April 15, 1996, that certain Tenth Amendment to Note
Purchase Agreement dated as of November 6, 1996 (the "TENTH AMENDMENT"), and
those certain letter agreements dated April 25, 1995 concerning Atlantic/Gulf
Imaging, Inc. and dated June 28, 1996 concerning Sun MRI Services, Inc. (as so
amended, the "NOTE PURCHASE AGREEMENT"), by and among the Company and previous
holders and, in the case of the Tenth Amendment, the Holders, of the Notes.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Note Purchase Agreement.
RECITALS
WHEREAS, the Company and GE desire to amend the Note Purchase Agreement and
GE's Notes, as they relate to the Company and GE only (and not as they relate to
DVI), to permit the conversion of such Notes into shares of the Company's Series
E Preferred Stock (as defined below), on the terms and conditions as set forth
below; and
WHEREAS, the Company and the Holders desire to amend certain covenants and
definitions in the Note Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the applicable parties hereto (as
specified below) agree as follows:
<PAGE>
SECTION 1. CONVERSION OF GE'S NOTES
The Company and GE (including, for all purposes of this Section 1, GE's
Affiliates, as such term is defined in that certain Bridge Loan Agreement, dated
as of December 31, 1996, between the Company and GE), and not DVI, which is not
a party to the agreements contained in this Section 1, agree as follows:
1.1 CONVERSION OF NOTES. GE shall have the right, at its option, at any
time from and after January 1, 1998, to convert, subject to the terms and
provisions of this Section 1, all or any portion of the face amount of its Notes
into such number of fully paid and non-assessable shares of the Company's Series
E Preferred Stock, with the rights and privileges as set forth in the attached
Exhibit 1 (the "SERIES E PREFERRED STOCK"), as results from dividing (i) the
Notional Amount (as defined below) corresponding to the face amount of the Notes
to be converted, by (ii) the Face Amount (as defined in the Series E Preferred
Stock) of the Series E Preferred Stock. For purposes of this Eleventh
Amendment, with respect to the Notes, "Notional Amount" shall mean the principal
amount of a note (the "NOTIONAL OBLIGATION") in the initial notional principal
amount of $9,000,000 as of November 6, 1996 bearing an annual interest rate of
10.00%, compounded monthly, that would remain unpaid as of the Notes Conversion
Date (as defined below) if all payments actually made under the Notes to the
Holder after November 6, 1996 through the Notes Conversion Date, including
payments of both interest and principal, were applied to the Notional
Obligation, applying such payments first to interest on the Notional Obligation
and then to principal of the Notional Obligation, with negative amortization
reflected, if applicable. Such conversion shall be deemed to have been made at
the close of business on the date that a Note or Notes representing the Notional
Amount of Notes to be converted shall have been surrendered for conversion (it
being understood that each dollar in Notional Amount of Notes is represented by
a principal amount of Notes equal to the result of dividing (x) the number 1, by
(y) the ratio of the aggregate remaining Notional Amount of the Notes to the
aggregate remaining face amount of the Notes at the Notes Conversion Date, as
such remaining face amount is calculated from time to time in accordance with
the provisions of the Note Purchase Agreement) and written notice shall have
been received as provided in Section 1.2 (the "NOTES CONVERSION DATE"), so that
the person or persons entitled to receive the shares of Series E Preferred Stock
upon conversion of the Notes shall be treated for all purposes as having become
the record holder or holder of such shares of Series E Preferred Stock at such
time.
1.2 NOTICE TO COMPANY. In order to convert all or any portion of its
Notes into shares of Series E Preferred Stock, GE shall deliver the Notes to be
converted to the Company at its principal office, together with written notice
that it elects to convert those Notes into shares of Series E Preferred Stock in
accordance with the provisions of this Section 1. Such notice shall specify the
amount of Notes to be converted and the name or names in which GE wishes
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the certificates for shares of Series E Preferred Stock to be registered,
together with the address or addresses of the person or persons so named, and,
if so required by the Company, be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company, duly executed by GE
or by its attorney duly authorized in writing.
1.3 DELIVERY OF CERTIFICATE. As promptly as practicable after the
surrender as hereinabove provided of Notes for conversion into shares of Series
E Preferred Stock, the Company shall deliver or cause to be delivered GE, or
GE's designees, certificates representing the number of fully paid and
non-assessable shares of Series E Preferred Stock into which the Notes are
entitled to be converted, together with a cash adjustment in respect of any
fraction of a share to which GE shall be entitled (as provided below), and, if
less than the entire face amount of a Note surrendered is to be converted, a new
Note for the balance of the Note not so converted. So long as any Notes remain
unpaid, the Company shall not close its Series E Preferred Stock transfer books.
The issuance of certificates for shares of Series E Preferred Stock upon the
conversion of Notes shall be made without charge to GE for any tax in respect of
the issuance of such certificates (other than any tax if the shares of Series E
Preferred Stock are to be registered in a name different from that of the
registered holder of the Note).
1.4 FRACTIONAL SHARES. No fractional shares of Series E Preferred Stock
or scrip representing fractional shares of Series E Preferred Stock shall be
issued upon any conversion of any Notes, but, in lieu thereof, there shall be
paid an amount in cash equal to the Market Price (as defined in the Series E
Preferred Stock) of the number shares of Common Stock into which such fraction
of a share of Series E Preferred Stock would be otherwise convertible into
according to the terms of the Series E Preferred Stock with any resulting
fractions of Common Stock being paid cash in accordance with the Series E
Preferred provisions pertaining to fractional shares.
1.5 RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Series E Preferred
Stock, solely for the purpose of effecting the conversion of Notes, the full
number of whole shares of Series E Preferred Stock then deliverable upon the
conversion of all the Notes. The Company shall take at all times such corporate
action as shall be necessary in order that the Company may validly and legally
issue fully paid and non-assessable shares of Series E Preferred Stock upon the
conversion of the Notes in accordance with the provisions of this Section 1.
1.6 RETIREMENT OF NOTES. Any Notes converted pursuant to the provisions
of this Section 1 shall be deemed retired, repaid and fully satisfied.
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1.7 RIGHTS AS EQUITY HOLDER. GE shall not be entitled to any rights as a
stockholder of the Company pursuant to the Note Purchase Agreement until, and to
the extent that, the Notes have been converted into shares of Series E Preferred
Stock in accordance with the provisions hereof.
1.8 NOTES. GE's Notes shall be restated to reflect the provisions of this
Section 1 in substantially the form attached as Exhibit 2.
1.9 TRANSFERABILITY. The conversion rights provided by this Section 1 of
this Eleventh Amendment may be exercised only by GE or one or more Affiliates
(as defined above) of GE and no other transferee or assignee of the Note may
convert the Note into Series E Preferred Stock, or any other securities of the
Company, pursuant to this Eleventh Amendment or otherwise.
SECTION 2. AMENDMENTS TO NOTE PURCHASE AGREEMENT
The Company and the Holders agree as follows:
2.1 NEGATIVE AND MAINTENANCE COVENANTS.
(a) The words "and the Debentures" is deleted from clause (ii) of Section
10.01(a) of the Note Purchase Agreement.
(b) Section 10.02:
(i) Subsection 10.02(e) of the Note Purchase Agreement is hereby
amended by deleting it in its entirety and substituting the following therefor:
"(e) Subject to the limitations set forth in Section 10.03(d) hereof,
any Lien created to secure any Indebtedness incurred or assumed to pay
all or any part of the purchase price of property acquired by the
Company or a Subsidiary after December 31, 1994 (or created to secure
Indebtedness incurred to finance equipment pursuant to
Section 10.03(d) hereof); PROVIDED, that (i) any such Lien shall be
confined solely to the item or items of property so acquired or
currently owned, (the "Financed Equipment") and any property that is
an improvement to or upgrade of or acquired for specific use in
connection with such Financed Equipment; PROVIDED, HOWEVER, that in
the case of an MRI Unit or a CT Unit (collectively, "Units") currently
owned by the Company or a Subsidiary that is, at the time of
acquisition of a newly-acquired Unit, subject to a Lien in favor of
the same secured party financing the purchase price of the newly-
acquired Unit, such Lien securing the indebtedness relating to the
newly-acquired Unit may extend to the currently-owned Unit and such
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Lien securing the Indebtedness relating to the currently-owned Unit
may extend to the newly-acquired Unit; PROVIDED, FURTHER, that
notwithstanding the immediately preceding proviso no Lien under this
Section 10.02(e) shall extend to any Unit as to which the purchase
price is paid in full and there is outstanding no Indebtedness
incurred to finance such purchase price, it being understood that the
cross-collateralization permitted by the immediately preceding proviso
shall immediately cease and terminate as to any Unit upon payment of
the purchase price (or related purchase money Indebtedness) of such
Unit; and (ii) in the case of newly-acquired Financed Equipment, any
such Lien shall be created within six (6) months after the acquisition
thereof."
(ii) Subsection 10.02(j) of the Note Purchase Agreement is hereby
amended by deleting it in its entirety and substituting the following therefor:
"(j) Any Lien created to secure Indebtedness incurred to finance
equipment pursuant to the terms of Section 10.03(d) hereof;"
(iii) Subsection 10.02(k) of the Note Purchase Agreement is hereby
amended by deleting it in its entirety and substituting the following therefor:
"(k) Any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of (a) through (j)
above, so long as the outstanding principal amount of the Indebtedness
secured by such Lien at the time of such extension, renewal or
replacement is not increased, nor the periodic debt service payment
(principal and interest) payable with respect thereto increased, and
the renewed or extended Lien does not cover any property which is not
covered by the existing Lien renewed or extended thereby."
(c) Section 10.03:
(i) Clause (a) of Section 10.03 of the Note Purchase Agreement is
hereby amended by deleting it in its entirety and substituting the following
therefor:
"(a) The Company may become and remain liable with respect to
Indebtedness for working capital purposes under the Working Capital
Facility as provided for in Section 9.06 hereof or any renewal,
extension or replacement thereof, provided that the indebtedness
thereunder does not at any time exceed 75% of the
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net accounts receivable of the Company (determined in accordance with
GAAP) and the terms and conditions thereof are not, in the aggregate,
materially more burdensome than under the preexisting Working Capital
Facility and reflect current market conditions;"
(ii) The words "and the subordinated Debentures" are deleted from
clause (b) of Section 10.03 of the Note Purchase Agreement.
(iii) Clause (d) of Section 10.03 of the Note Purchase Agreement
is hereby amended by deleting it in its entirety and substituting the following
therefor:
"(d) Subject to the limitations on incurrence of Capital Expenditures
set forth in Section 10.08 hereof, the Company or any Subsidiary may
become and remain liable with respect to Indebtedness incurred to
acquire equipment (including CT Scanners and MRI Units and related
additions, parts and improvements)."
(iv) Clause (f) of Section 10.03 of the Note Purchase Agreement is
hereby amended by deleting it in its entirety and substituting the following
therefor:
"(f) Any Subsidiary may become and remain liable with respect for Debt
for Money Borrowed of such Subsidiary owing to the Company or to a
Wholly-Owned Subsidiary consisting of (i) Indebtedness arising out of
an Investment by the Company or such Wholly-Owned Subsidiary as
permitted by Section 10.04(a) through (c) or (ii) intercompany
operating advances incurred in the ordinary course of business.
(v) Clause (h) of Section 10.03 of the Note Purchase Agreement is
hereby amended by deleting it in its entirety and substituting the following
therefor:
"(h) Indebtedness which is a renewal, extension or replacement of
existing Indebtedness permitted under this Section 10.03; provided
that the principal amount of such Indebtedness is less than or equal
to the principal amount outstanding immediately prior to such renewal,
extension or replacement and that the periodic debt payment with
respect thereto is less than or equal to the periodic debt payment
currently payable with respect to such Indebtedness."
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(d) Section 10.04 of the Note Purchase Agreement is hereby amended by
deleting it in its entirety and substituting the following therefor:
"INVESTMENTS. The Company will not, and will not permit any of its
Subsidiaries to, make any Investments other than the following: (a)
capital contributions and funded loans to any Subsidiary, and any
partnership or other joint venture (including a corporate joint
venture); PROVIDED that the aggregate outstanding amount of all
Investments made pursuant to this clause (a) does not exceed
$5,000,000 at any time; (b) loans and advances to employees in the
ordinary course of business for a proper corporate purpose not to
exceed $250,000 in the aggregate at any time outstanding (excluding
notes received from option holders in payment of the exercise price of
stock options issued pursuant to a stock option plan of the Company
approved by the Company's Board of Directors); (c) Investments with
respect to hedging the Company's exposure to foreign currency
fluctuations to the extent that the Company has sales denominated in
such foreign currency; (d) Investments in Interest Rate Protection
Agreements; (e) short-term operating advances described in Section
10.03(f)(ii), to the extent such advances constitute Investments; and
(f) Investments where the consideration paid by the Company consists
of equity securities of the Company, to the extent that consideration
was or is paid in that form. For purposes of computing the amount
subject to the $5,000,000 limitation in clause (a) above, (I) there
shall be excluded Investments where the consideration paid by the
Company consists of equity securities of the Company, to the extent
that consideration was or is paid in that form, and (II) there shall
be included Investments made only from and after the Effective Date of
the Tenth Amendment and not Investments made prior thereto. "
(e) Section 10.08 of the Note Purchase Agreement is hereby amended by
deleting it in its entirety and substituting the following therefor:
"CAPITAL EXPENDITURES. The Company will not, and will not permit any
of its Subsidiaries to, make Capital Expenditures, unless, after
including such Capital Expenditures in the aggregate amount of Capital
Expenditures incurred by the Company and its Subsidiaries during the
current Fiscal Year, the aggregate Capital Expenditures for such
Fiscal Year do not exceed an amount equal to $30,000,000 plus the
Capital Expenditure Adjustment Amount; PROVIDED; HOWEVER, that the
Company or any of its Subsidiaries may dispose of equipment and within
180 days purchase replacement equipment with only the net incremental
amount
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being deemed to be a Capital Expenditure; PROVIDED, FURTHER, that to
the extent the Company receives credit against the purchase price of
newly-acquired equipment as a result of a trade-in of currently-owned
equipment, the amount of such credit shall not be included in
determining the amount of Capital Expenditures permitted to be incurred
hereunder; and PROVIDED, FURTHER, that if the amount of permitted
Capital Expenditures for any Fiscal Year is not fully utilized, then
the unutilized portion (up to 50% of the permitted amount for such
Fiscal Year) may be carried forward and made in the following Fiscal
Year, in addition to the amount otherwise permitted for such following
Fiscal Year."
(f) The last sentence of Section 10.10 of the Note Purchase Agreement is
deleted.
(g) The second paragraph of Section 10.12 of the Note Purchase Agreement
is hereby amended by deleting it in its entirety and substituting the following
therefor:
"Notwithstanding the foregoing, the Company or a Subsidiary may make
any such disposition and the properties involved in any such
disposition shall be excluded from the foregoing computation set forth
in (i) above if within one hundred eighty (180) days after such
disposition the Company or Subsidiary reinvests the proceeds in assets
substantially similar to those which are disposed of, or applies the
net proceeds (after deducting direct costs and expenses incurred as a
result of such disposition and discharging any underlying debt which
is secured by such property) to the prepayment or redemption of the
Secured Obligations or the Notes or other Indebtedness of the Company,
or retains the proceeds in cash or cash-equivalent investments;
PROVIDED, FURTHER, that the aggregate net book value of properties
disposed of under this Section 10.12 the net proceeds of which are so
applied shall not exceed the greater of $10,000,000 or fifteen percent
(15%) of the net book value of the then existing MRI Units."
(h) Clause (b) of Section 10.13 of the Note Purchase Agreement is deleted.
(i) The parenthetical phrase "(excluding for this purpose lease payment
obligations with respect to the lease of premises by Woodward Park Imaging)" is
deleted from Section 10.14 of the Note Purchase Agreement.
(j) The word "diagnostic" is deleted from the last sentence of
Section 10.14 of the Note Purchase Agreement, and the words "and related
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trailers or buildings and related improvements" are added after the word
"equipment" at the end of such sentence.
2.2 FINANCIAL INFORMATION AND REPORTING. The words "in duplicate" are
deleted from the first paragraph of Section 7 of the Note Purchase Agreement.
2.3 DEFINITIONS
(i) The following definitions are added to Section 11.01 of the Note
Purchase Agreement:
"Capital Expenditure Adjustment Amount" shall mean, for any Capital
Expenditure Period corresponding to a capital raising transaction described in
clause (i) following, the positive amount, if any, of (i) net cash proceeds from
issuances of Common Stock or other securities convertible into Common Stock or
other non-redeemable equity securities of the Company minus (ii) cash expended
during such Capital Expenditure Period by the Company or its Majority-Owned
Subsidiaries in connection with business acquisitions (including without
limitation acquisitions of substantially all of the assets of a Person permitted
under this Agreement); PROVIDED, HOWEVER, that any cash expenditures
constituting Capital Expenditures for such Capital Expenditure Period that are
already included in the calculation of the total amount of Capital Expenditures
for such Capital Expenditure Period for purposes of determining compliance with
Section 10.08 hereof (without considering the Capital Expenditure Adjustment
Amount) shall only be included once in such total amount, regardless of whether
such Capital Expenditures arise in connection with a business acquisition. If
the Company could properly include a Capital Expenditure within the general
limitation under Section 10.08 hereof and/or under an available Capital
Expenditure Adjustment Amount, the Company shall be entitled in its discretion
to select the allocation of such Capital Expenditure. To the extent that
amounts expended are included under clause (ii) of the foregoing definition,
such amounts shall be deducted from the amount described in clause (i) on a
chronological basis (I.E., the first such amount deducted will be the first of
such amounts expended, and so on).
"Capital Expenditure Period" means, with respect to each capital
raising transaction described in clause (i) of the definition of Capital
Expenditure Adjustment Amount, the two-year period beginning with the date that
net proceeds with respect to such transaction are received by the Company.
(ii) The definition of "Fiscal Year" in Section 11.01 of the Note Purchase
Agreement is deleted and replaced with the following definition:
"Fiscal Year" shall mean the fiscal year of the Company, which shall
be the twelve (12) month period ending on December 31 in each year or such other
period as the Board of Directors of the Company may adopt."
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(iii) The definitions of "Consolidated Net Tangible Assets,"
"Consolidated Operating Income Before Depreciation," "Current Equipment
Obligations," "Currently Owned-Equipment," and "Permitted Investments" in
Section 11.01 of the Note Purchase Agreement are deleted.
SECTION 3. CONSIDERATION FOR AMENDMENT
As partial consideration for entering into this Eleventh Amendment, the
Company, concurrently with the execution hereof, is entering into certain
transactions with GE pursuant to a Stock Purchase Agreement of even date
herewith, the consummation of which transactions the Holders hereby acknowledge
and agree will be beneficial to the Holders and, accordingly, provide the
Holders with sufficient consideration for entering into this Eleventh Amendment.
SECTION 4. MISCELLANEOUS
4.1 REFERENCE TO AND EFFECT ON THE NOTE PURCHASE AGREEMENT.
(i) On and after the date of this Eleventh Amendment, each reference
in the Note Purchase Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Note Purchase Agreement,
and each reference in any other related documents to the "Note Purchase
Agreement", "thereunder", "thereof" or words of like import referring to
the Note Purchase Agreement shall mean and be a reference to the Note
Purchase Agreement as amended to give effect to the Eleventh Amendment.
(ii) Except as specifically amended by this Eleventh Amendment, the
Note Purchase Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
(iii) The execution, delivery and performance of this Eleventh
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power or
remedy of the Holders under, the Note Purchase Agreement.
4.2 HEADINGS. Section and subsection headings in this Eleventh Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Eleventh Amendment for any other purpose or be given any
substantive effect.
4.3 APPLICABLE LAW. THIS ELEVENTH AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
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4.4 COUNTERPARTS; EFFECTIVENESS. This Eleventh Amendment shall be deemed
effective between GE and the Company as of the date first written above, and
shall be deemed effective between DVI and the Company as of the date written
below opposite DVI's signature. This Eleventh Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
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IN WITNESS WHEREOF, the parties hereto have caused this Eleventh
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
"COMPANY" ALLIANCE IMAGING, INC., A DELAWARE CORPORATION
By: _____________________________________
Title: _____________________________________
"GE" GENERAL ELECTRIC COMPANY, A NEW YORK
CORPORATION
By: _____________________________________
Title: _____________________________________
"DVI" DVI FINANCIAL SERVICES INC., A
____________ CORPORATION
DVI effective
date: March , 1997
By: _____________________________________
Title: _____________________________________
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EXHIBIT 1
---------
[Series E Preferred Stock]
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EXHIBIT 2
---------
ALLIANCE IMAGING, INC.
RESTATED
7.50% SENIOR NOTE DUE 2003
$12,700,000 Note No. 8
New York, New York March 25, 1997
FOR VALUE RECEIVED, the undersigned, ALLIANCE IMAGING, INC., a Delaware
corporation (herein called the "Company"), hereby promises to pay to GENERAL
ELECTRIC COMPANY, A NEW YORK CORPORATION ACTING THROUGH GE MEDICAL SYSTEMS, or
registered assigns ("GE") the principal sum of TWELVE MILLION SEVEN HUNDRED
THOUSAND DOLLARS ($12,700,000) (or so much thereof as shall not have been
prepaid) on December 31, 2003, with interest (computed on the basis of a 360-day
year of twelve 30-day months) on the unpaid principal amount hereof at the rate
of 7.50% per annum from October 1, 1994 payable monthly in arrears on the last
day of each month commencing on the first such date occurring after the date
hereof, until said principal shall have become due and payable, and thereafter
to pay interest (so computed) at the rate of 8.50% per annum on any overdue
principal and prepayment charge and, to the extent permitted by applicable law,
on any overdue interest, until the same shall be paid. Subject to Section 15.01
of the Note Purchase Agreements referred to below, payments of principal,
prepayment charge (if any) and interest are to be made at the principal office
of GENERAL ELECTRIC COMPANY, a New York corporation, acting through GE Medical
Systems of Waukesha, in Wisconsin, in lawful money of the United States of
America.
This Note replaces and is delivered in substitution for the Company's 7.5%
Senior Note due 2003 issued to GE by the Company pursuant to the Tenth
Amendment, dated as of November 6, 1996, to the Note Purchase Agreement dated as
of April 14, 1989 entered into by the Company and certain institutional
investors (as amended to the date hereof, the "Note Purchase Agreement"), and
the holder of this Note is entitled to enforce the provisions and enjoy the
benefits thereof, except as provided below and in the Note Purchase Agreement.
As provided in the Note Purchase Agreement, this Note is subject to certain
optional prepayments, all as specified in the Note Purchase Agreement. Except
as provided below and in the Note Purchase Agreement, this Note is convertible
into shares of the Company's Series E Preferred Stock, as specified in the
Eleventh Amendment to the Note Purchase Agreement dated as of March 25, 1997.
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Upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
or Notes for a like aggregate principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company
and any agent of the Company may deem and treat the person in whose name this
Note is registered as the holder and owner hereof for the purpose of receiving
payments and, with the exceptions noted below, for all other purposes
whatsoever, and shall not be affected by any notice to the contrary.
The conversion rights applicable to this Note may be exercised only by GE or one
or more Affiliates (as defined in that certain Bridge Loan Agreement, dated as
of December 31, 1996, between the Company and GE) of GE and no other transferee
or assignee of this Note may convert this Note into Series E Preferred Stock, or
any other securities of the Company, pursuant to the Note Purchase Agreement or
otherwise.
In case of Event of Default (as defined in the Note Purchase Agreement) shall
occur and be continuing, the principal of this Note may become or be declared
due and payable in the manner and with the effect provided in the Note Purchase
Agreement.
This Note is made and delivered in New York, New York, and shall be governed by
the laws of the State of New York.
ALLIANCE IMAGING, INC.
By:_____________________________
Richard N. Zehner
President
This note has been transferred to and registered in the name of the above payee
on the books of Alliance Imaging, Inc. as of March 25, 1997.
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Page 1
ALLIANCE IMAGING, INC.
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES D 4% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Alliance Imaging, Inc., a corporation organized and existing under
the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY
CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of
the Company (the "Board") by the Restated Certificate of Incorporation of the
Company, as amended (the "Certificate of Incorporation"), the Board, pursuant
to a unanimous written consent dated as of March 25, 1997, adopted the
following resolutions authorizing the issuance of Series D 4% Cumulative
Redeemable Convertible Preferred Stock of the Company, which resolutions are
still in full force and effect and are not in conflict with any provisions of
the Certificate of Incorporation or Bylaws of the Company:
RESOLVED, that pursuant to authority vested in the Board by the
Certificate of Incorporation, the Board does hereby establish a series of
Preferred Stock of the Company from the Company's authorized class of
1,000,000 shares of $0.01 par value preferred shares, such series to consist
of 18,000 shares, which number may be decreased (but not below the number of
shares thereof then outstanding) from time to time by the Board, and to the
extent that the voting rights, designation, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions of that series are not stated and expressed in
the Certificate of Incorporation, does hereby fix and state the voting
rights, designation, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof, as follows:
1. DEFINITIONS. Unless otherwise specified herein, the following
capitalized terms shall have the meanings ascribed to them below:
ACCUMULATED DIVIDENDS. "Accumulated Dividends" shall have the
meaning set forth in Section 4(d).
AFFILIATE. "Affiliate" shall mean, with respect to any Person, any
other Person which directly or indirectly controls or is controlled by or is
under common control with such Person, and, with respect to the Company only,
includes any other Person with whom the Company has any joint venture,
partnership, or other shared investment interest. As used in this
definition, "control" (including its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or
indirectly, of power to (i) direct or cause the direction of management or
policies of such Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) or (ii)
vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person.
APPLICABLE LAW. "Applicable Law" shall mean, with respect to any
Person, any federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees,
<PAGE>
Page 2
consultants or agents.
AVAILABLE ASSETS. "Available Assets" shall have the meaning set
forth in Section 5(a).
Capital Lease. "Capital Lease" shall mean any lease by a Person of
any property (whether real, personal or mixed) which, in conformity with GAAP
(including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), is accounted for as a capital lease on
the balance sheet of such person.
CAPITAL LEASE OBLIGATIONS. "Capital Lease Obligations" shall mean,
as to any Person, the obligations of such Person to pay rent or other amounts
under a Capital Lease and, for purposes of this Certificate of Designation,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board).
CHAMPUS. "CHAMPUS" has the meaning set forth in Section 8(d)(1)(C).
CHANGE IN CONTROL. "Change in Control" shall be deemed to have
occurred (i) at such time as any person (as defined in Section 13(d)(3) of
the Securities and Exchange Act of 1934) at any time shall directly or
indirectly acquire more than 40% of the voting power of the Common Stock of
the Company, (ii) at such time as during any one year period, individuals who
at the beginning of such period constitute the Company's Board cease to
constitute at least a majority of such Board, (iii) upon consummation of a
merger or consolidation of the Company into or with another corporation in
which the shareholders of the Company immediately prior to the consummation
of such transaction shall own less than Fifty Percent (50%) of the voting
securities of the surviving corporation (or the parent corporation of the
surviving corporation where the surviving corporation is wholly-owned by the
parent corporation) immediately following the consummation of such
transaction or (iv) the sale, transfer or lease (but not including a transfer
or lease by pledge or mortgage to a bona fide lender) of all or substantially
all of the assets of the Company, in any of cases (i), (ii), (iii) and (iv)
in a single transaction or series of transactions; PROVIDED, HOWEVER, that no
Change in Control shall be deemed to have occurred solely as a result of
General Electric Company, a New York corporation, directly or indirectly
acquiring more than 40% of the voting power of the Common Stock of the
Company.
CHANGE IN CONTROL SPECIAL DIVIDEND A. "Change in Control Special
Dividend A" shall have the meaning set forth in Section 8(c)(1).
CHANGE IN CONTROL SPECIAL DIVIDEND B. "Change in Control Special
Dividend B" shall have the meaning set forth in Section 9(b). Common Stock.
"Common Stock" shall mean the Company's Common Stock, $0.01 par value per
share.
COMPANY CHANGE IN CONTROL TRANSACTION. "Company Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(A).
CONVERSION DATE. "Conversion Date" shall have the meaning set forth
in Section 6(a).
CONVERSION PRICE. "Conversion Price" shall have the meaning set
forth in Section 7, as adjusted from time to time as set forth therein.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
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Page 3
DIVIDEND PAYMENT DATE. "Dividend Payment Date" shall have the
meaning set forth in Section 4(c).
DIVIDEND PERIOD. "Dividend Period" shall have the meaning set forth
in Section 4(b).
EXCLUDED STOCK. "Excluded Stock" shall have the meaning set forth
in Section 7(b).
Face Amount. The "Face Amount" of each share of Series D Preferred
Stock (regardless of its par value) shall be One Thousand Dollars
($1,000.00), as the Series D Preferred Stock is presently constituted, such
amount to be proportionately adjusted to reflect any combination,
consolidation, reclassification or like adjustment of or to the Series D
Preferred Stock.
FEDERAL HEALTH CARE PROGRAM. "Federal Health Care Program" shall
have the meaning set forth in Section 8(d)(1)(E).
FUNDED DEBT. "Funded Debt" shall mean as applied to any Person, all
Indebtedness of such Person, in a principal amount of at least One Million
Dollars ($1,000,000) in each instance, which by its terms or by the terms of
any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year (including an option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year) from the date of the creation thereof; PROVIDED that
"Funded Debt" shall include, as at any date of determination, any portion of
such Funded Debt outstanding on such date which matures on demand or within
one year from such date (whether by sinking fund, other required prepayment
or final payment at maturity) and which is not directly or indirectly
renewable, extendible or refundable, at the option of the debtor to a date
more than one year from such date; PROVIDED, FURTHER, that "Funded Debt"
shall include all Indebtedness pursuant to that certain Note Purchase
Agreement dated as of April 14, 1989, as amended to and including the Issue
Date; and PROVIDED, FURTHER, that except with respect to Indebtedness
pursuant to that certain Note Purchase Agreement dated as of April 14, 1989,
as amended to and including the Issue Date, "Funded Debt" shall not include
(i) Indebtedness secured by equipment, trailers or modular buildings used in
the business of the Company or (ii) Indebtedness convertible into equity
securities of the Company on commercially reasonable terms.
FUNDED DEBT DEFAULT. "Funded Debt Default" shall mean any date 30
days after the Company shall have Knowledge that it is in default with
respect to any Funded Debt, unless during such 30 day period either (i) such
default shall have been waived by the lender with respect to such Funded Debt
or (ii) the agreement or agreements governing such Funded Debt shall have
been amended to eliminate such default, in either of cases (i) or (ii)
without any economic consideration (other than such consideration required by
the terms of the documentation with respect to such Funded Debt as in effect
prior to any amendment of such documentation described in clause (ii) above)
provided to the lender with respect to such Funded Debt by the Company.
GAAP. "GAAP" means generally accepted accounting principles.
GENERAL ELECTRIC. "General Electric" shall have the meaning set
forth in Section 8(d)(1)(E).
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Page 4
GOVERNMENTAL AUTHORITY. "Governmental Authority" shall mean any
federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing, in all such cases
whether domestic or foreign.
HOLDER SPECIAL REPURCHASE EVENT NOTICE. "Holder Special Repurchase
Event Notice" shall have the meaning set forth in Section 8(d)(3)(A).
INDEBTEDNESS. "Indebtedness" shall mean, as to any Person without
duplication, (a) all items which, in accordance with GAAP, would be included
as a liability on the balance sheet of such Person and its Majority-Owned
Subsidiaries (including any obligation of such Person to the issuer of any
letter of credit for reimbursement in respect of any drafts drawn under such
letter of credit), excluding obligations in respect of deferred taxes and
deferred employee compensation and benefits, and anything in the nature of
capital stock, surplus capital and retained earnings; (b) the amount
available for drawing under all letters of credit issued for the account of
such Person; (c) obligations (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by liens; (d)
Capital Lease Obligations of such Person; and (e) all guarantees of such
Person, PROVIDED, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person,
PROVIDED the same are not more than 45 days overdue or are being contested in
good faith.
ISSUE DATE. "Issue Date" shall mean, with respect to any shares of
Series D Preferred Stock, the date such shares of Series D Preferred Stock
are issued.
JUNIOR SECURITIES. "Junior Securities" shall have the meaning set
forth in Section 3.
Knowledge. "Knowledge" or "knowledge," with respect to any Person,
shall mean the actual knowledge of such Person, after reasonable inquiry.
For purposes hereof, a Person shall be deemed to have actual knowledge of the
contents of all books and records with respect to which such Person has
reasonable access. Without limiting the generality of the foregoing, with
respect to any Person that is a corporation, partnership or other business
entity, actual knowledge shall be deemed to include the actual knowledge of
all principal employees of any such Person (which, for purposes of the
Company, shall include without limitation Richard N. Zehner, Vincent S. Pino,
Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan, Ph.D.,
Cheryl A. Ford, and Michael W. Grismer) as well as the Chief Executive
Officer, President, Chief Financial Officer and all Vice Presidents in the
case of corporate Persons, and general partners in the case of general or
limited partnerships, as the case may be.
LIQUIDATION EVENT. "Liquidation Event" shall mean any of the
following: (i) a liquidation or winding up of the Company, (ii) a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) of the voting securities
of the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned
<PAGE>
Page 5
by the parent corporation) immediately following the consummation of such
transaction, or (iii) the sale, transfer or lease (but not including a
transfer or lease by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company; in any of cases (i), (ii) or
(iii) in a single transaction or series of transactions.
LIQUIDATION PREFERENCE AMOUNT. "Liquidation Preference Amount"
shall have the meaning set forth in Section 5(a).
MAJORITY-OWNED SUBSIDIARY. "Majority-Owned Subsidiary" means with
respect to any Person any Subsidiary of such Person of which at least a
majority of the outstanding shares, partnership interests or other equity
interests therein is at the time directly or indirectly owned or controlled
by such Person or any other Subsidiary which is a consolidated subsidiary of
such Person under GAAP or one or more of the Majority-Owned Subsidiaries of
such Person or by such Person and one or more of the Majority-Owned
Subsidiaries of such Person.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with
respect to any Person or designated group of Persons, a change in, or effect
on, or group of such changes in or effects on, the operations, financial
condition or results of operations, prospects, assets or liabilities of the
Person or group of Persons, as the case may be, taken as a whole, that
results in a material adverse effect on, or a material adverse change in, the
operations, financial condition, results of operations, prospects, assets or
liabilities of the Person or group of Persons, as the case may be, taken as a
whole, excluding adverse changes in the general economy.
Market Price. The "Market Price" of a share of Common Stock on or
with respect to any day shall mean (i) the closing sales price on the
immediately preceding trading day of a share of Common Stock on the principal
national securities exchange or automated quotation system on which the
shares of Common Stock are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange or automated
quotation system, the average of the last reported bid and asked prices on
such immediately preceding trading day in the over-the-counter market as
furnished by the National Association of Securities Dealers, Inc., or, if
such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected in good
faith by the Company or, if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc., selected in good
faith by the Company, or (ii) if the shares of Common Stock are not then
traded on any such exchange or system, the amount determined in good faith by
the Board to represent the fair value of a share of Common Stock.
OTHER CHANGE IN CONTROL TRANSACTION. "Other Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(B).
PERSON. "Person" shall mean any natural person, firm, corporation,
partnership, limited liability company, association, trust or other entity.
RECORD DATE. "Record Date" shall have the meaning set forth in
Section 4(c).
REDEMPTION DATE. "Redemption Date" shall have the meaning set forth
in Section 9(c).
Redemption Price. "Redemption Price" shall have the meaning set
forth in Section 9(d).
Regular Dividends. "Regular Dividends" shall have the meaning set
forth
<PAGE>
Page 6
in Section 4(a).
Series D Preferred Stock. "Series D Preferred Stock" shall have the
meaning set forth in Section 2.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall mean the
Company's Series E 4% Cumulative Redeemable Convertible Preferred Stock
designated pursuant to the Certificate of Designation, Preferences and Rights
of Series E 4% Cumulative Redeemable Convertible Preferred Stock dated as of
even date herewith.
SPECIAL DIVIDEND EVENT TRIGGER DATE. "Special Dividend Event
Trigger Date" shall have the meaning set forth in Section 4(b).
SPECIAL DIVIDENDS. "Special Dividends" shall have the meaning set
forth in Section 2.
SPECIAL REPURCHASE EVENT. "Special Repurchase Event" shall have the
meaning set forth in Section 8(d)(3).
Special Repurchase Event Election. "Special Repurchase Event
Election" shall have the meaning set forth in Section 8(d)(3)(B).
SSA. "SSA" shall have the meaning set forth in Section 8(d)(1)(C).
State Health Care Program. "State Health Care Program" shall have the meaning
set forth in Section 8(d)(1)(E).
STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" shall mean
that certain Stock Purchase Agreement dated as of March 25, 1997 between
General Electric and the Company.
Subsidiary. "Subsidiary" shall mean with respect to any Person each
corporation, partnership, joint venture or other entity in which such Person
has, directly or indirectly, any equity interest in the capital stock
thereof, any partnership interest, or any other equity interest therein.
2. DESIGNATION OF SERIES; ISSUANCE AND FACE AMOUNT. This series of
Preferred Stock is designated "Series D 4% Cumulative Redeemable Convertible
Preferred Stock" (hereinafter the "Series D Preferred Stock"), and the number
of shares which shall constitute such series shall be 18,000, which number
may be decreased (but not below the number thereof then outstanding) from
time to time by the Board. The shares of Series D Preferred Stock shall be
issued by the Company for their Face Amount (as herein defined), in such
amounts, at such times and to such persons as shall be specified by the
Board, from time to time.
3. RANK. The Series D Preferred Stock shall, with respect to dividend
rights and rights on any Liquidation Event, rank senior to all Junior
Securities. "Junior Securities" shall mean (i) the Company's Series A 6.0%
Cumulative Preferred Stock, (ii) the Company's Series B Cumulative Preferred
Stock, (iii) the Company's Series C Convertible Preferred Stock, (iv) Common
Stock, and (v) any other classes or series of stock or other equity
securities of the Company; PROVIDED, HOWEVER, that the term "Junior
Securities" shall not include the Series E Preferred Stock. Shares of the
Company's Series E Preferred Stock shall, with respect to dividend rights and
rights on any Liquidation Event, rank on a pari passu basis with shares of
the Series D Preferred Stock.
4. DIVIDENDS.
a. REGULAR DIVIDENDS. The holders of record of the Series D
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Page 7
Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cumulative preferential cash dividends accruing from the
Issue Date at the rate of Four Percent (4%) per annum of the Face Amount per
share ("Regular Dividends").
b. SPECIAL DIVIDENDS.
(1) Each of the following shall be a "Special Dividend Event
Trigger Date":
(A) At any time after April 1, 2007, if for fifteen (15)
days out of any twenty (20) consecutive trading days on which the
Common Stock is traded, the Market Price per share of Common Stock
shall be less than 83.3% of the then-applicable Conversion Price ,
then the last such trading date shall be a Special Dividend Event
Trigger Date.
(B) The date of any Funded Debt Default shall be a Special
Dividend Event Trigger Date.
(2) Upon any Special Dividend Event Trigger Date, the holders of
record of the Series D Preferred Stock shall be entitled to receive, out
of funds legally available for such purpose, in addition to Regular
Dividends, a special dividend in the following per annum percentages of
the Face Amount per share ("Special Dividends"):
- -------------------------------------------------------------------------------
Special
Time Period Dividend Percentage
- -------------------------------------------------------------------------------
First full calendar month after Special
Dividend Event Trigger Date 1%
- -------------------------------------------------------------------------------
Second full calendar month after Special
Dividend Event Trigger Date 2%
- -------------------------------------------------------------------------------
Third full calendar month after Special Dividend Event
Trigger Date 3%
- -------------------------------------------------------------------------------
Fourth full calendar month after Special
Dividend Event Trigger Date and all time periods
thereafter 4%
- -------------------------------------------------------------------------------
(3) At any time after the Special Dividend Percentage becomes 4%
under Section 4(b)(2) above, the Company may purchase all (but not less
than all) of the outstanding shares of Series D Preferred Stock owned by
each holder at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends. To exercise its right to purchase the
shares of Series D Preferred Stock under this Section 4(b)(3), the
Company shall send a written notice within ten (10) days after the first
day of the fourth full calendar month after a Special Dividend Event
Trigger Date to each holder either electing to repurchase such holder's
shares pursuant to the provisions of this Section 4(b)(3) or declining
to so elect (the "Special Dividend Event Repurchase Offer").
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Page 8
(4) Within 10 days after receipt of a Special Dividend Event
Repurchase Offer, each holder shall send a written notice to the Company
either accepting or rejecting such Special Dividend Event Repurchase
Offer. The Company shall purchase all of the shares of each holder
accepting the Special Dividend Event Repurchase Offer within 10 days
after receipt of the notice from the holder referred to in the previous
sentence at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends.
(5) With respect to the shares held by any holder of shares of
Series D Preferred Stock that does not accept a Special Dividend
Repurchase Offer, Special Dividends with respect to such shares shall
cease to accrue as of the first day of the first calendar month
following the date of the Special Dividend Event Repurchase Offer
(subject to Section 4(b)(6) below). Any holder of shares of Series D
Preferred Stock that does not timely send a written notice to the
Company either accepting or rejecting a Special Dividend Event
Repurchase Offer shall be deemed to have rejected such offer.
(6) Notwithstanding any holder's rejection or deemed rejection
of a Special Dividend Repurchase Offer, upon any later Special Dividend
Event Trigger Date Special Dividends on the shares of Series D Preferred
Stock owned by such holder shall accrue as set forth in Section 4(b)(2)
above.
c. TIME OF PAYMENT.
(1) Regular Dividends shall be cumulative from the Issue Date
and shall be payable in arrears, when and as declared by the Board, on
March 31, June 30, September 30, and December 31 of each year (each such
date being herein referred to as a "Dividend Payment Date"), commencing
on June 30, 1997. The quarterly period between consecutive Dividend
Payment Dates shall hereinafter be referred to as a "Dividend Period."
Each such Regular Dividend shall be paid to the holders of record of the
Series D Preferred Stock as their names appear on the share register of
the Company on the corresponding Record Date. As used above, the term
"Record Date" means, with respect to the Regular Dividend payable on
March 31, June 30, September 30 and December 31, respectively, of each
year, the preceding March 15, June 15, September 15 and December 15, or
such other record date designated by the Board of the Company with
respect to the Regular Dividend payable on such respective Dividend
Payment Date. Regular Dividends on account of arrears for any past
Dividend Periods may be declared and paid at any time, without reference
to any Dividend Payment Date, to holders of record on such date, not
exceeding 50 days preceding the payment date thereof, as may be fixed by
the Board.
(2) Special Dividends shall be cumulative from the date of the
first day of the first full calendar month after any Special Dividend
Event Trigger Date and shall be payable in arrears, when and as declared
by the Board, on each Dividend Payment Date. Each such Special Dividend
shall be paid to the holders of record of the Series D Preferred Stock
as their names appear on the share register of the Company on the
corresponding Record Date. Special Dividends on account of arrears for
any past Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such
date, not exceeding 50 days preceding the payment date thereof, as may
be fixed by the Board.
d. ACCUMULATION. In the event that full cash Regular Dividends
(and any full cash Special Dividends) are not paid to the holders of all
outstanding shares of Series D Preferred Stock, and funds available shall be
insufficient to permit payment in full in cash to all such holders of the
preferential amounts to which they are they entitled, the entire amount
available for payment of cash dividends shall be distributed among the
holders of the Series D Preferred Stock ratably in proportion to the full
amount to which they would otherwise be respectively entitled, and any
remainder not paid in cash to the holders of the Series D Preferred Stock
shall cumulate as provided in this subsection 4(d). If, on any Dividend
Payment Date, the holders of the Series D Preferred Stock shall not have
received the full Regular Dividends and full Special Dividends provided for
in this Section 4, then such dividends shall cumulate, whether or not earned
or declared, with additional dividends thereon to accrue at the rate of eight
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Page 9
percent (8%) per annum for each succeeding full Dividend Period during which
such dividends shall remain unpaid. Unpaid dividends for any period less
than a full Dividend Period shall cumulate on a day-to-day basis and shall be
computed on the basis of a 360 day year. "Accumulated Dividends" shall mean,
as of any date, all Regular Dividends and Special Dividends that are either
undeclared or unpaid as of such date.
e. RESTRICTIONS WITH RESPECT TO JUNIOR SECURITIES.
(1) So long as any Series D Preferred Stock shall remain
outstanding, no regular periodic cash dividend whatsoever shall be
declared or paid upon or set apart for payment on any class of Junior
Securities, unless in each instance at such time no Accumulated
Dividends, Change in Control Dividend A or Change in Control Dividend B
shall be accrued but unpaid.
(2) So long as any Series D Preferred Stock shall remain
outstanding, no shares of Junior Securities shall be redeemed or
purchased for cash by the Company or any parent or subsidiary thereof
nor shall any moneys be paid to or made available for a sinking fund for
redemption or purchase of any shares of Junior Securities.
(3) The restrictions set forth in Sections 4(e)(1) and 4(e)(2)
above shall not apply to (i) up to $100,000 per calendar year applied to
redemption or purchase by the Company of Junior Securities owned by
employees of the Company in connection with the separation of such
employees from their employment with the Company, or (ii) any particular
cash dividend, redemption or purchase if the holders of a majority of
then outstanding shares of Series D Preferred Stock consent in writing
to the declaration or payment of such cash dividend, redemption or
purchase, as the case may be.
5. LIQUIDATION PREFERENCE.
a. GENERAL. Upon a Liquidation Event, the holders of Series D
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its shareholders, whether
from capital, surplus or earnings ("Available Assets"), before any payment
shall be made in respect of any Junior Security, an amount equal to the Face
Amount per share PLUS an amount equal to all Accumulated Dividends, if any
(in the aggregate, the "Liquidation Preference Amount"). If upon a
Liquidation Event, the Available Assets shall be insufficient to pay the
holders of the Series D Preferred Stock the full Liquidation Preference
Amount, the holders of the Series D Preferred Stock shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
b. NOTICE REQUIRED. Written notice of any voluntary or
involuntary Liquidation Event, stating the payment date and the place where
the distributable amount shall be payable, shall be given by mail, postage
prepaid, not less than thirty (30) days prior to the payment date stated
therein, to the holders of record of the Series D Preferred Stock at their
respective addresses as the same shall then appear on the books of the
Company.
6. CONVERSION.
a. EXERCISE OF CONVERSION RIGHT. Each holder of Series D
Preferred Stock shall have the right, at its option, at any time from the
Issue Date through December 31, 2006, to convert, subject to the terms and
provisions of this Section 6, all or any portion of its Series D Preferred
Stock then outstanding into such number of fully paid and non-assessable
shares of Common Stock as results from dividing (i) the sum of (A) the Face
Amount of all shares of Series D Preferred Stock to be converted plus (B) any
Accumulated Dividends on such shares, by (ii) the applicable Conversion Price
<PAGE>
Page 10
(as defined below) on the Conversion Date (as defined below). Such
conversion shall be deemed to have been made at the close of business on the
date that the certificate or certificates for shares of Series D Preferred
Stock shall have been surrendered for conversion and written notice shall
have been received as provided in Section 6(b) (the "Conversion Date"), so
that the person or persons entitled to receive the shares of Common Stock
upon conversion of such shares of Series D Preferred Stock shall be treated
for all purposes as having become the record holder or holders of such shares
of Common Stock at such time and such conversion shall be at the Conversion
Price in effect at such time. Upon conversion of any shares of Series D
Preferred Stock pursuant to this Section 6, the rights of the holder of such
shares upon the Conversion Date shall be the rights of a holder of Common
Stock only, and each such holder shall not have any rights in its former
capacity as a holder of shares of Series D Preferred Stock.
b. NOTICE TO COMPANY. In order to convert all or any portion of
its outstanding Series D Preferred Stock into shares of Common Stock, the
holder of such Series D Preferred Stock shall deliver the shares of Series D
Preferred Stock to be converted to the Company at its principal office,
together with written notice that it elects to convert those shares of Series
D Preferred Stock into shares of Common Stock in accordance with the
provisions of this Section 6. Such notice shall specify the number of shares
of Series D Preferred Stock to be converted and the name or names in which
the holder wishes the certificates for shares of Common Stock to be
registered, together with the address or addresses of the person or persons
so named, and, if so required by the Company, shall be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder of the shares of Series D
Preferred Stock to be converted or by its attorney duly authorized in writing.
c. DELIVERY OF CERTIFICATE. As promptly as practicable after the
surrender as hereinabove provided of shares of Series D Preferred Stock for
conversion into shares of Common Stock, the Company shall deliver or cause to
be delivered to the holder, or the holder's designees, certificates
representing the number of fully paid and non-assessable shares of Common
Stock into which the shares of Series D Preferred Stock are entitled to be
converted, together with a cash adjustment in respect of any fraction of a
share to which the holder shall be entitled as provided in Section 6(d), and,
if less than the entire number of shares of Series D Preferred Stock
represented by the certificate or certificates surrendered is to be
converted, a new certificate for the number of shares of Series D Preferred
Stock not so converted. So long as any shares of Series D Preferred Stock
remain outstanding, the Company shall not close its Common Stock transfer
books. The issuance of certificates for shares of Common Stock upon the
conversion of shares of Series D Preferred Stock shall be made without charge
to the holder for any tax in respect of the issuance of such certificates
(other than any transfer, withholding or other tax if the shares of Common
Stock are to be registered in a name different from that of the registered
holder of Series D Preferred Stock).
d. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series D Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the
Market Price of a whole share of Common Stock as of the Conversion Date.
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Page 11
e. RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of shares of Series D
Preferred Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series D Preferred Stock
then outstanding. The Company shall take at all times such corporate action
as shall be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of
shares of Series D Preferred Stock in accordance with the provisions of this
Section 6.
f. REGISTRATION. If any shares of Common Stock to be reserved for
the purpose of conversion of Series D Preferred Stock require registration or
listing with, or approval of, any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or
otherwise, before such shares may be validly issued or delivered upon
conversion, the Company shall, in good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the
case may be.
g. SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of Common
Stock that may be issued upon conversion of the Series D Preferred Stock
shall upon issuance by the Company be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
h. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
converted pursuant to the provisions of this Section 6 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
7. CONVERSION PRICE. As used herein, the "Conversion Price" shall
initially be $6.00 per share of Common Stock, subject to adjustment as set
forth below. No payment or adjustment shall be made for any dividends on the
Common Stock issuable in such conversion. The Conversion Price shall be
subject to adjustment from time to time as follows:
a. COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If the
Company shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance,
the Conversion Price in effect immediately prior to each such issuance shall
immediately be reduced to the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the Conversion Price in
effect immediately prior to such issuance and (B) the consideration, if any,
received by the Company upon such issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance. For the
purposes of any adjustment of the Conversion Price pursuant to this Section
7(a), the following provisions shall be applicable:
(1) CASH. In the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Company shall be
deemed to be the amount of the cash proceeds received by the Company for
such Common Stock before deducting therefrom any discounts, commissions,
taxes or other expenses allowed, paid or incurred by the Company for any
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underwriting or otherwise in connection with the issuance and sale
thereof.
(2) CONSIDERATION OTHER THAN CASH. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole
or in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board; provided that such fair value as
determined by the Board shall not exceed the aggregate Market Price of
the shares of Common Stock being issued as of the date the Board
authorizes the issuance of such shares.
(3) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii) securities
by their terms convertible into or exchangeable for Common Stock
(whether or not at the time so convertible or exchangeable) or (iii)
options, warrants or rights to purchase such convertible or exchangeable
securities (whether or not at the time exercisable):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights
to purchase or acquire Common Stock shall be deemed to have been
issued at the time such options, warrants or rights were issued and
for a consideration equal to the consideration (determined in the
manner provided in subsections (1) and (2) above), if any, received
by the Company upon the issuance of such options, warrants or
rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been issued
at the time such securities were issued or such options, warrants
or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such
securities and related options, warrants or rights (excluding any
cash received on account of accrued interest or accrued dividends),
plus the additional consideration (determined in the manner
provided in subsections (1) and (2) above), if any, to be received
by the Company upon the conversion or exchange of such securities,
or upon the exercise of any related options, warrants or rights to
purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof;
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options,
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warrants or rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be
received by the Company upon such exercise, conversion or exchange,
including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price as then in
effect shall forthwith be readjusted to such Conversion Price as
would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised prior to
such change, or of such convertible or exchangeable securities not
converted or exchanged prior to such change, upon the basis of such
change;
(D) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or
exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had an adjustment been
made upon the issuance of such options, warrants, rights or such
convertible or exchangeable securities on the basis of the issuance
of only the number of shares of Common Stock actually issued upon
the exercise of such options, warrants or rights, or upon the
conversion or exchange of such convertible or exchangeable
securities, if any; and
(E) if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the Conversion
Price shall be made for the actual issuance of Common Stock upon
the exercise, conversion, or exchange thereof;
provided, however, that no increase in the Conversion Price shall
be made pursuant to subsections (A) or (B) of this subsection (3).
b. EXCLUDED STOCK. For purposes of Section 7(a), "Excluded Stock"
shall mean (i) shares of Common Stock issued or reserved for issuance by the
Company as a stock dividend payable in shares of Common Stock, or upon any
subdivision or split up of the outstanding shares of Common Stock or Series D
Preferred Stock, or upon conversion of shares of the Series D Preferred
Stock, (ii) under options and warrants outstanding on the date hereof, (iii)
750,000 shares of Common Stock reserved for issuance to key employees and
directors of the Company pursuant to the Company's employee stock option plan
in effect as of the date hereof; (iv) shares of Series E Preferred Stock and
shares of Common Stock issuable upon the conversion thereof, and (v) 77,520
shares of Common Stock issuable upon the conversion of the shares of Series C
Convertible Preferred Stock outstanding on the date hereof.
c. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the
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outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any shares of Series D Preferred Stock surrendered for conversion
after such date shall be entitled to receive the number of shares of Common
Stock which he would have owned or been entitled to receive had such shares
of Series D Preferred Stock been converted immediately prior to such date.
Successive adjustments in the Conversion Price shall be made whenever any
event specified above shall occur.
d. OTHER DISTRIBUTIONS. In case the Company shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock, (ii) of
evidence of indebtedness of the Company or any subsidiary of the Company,
(iii) of assets, or (iv) of rights or warrants, in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price per
share on such record date, less (B) the fair market value (as determined by
the Board) of said shares or evidences of indebtedness or assets or rights or
warrants to be so distributed, by (2) the number of shares of Common Stock
outstanding on such record date; PROVIDED, HOWEVER, that, so long as there
are no Accumulated Dividends on the Series D Preferred Stock or the Series E
Preferred Stock then outstanding for any previous Dividend Payment Date, the
provisions of this Section 7(d) shall not apply to distributions consisting
of cash dividends on the shares of Common Stock up to an amount equal to 50%
of consolidated net income of the Company and its Majority-Owned Subsidiaries
as of the calendar year immediately preceding the proposed record date for
such dividend. Any adjustment provided for by this Section 7(d) shall be
made successively whenever such a record date is fixed.
e. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of
any consolidation with or merger of the Company with or into another
corporation or other entity, or in case of any sale, lease or conveyance to
another entity of the assets of the Company as an entirety or substantially
as an entirety, each share of Series D Preferred Stock shall after the date
of such consolidation, merger, sale, lease or conveyance be convertible into
the number of shares of stock or other securities or property (including
cash) to which the Common Stock issuable (at the time of such consolidation,
merger, sale, lease or conveyance) upon conversion of such share of Series D
Preferred Stock would have been entitled upon such consolidation, merger,
sale, lease or conveyance; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the
holders of the shares of Series D Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any
shares of stock or other securities or property thereafter deliverable on the
conversion of the shares of Series D Preferred Stock. Nothing in this
Section 7(e) shall be construed in any way to derogate from the right of the
holders of the Series D Preferred Stock to require the Company to repurchase
their shares at the Change in Control Repurchase Price upon a Change in
Control, as set forth in Section 8(c) hereof.
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f. NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in subsections (a), (c), (d), and (e)
of this Section 7, the Company shall give notice to each holder of shares of
Series D Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the approximate date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion of
shares of Series D Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 10
days prior to the date so fixed, and in the case of all other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action.
g. STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series D Preferred
Stock pursuant to this Section 7, the Company shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. Each such statement shall be signed by the Company's public
accountants.
h. TREASURY STOCK. For the purposes of this Section 7, the sale
or other disposition of any Common Stock theretofore held in the Company's
treasury shall be deemed to be an issuance thereof.
i. GOOD FAITH. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the shares of Series D Preferred Stock shares against
impairment of any kind.
8. VOTING RIGHTS; PROTECTIVE PROVISIONS; CHANGE OF CONTROL; SPECIAL
REPURCHASE EVENTS.
a. GENERAL. Except as specifically set forth in the DGCL or
provided in the balance of this Section 8, the holders of shares of Series D
Preferred Stock shall not be entitled to any voting rights with respect to
any matters voted upon by stockholders.
b. PROTECTIVE PROVISIONS. So long as any shares of Series D
Preferred Stock are outstanding, the written consent or the affirmative vote
at a meeting called for that purpose of the holders of a majority of the
shares of Series D Preferred Stock then outstanding, voting separately as a
class, shall be necessary to validate or effectuate any of the following: (i)
amend, repeal, alter or change any of the rights, preferences or privileges
of the shares of Series D Preferred Stock; (ii) create (by reclassification
of an existing class or series, or otherwise) any new class or series of
shares of the Company's capital stock, except for classes or series of shares
ranking, with respect to dividend rights and rights on any Liquidation Event,
junior to the Series D Preferred Stock and the Series E Preferred Stock;
(iii) issue any shares of the
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Company's capital stock, except for classes or series of shares ranking, with
respect to dividend rights and rights on any Liquidation Event, junior to the
Series D Preferred Stock and the Series E Preferred Stock; or (iv) take any
action that materially and adversely affects the legal rights, preferences or
privileges of the shares of Series D Preferred Stock. At any time when there
are any Accumulated Dividends or any Change in Control Special Dividend A
accrued but unpaid for any reason, the holders of a majority of the shares of
Series D Preferred Stock then outstanding, voting separately as a class,
shall be necessary to validate or effectuate (i) any acquisition by the
Company of all or substantially all of the assets of another Person, (ii) any
acquisition by the Company of all or substantially all of the equity
interests in any Person, and (iii) any merger or recapitalization transaction
to which the Company is a party.
c. HOLDER'S ELECTION UPON CHANGE OF CONTROL.
(1) GENERALLY. In the event of any Change in Control, each
holder of shares of Series D Preferred Stock shall have the right, at
such holder's election as set forth below, to receive in respect of each
share owned by such holder a sum equal to (i) the then applicable Face
Value, PLUS (ii) Accumulated Dividends, PLUS (iii) a "Change of Control
Special Dividend A" equal to 18% of the then applicable Face Value.
(2) COMPANY'S NOTIFICATION OBLIGATION.
(A) The Company shall notify each holder of shares of
Series D Preferred Stock in writing within 15 days before any
Change in Control pursuant to a transaction to which the Company is
a party (a "Company Change of Control Transaction") setting forth a
description of the nature of the Change in Control and the date at
which such Change in Control is anticipated to take place.
(B) The Company shall notify each holder of shares of
Series D Preferred Stock in writing as soon as the Company has
Knowledge of any Change of Control pursuant to a transaction that
is not a Company Change of Control Transaction (an "Other Change of
Control Transaction") setting forth a description of the nature of
the Change in Control and the date at which such Change in Control
took place or is anticipated to take place.
(C) The notices described in clauses (A) and (B) above are
collectively denominated "Change in Control Notices".
(3) HOLDER'S ELECTION. Within five (5) days after receipt of
the Change of Control Notice, each holder shall notify the Company in
writing whether or not such holder will require such holder's shares of
Series D Preferred Stock to be redeemed by the Company pursuant to this
Section. If a holder does not timely notify the Company in writing
pursuant to the previous sentence, such holder will be deemed to have
waived its right to require such holder's shares of Series D Preferred
Stock to be redeemed by the Company pursuant to this Section; provided,
however, that such waiver shall only apply to the Change of Control
relating to the relevant Change of Control Notice, and not any
subsequent Change of Control or Change of Control Notice.
(4) COMPANY CHANGE OF CONTROL. The Company shall redeem the
shares of each holder of Series D Preferred Stock so electing such a
redemption in connection with a Company Change of Control Transaction by
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making cash payments to such holder in respect of each share owned by
such holder as follows: (i) a sum equal to the then applicable Face
Value PLUS Accumulated Dividends on or prior to the date of the Company
Change in Control Transaction as a condition precedent to the
effectiveness of such Company Change in Control Transaction, and (ii) a
sum equal to the Change in Control Special Dividend A as soon as funds
are legally available for payment thereof after the date of the Company
Change in Control Transaction. Any Company Change of Control
Transaction shall be void and of no force and effect if the payments set
forth in clause (i) of this Section 8(c)(4) are not made on or prior to
the date of such Company Change in Control Transaction.
(5) OTHER CHANGES OF CONTROL. The Company shall redeem the
shares of each holder of Series D Preferred Stock so electing such a
redemption in connection with an Other Change of Control Transaction as
promptly as practicable after receipt of such holder's notice of such
election by making cash payments to such holder in respect of each share
owned by such holder as follows: (i) a sum equal to the then applicable
Face Value PLUS Accumulated Dividends plus a sum equal to the Change in
Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Other Change in Control
Transaction.
d. SPECIAL REPURCHASE EVENTS.
(1) REPRESENTATIONS. The Company represents and warrants to
each holder of shares of Series D Preferred Stock as follows:
(A) Except as otherwise disclosed in the Disclosure
Schedule to the Stock Purchase Agreement (as such term is defined
therein), neither the Company nor any of its Affiliates since
inception has provided any research, educational or study grants or
other financial support of any kind to any hospital, physician, or
health care provider.
(B) Neither the Company nor any of its Affiliates since
inception has received notice that the Company or any Subsidiary
has been, or to the Company's knowledge has been, the subject of
any investigative proceeding before any federal or state regulatory
authority or the agent of any such authority, including without
limitation federal and state health authorities.
(C) Neither the Company nor any Affiliate, nor the
officers, directors, employees or agents of any of the Company or
any Affiliate, and none of the Persons who provide professional
services under agreements with any of the Company or any Affiliate
as agents of such entities have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or
permissive exclusion from Medicare or Medicaid, under Sections
1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United
States Code, the federal Civilian Health and Medical Plan of the
Uniformed Services statute ("CHAMPUS"), or the regulations
promulgated pursuant to such statutes or regulations or related
state or local statutes or which are prohibited by any private
accrediting organization from which the Company or any of its
Affiliates seeks accreditation or by generally recognized
professional standards of care or conduct, including but not
limited to the following activities:
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(a) knowingly and willfully making or causing to be made
a false statement or representation of a material fact in any
application for any benefit or payment;
(b) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for
an item or service that the Person presenting or causing to be
presented knows or should know was not provided as claimed, or (ii)
for an item or service and the Person presenting knows or should
know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting
or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring, or to induce the referral of, an
individual to a Person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in
whole or in part by CHAMPUS, Medicare or Medicaid, or any other
State Health Care Program or any Federal Health Care Program, or
(iii) in return for, or to induce, the purchase, lease, or order,
or the arranging for or recommending of the purchase, lease, or
order, of any good, facility, service, or item for which payment
may be made in whole or in party by CHAMPUS, Medicare or Medicaid
or any other State Health Care Program or any Federal Health Care
Program; or
(e) knowingly and willfully making or causing to be made
or inducing or seeking to induce the making of any false statement
or representation (or omitting to state a material fact required to
be stated therein or necessary to make the statements contained
therein not misleading) or a material fact with respect to (i) the
conditions or operations of a facility in order that the facility
may qualify for CHAMPUS, Medicare, Medicaid or any other State
Health Care Program certification or any Federal Health Care
Program certification, or (ii) information required to be provided
under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C.
Section 1320a-3).
(D) Neither the Company nor any other Person who after the
Issue Date will have a direct or indirect ownership interest (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in
the Company or any Affiliate of 5% or more (other than General
Electric Company, a New York corporation ("General Electric")), or
who will have an ownership or control interest (as defined in SSA
Section 1124(a)(3), or any regulations promulgated thereunder) in
the Company or any Affiliate (other than General Electric), or who
will 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
Company or any Affiliate and (ii) to the best Knowledge of the
Company and any Affiliate, no Person or entity with any
relationship with such entity (including without
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limitation a parent company or shareholder of, or partner in an
Affiliate) who after the Issue Date will have an indirect ownership
interest (as that term is defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Company or any Affiliate of 5% or more
(other than General Electric): (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:
(a) 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;
(b) criminal offenses under federal or state law relating
to patient neglect or abuse in connection with the delivery of a
health care item or service;
(c) criminal offenses under federal or state law relating
to fraud, theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct in connection with the delivery of a
health care item or service or with respect to any act or omission
in a program operated by or financed in whole or in part by any
federal, state or local governmental agency;
(d) federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense
described in (a) through (c) above; or
(e) criminal offenses under federal or state law relating
to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
(2) COVENANTS. The Company covenants that as long as any
shares of Series D Preferred Stock are outstanding:
(A) The operations of the Company and its Affiliates will
be conducted in accordance with all Applicable Laws, including,
without limitation, all such laws, regulations, orders and
requirements promulgated by any Governmental Authority or relating
to consumer protection, equal opportunity, health care industry
regulation, third party reimbursement (including Medicare and
Medicaid), environmental protection, fire, zoning and building and
occupational safety matters, except for violations that
individually or in the aggregate would not and, insofar as may
reasonably be foreseen, in the future will not, have a Material
Adverse Effect on the Company or any Subsidiary.
(B) Without limiting the generality of the foregoing, the
operations of the Company and its Affiliates will be conducted in
accordance with all laws, regulations, orders and requirements
relating to health care industry regulation and third party
reimbursement (including Medicare and Medicaid).
(C) Without limiting the generality of the foregoing, the
Company and all Affiliates shall comply in all material respects
with all directives, orders, instructions,
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bulletins and other announcements received from third party payors
and their agents (including without limitation Medicare carriers
and fiscal intermediaries) regarding participation in third party
payment programs, and including without limitation preparation and
submission of claims for reimbursement. Nothing in this Section
8(d)(2)(C) shall be construed as or is intended to create any third
party beneficiaries.
(3) SPECIAL REPURCHASE EVENTS. The failure of any
representation or warranty of the Company contained in Section 8(d)((1)
to be true on the Issue Date in any material respect, or the Company's
breach of any of the covenants set forth in Section 8(d)(2), shall be a
"Special Repurchase Event". Upon any Special Repurchase Event, each
holder of shares of Series D Preferred Stock shall have the right, at
such holder's election as set forth below, to receive in respect of each
share owned by such holder a sum equal to (i) the then applicable Face
Value, PLUS (ii) Accumulated Dividends.
(A) The Company shall notify each holder of Series D
Preferred Stock in writing as soon as commercially practicable upon
the occurrence of any Special Repurchase Event (a "Company Special
Repurchase Event Notice"), and each holder may notify the Company
in writing within 30 days after such holder has actual knowledge of
the occurrence of any Special Repurchase Event (a "Holder Special
Repurchase Event Notice"). Upon receipt of a Holder Special
Repurchase Event Notice, the Company shall send copies of such
Holder Special Repurchase Event Notice to all other holders, if
any, of shares of Series D Preferred Stock. A Company Special
Repurchase Event Notice or a Holder Special Repurchase Event Notice
shall be denominated herein a "Special Repurchase Event Notice".
(B) Within ten (10) days after receipt of any Special
Repurchase Event Notice (or a copy thereof), each holder shall send
a written notice to the Company either electing to have such
holder's shares repurchased pursuant to the provisions of this
Section 8(d) or declining to so elect (the "Special Repurchase
Event Election"). Within 10 days after receipt of each holder's
Special Repurchase Event Election, the Company shall repurchase
each share of Series D Preferred Stock of each such holder electing
to have such holder's shares repurchased pursuant to the provisions
of this Section 8(d) at a price per share equal to the Face Amount
per share plus Accumulated Dividends.
(4) CUMULATIVE REMEDIES. The remedies provided to the holders
of the shares of Series D Preferred Stock set forth in this Section 8(d)
with respect to any misrepresentation or breach of covenant contained
herein shall be without prejudice to any other remedies of such holders
for such misrepresentation or breach, including without limitation (in
the case of General Electric) any remedies of General Electric under the
Stock Purchase Agreement.
9. REDEMPTION.
a. OPTIONAL REDEMPTION. The Company may at any time from and
after January 1, 2007, and from time to time thereafter, redeem out of funds
legally available therefor all of the shares of Series D Preferred Stock at
its election expressed by resolution of the Board, upon not less than thirty
(30) days' prior notice to the holders of record of the Series D Preferred
Stock to be redeemed, given by mail, at the
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Redemption Price (as hereinafter defined) on the Redemption Date (as
hereinafter defined). The Company shall not redeem less than all the
outstanding shares of Series D Preferred Stock under this Section 9(a).
b. COMPANY'S ELECTION UPON CHANGE IN CONTROL. In the event of any
Change in Control, the Company may redeem out of funds legally available
therefor all of the shares of Series D Preferred Stock at its election
expressed by resolution of the Board upon not less than thirty (30) days'
prior notice to the holders of record of the Series D Preferred Stock to be
redeemed, given by mail. Upon such resolution of the Board, each holder of
shares of Series D Preferred Stock shall have the right to receive on the
Redemption Date (as defined below) in respect of each share owned by such
holder a sum equal to (i) the then applicable Face Value, PLUS (ii)
Accumulated Dividends, PLUS (iii) a "Change of Control Special Dividend B"
equal to 23% of the then applicable Face Value. The Company shall not redeem
less than all of the outstanding shares of Series D Preferred Stock under
this Section 9(b).
c. REDEMPTION DATE. The "Redemption Date" shall be the date fixed
for redemption in the notice of redemption under Sections 9(a) or 9(b) above.
The Redemption Date with respect to any Company Change in Control
Transaction shall be a date on or before the effective date of such Change in
Control.
d. REDEMPTION PRICE. The price at which outstanding shares of
Series D Preferred Stock shall be redeemed pursuant to Section 9(a) shall be
the Face Amount per share, as then in effect, together with all Accumulated
Dividends on such shares to the Redemption Date (the "Redemption Price").
e. NOTICE OF REDEMPTION. Each notice of redemption shall state
(i) the Redemption Date, (ii) the number of shares of Series D Preferred
Stock to be redeemed, (iii) as the case may be, pursuant to Sections 9(a) and
9(b) above, either (x) the Redemption Price or (y) the sum equal to (A) the
then applicable Face Value, PLUS (B) Accumulated Dividends, PLUS (C) the
Change of Control Special Dividend B equal to 23% of the then applicable Face
Value applicable to the shares to be redeemed, (iv) the place or places where
such shares are to be surrendered, and (v) that dividends on shares to be
redeemed will cease to accrue on the Redemption Date. No defect in any such
notice to any holder of Series D Preferred Stock shall affect the validity of
the proceedings for the redemption of any other shares of such Series D
Preferred Stock.
f. RETIREMENT OF SHARES. Any shares of Series D Preferred Stock
redeemed pursuant to the provisions of this Section 9 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
g. CONDITION PRECEDENT TO CHANGE IN CONTROL. If the Company fails
to pay all amounts payable to the holders of shares of Series D Preferred
Stock due in respect of a redemption pursuant to Section 9(b) hereof prior on
or prior to the Redemption Date, any related Company Change of Control
Transaction shall be void and of no force and effect.
h. RESTRICTIONS ON REDEMPTIONS. No shares of Series D Preferred
Stock shall be redeemed under this Section 9: (i) at any time that such
redemption is prohibited by the DGCL; or (ii) at any time that the terms and
provisions of any contract or other agreement of the Company in effect as of
the Issue Date providing financing or
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working capital to the Company specifically prohibits such redemption or
provides that such redemption would constitute a breach thereof or a default
thereunder.
10. NO SINKING FUND. No sinking fund shall be established for the
retirement or redemption of shares of Series D Preferred Stock.
11. PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of shares of Series D
Preferred Stock shall have any preemptive or subscription rights in respect
of any securities of the Company that may be issued.
12. NO OTHER RIGHTS. The shares of Series D Preferred Stock shall not
have any designations, preferences or relative, participating, optional or
other special rights except as expressly set forth in the Company's
Certificate of Incorporation, this Certificate or as otherwise required by
law.
RESOLVED, FURTHER, that the Secretary of the Company be, and he hereby is,
authorized, empowered and directed to execute an Amended Certificate of
Designation, Preferences and Rights of Series D Preferred Stock and that such
Certificate be delivered to and filed with the Secretary of State of the
State of Delaware pursuant to the provisions of Section 103 and Section
151(g) of the DGCL, both as amended.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate
of Designation to be executed by its Secretary as of March 25, 1997.
ALLIANCE IMAGING, INC.
By:________________________________
Terrence M. White,
Secretary
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ALLIANCE IMAGING, INC.
AMENDED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES E 4% CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Alliance Imaging, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY
CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of
the Company (the "Board") by the Restated Certificate of Incorporation of the
Company, as amended (the "Certificate of Incorporation"), the Board, pursuant
to a unanimous written consent dated as of March 25, 1997, adopted the
following resolutions authorizing the issuance of Series E 4% Cumulative
Redeemable Convertible Preferred Stock of the Company, which resolutions are
still in full force and effect and are not in conflict with any provisions of
the Certificate of Incorporation or Bylaws of the Company:
RESOLVED, that pursuant to authority vested in the Board by the
Certificate of Incorporation, the Board does hereby establish a series of
Preferred Stock of the Company from the Company's authorized class of
1,000,000 shares of $0.01 par value preferred shares, such series to consist
of 9,000 shares, which number may be decreased (but not below the number of
shares thereof then outstanding) from time to time by the Board, and to the
extent that the voting rights, designation, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions of that series are not stated and expressed in
the Certificate of Incorporation, does hereby fix and state the voting
rights, designation, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof, as follows:
1. DEFINITIONS. Unless otherwise specified herein, the following
capitalized terms shall have the meanings ascribed to them below:
ACCUMULATED DIVIDENDS. "Accumulated Dividends" shall have the
meaning set forth in Section 4(d).
AFFILIATE. "Affiliate" shall mean, with respect to any Person, any
other Person which directly or indirectly controls or is controlled by or is
under common control with such Person, and, with respect to the Company only,
includes any other Person with whom the Company has any joint venture,
partnership, or other shared investment interest. As used in this
definition, "control" (including its correlative meanings, "controlled by"
and "under common control with") shall mean possession,
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Page 2
directly or indirectly, of power to (i) direct or cause the direction of
management or policies of such Person (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise) or (ii) vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person.
APPLICABLE LAW. "Applicable Law" shall mean, with respect to any
Person, any federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees, consultants or
agents.
AVAILABLE ASSETS. "Available Assets" shall have the meaning set
forth in Section 5(a).
AVERAGE MARKET PRICE. The "Average Market Price" of a share of
Common Stock at any date shall mean the average of the daily closing prices
per share of Common Stock for fifteen (15) consecutive trading days ending on
the trading day immediately preceding such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such
15 day period). The closing price for each trading day shall mean (i) the
closing sales price on such trading day of a share of Common Stock on the
principal national securities exchange or automated quotation system on which
the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange or
automated quotation system, the average of the last reported bid and asked
prices on such trading day in the over-the-counter market as furnished by the
National Association of Securities Dealers, Inc., or, if such firm is not
then engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business selected in good faith by the
Company or, if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc., selected in good faith by
the Company, or (ii) if the shares of Common Stock are not then traded on any
such exchange or system, the amount determined in good faith by the Board to
represent the fair value of a share of Common Stock.
BASE CONVERSION PRICE. "Base Conversion Price" shall have the
meaning set forth in Section 7, as adjusted from time to time as set forth
therein.
CAPITAL LEASE. "Capital Lease" shall mean any lease by a Person of
any property (whether real, personal or mixed) which, in conformity with GAAP
(including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), is accounted for as a capital lease on
the balance sheet of such person.
CAPITAL LEASE OBLIGATIONS. "Capital Lease Obligations" shall mean,
as to any Person, the obligations of such Person to pay rent or other amounts
under a Capital Lease and, for purposes of this Certificate of Designation,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with
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Page 3
GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board).
CHAMPUS. "CHAMPUS" has the meaning set forth in Section 8(d)(1)(C).
CHANGE IN CONTROL. "Change in Control" shall be deemed to have
occurred (i) at such time as any person (as defined in Section 13(d)(3) of
the Securities and Exchange Act of 1934) at any time shall directly or
indirectly acquire more than 40% of the voting power of the Common Stock of
the Company, (ii) at such time as during any one year period, individuals who
at the beginning of such period constitute the Company's Board cease to
constitute at least a majority of such Board, (iii) upon consummation of a
merger or consolidation of the Company into or with another corporation in
which the shareholders of the Company immediately prior to the consummation
of such transaction shall own less than Fifty Percent (50%) of the voting
securities of the surviving corporation (or the parent corporation of the
surviving corporation where the surviving corporation is wholly-owned by the
parent corporation) immediately following the consummation of such
transaction or (iv) the sale, transfer or lease (but not including a transfer
or lease by pledge or mortgage to a bona fide lender) of all or substantially
all of the assets of the Company, in any of cases (i), (ii), (iii) and (iv)
in a single transaction or series of transactions; PROVIDED, HOWEVER, that no
Change in Control shall be deemed to have occurred solely as a result of
General Electric Company, a New York corporation, directly or indirectly
acquiring more than 40% of the voting power of the Common Stock of the
Company.
CHANGE IN CONTROL SPECIAL DIVIDEND A. "Change in Control Special
Dividend A" shall have the meaning set forth in Section 8(c)(1).
CHANGE IN CONTROL SPECIAL DIVIDEND B. "Change in Control Special
Dividend B" shall have the meaning set forth in Section 9(b).
COMMON STOCK. "Common Stock" shall mean the Company's Common Stock,
$0.01 par value per share.
COMPANY CHANGE IN CONTROL TRANSACTION. "Company Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(A).
COMPANY SPECIAL REPURCHASE EVENT NOTICE. "Company Special
Repurchase Event Notice" shall have the meaning set forth in Section
8(d)(3)(A).
CONVERSION DATE. "Conversion Date" shall have the meaning set forth
in Section 6(a).
CONVERSION PRICE. "Conversion Price" shall have the meaning set
forth in Section 7, as adjusted from time to time as set forth therein.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
DIVIDEND PAYMENT DATE. "Dividend Payment Date" shall have the
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Page 4
meaning set forth in Section 4(b).
DIVIDEND PERIOD. "Dividend Period" shall have the meaning set forth
in Section 4(b).
EXCLUDED STOCK. "Excluded Stock" shall have the meaning set forth
in Section 7(b).
FACE AMOUNT. The "Face Amount" of each share of Series E Preferred
Stock (regardless of its par value) shall be One Thousand Dollars
($1,000.00), as the Series E Preferred Stock is presently constituted, such
amount to be proportionately adjusted to reflect any combination,
consolidation, reclassification or like adjustment of or to the Series E
Preferred Stock.
FEDERAL HEALTH CARE PROGRAM. "Federal Health Care Program" shall
have the meaning set forth in Section 8(d)(1)(E).
FUNDED DEBT. "Funded Debt" shall mean as applied to any Person, all
Indebtedness of such Person, in a principal amount of at least One Million
Dollars ($1,000,000) in each instance, which by its terms or by the terms of
any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year (including an option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year) from the date of the creation thereof; PROVIDED that
"Funded Debt" shall include, as at any date of determination, any portion of
such Funded Debt outstanding on such date which matures on demand or within
one year from such date (whether by sinking fund, other required prepayment
or final payment at maturity) and which is not directly or indirectly
renewable, extendible or refundable, at the option of the debtor to a date
more than one year from such date; PROVIDED, FURTHER, that "Funded Debt"
shall include all Indebtedness pursuant to that certain Note Purchase
Agreement dated as of April 14, 1989, as amended to and including the Issue
Date; and PROVIDED, FURTHER, that except with respect to Indebtedness
pursuant to that certain Note Purchase Agreement dated as of April 14, 1989,
as amended to and including the Issue Date, "Funded Debt" shall not include
(i) Indebtedness secured by equipment, trailers or modular buildings used in
the business of the Company or (ii) Indebtedness convertible into equity
securities of the Company on commercially reasonable terms.
FUNDED DEBT DEFAULT. "Funded Debt Default" shall mean any date 30
days after the Company shall have Knowledge that it is in default with
respect to any Funded Debt, unless during such 30 day period either (i) such
default shall have been waived by the lender with respect to such Funded Debt
or (ii) the agreement or agreements governing such Funded Debt shall have
been amended to eliminate such default, in either of cases (i) or (ii)
without any economic consideration (other than such consideration required by
the terms of the documentation with respect to such Funded Debt as in effect
prior to any amendment of such documentation described in clause (ii)
<PAGE>
Page 5
above) provided to the lender with respect to such Funded Debt by the Company.
GAAP. "GAAP" means generally accepted accounting principles.
GENERAL ELECTRIC. "General Electric" shall have the meaning set
forth in Section 8(d)(1)(E).
GOVERNMENTAL AUTHORITY. "Governmental Authority" shall mean any
federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing, in all such cases
whether domestic or foreign.
HOLDER SPECIAL REPURCHASE EVENT NOTICE. "Holder Special Repurchase
Event Notice" shall have the meaning set forth in Section 8(d)(3)(A).
INDEBTEDNESS. "Indebtedness" shall mean, as to any Person without
duplication, (a) all items which, in accordance with GAAP, would be included
as a liability on the balance sheet of such Person and its Majority-Owned
Subsidiaries (including any obligation of such Person to the issuer of any
letter of credit for reimbursement in respect of any drafts drawn under such
letter of credit), excluding obligations in respect of deferred taxes and
deferred employee compensation and benefits, and anything in the nature of
capital stock, surplus capital and retained earnings; (b) the amount
available for drawing under all letters of credit issued for the account of
such Person; (c) obligations (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by liens; (d)
Capital Lease Obligations of such Person; and (e) all guarantees of such
Person, PROVIDED, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person,
PROVIDED the same are not more than 45 days overdue or are being contested in
good faith.
ISSUE DATE. "Issue Date" shall mean, with respect to any shares of
Series E Preferred Stock, the date such shares of Series E Preferred Stock
are issued.
JUNIOR SECURITIES. "Junior Securities" shall have the meaning set
forth in Section 3.
KNOWLEDGE. "Knowledge" or "knowledge," with respect to any Person,
shall mean the actual knowledge of such Person, after reasonable inquiry.
For purposes hereof, a Person shall be deemed to have actual knowledge of the
contents of all books and records with respect to which such Person has
reasonable access. Without limiting the generality of the foregoing, with
respect to any Person that is a corporation, partnership or other business
entity, actual knowledge shall be deemed to include the actual knowledge of
all principal employees of any such Person (which, for purposes of the
Company, shall include without limitation Richard N. Zehner, Vincent S.
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Page 6
Pino, Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan,
Ph.D., Cheryl A. Ford, and Michael W. Grismer) as well as the Chief Executive
Officer, President, Chief Financial Officer and all Vice Presidents in the
case of corporate Persons, and general partners in the case of general or
limited partnerships, as the case may be.
LIQUIDATION EVENT. "Liquidation Event" shall mean any of the
following: (i) a liquidation or winding up of the Company, (ii) a merger or
consolidation of the Company into or with another corporation in which the
shareholders of the Company immediately prior to the consummation of such
transaction shall own less than Fifty Percent (50%) of the voting securities
of the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iii) the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of the
assets of the Company; in any of cases (i), (ii) or (iii) in a single
transaction or series of transactions.
LIQUIDATION PREFERENCE AMOUNT. "Liquidation Preference Amount"
shall have the meaning set forth in Section 5(a).
MAJORITY-OWNED SUBSIDIARY. "Majority-Owned Subsidiary" means with
respect to any Person any Subsidiary of such Person of which at least a
majority of the outstanding shares, partnership interests or other equity
interests therein is at the time directly or indirectly owned or controlled
by such Person or any other Subsidiary which is a consolidated subsidiary of
such Person under GAAP or one or more of the Majority-Owned Subsidiaries of
such Person or by such Person and one or more of the Majority-Owned
Subsidiaries of such Person.
MARKET PRICE. The "Market Price" of a share of Common Stock on or
with respect to any day shall mean (i) the closing sales price on the
immediately preceding trading day of a share of Common Stock on the principal
national securities exchange or automated quotation system on which the
shares of Common Stock are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange or automated
quotation system, the average of the last reported bid and asked prices on
such immediately preceding trading day in the over-the-counter market as
furnished by the National Association of Securities Dealers, Inc., or, if
such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected in good
faith by the Company or, if there is no such firm, as furnished by any member
of the National Association of Securities Dealers, Inc., selected in good
faith by the Company, or (ii) if the shares of Common Stock are not then
traded on any such exchange or system, the amount determined in good faith by
the Board to represent the fair value of a share of Common Stock.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with
respect to any Person or designated group of Persons, a change in, or effect
on, or group of such changes in or effects on, the operations, financial
condition or results of operations, prospects, assets or liabilities of the
Person or group of Persons, as the
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case may be, taken as a whole, that results in a material adverse effect on,
or a material adverse change in, the operations, financial condition, results
of operations, prospects, assets or liabilities of the Person or group of
Persons, as the case may be, taken as a whole, excluding adverse changes in
the general economy.
OTHER CHANGE IN CONTROL TRANSACTION. "Other Change in Control
Transaction" shall have the meaning set forth in Section 8(c)(2)(B).
PERSON. "Person" shall mean any natural person, firm, corporation,
partnership, limited liability company, association, trust or other entity.
RECORD DATE. "Record Date" shall have the meaning set forth in
Section 4(c).
REDEMPTION DATE. "Redemption Date" shall have the meaning set forth
in Section 9(c).
REDEMPTION PRICE. "Redemption Price" shall have the meaning set
forth in Section 9(d).
REGULAR DIVIDENDS. "Regular Dividends" shall have the meaning set
forth in Section 4(a).
SERIES D PREFERRED STOCK. "Series D Preferred Stock" shall mean the
Company's Series D 4% Cumulative Redeemable Convertible Preferred Stock
designated pursuant to the Certificate of Designation, Preferences and Rights
of Series D 4% Cumulative Redeemable Convertible Preferred Stock dated as of
even date herewith.
SERIES E PREFERRED STOCK. "Series E Preferred Stock" shall have the
meaning set forth in Section 2.
SPECIAL DIVIDEND EVENT TRIGGER DATE. "Special Dividend Event Trigger
Date" shall have the meaning set forth in Section 4(b).
SPECIAL DIVIDENDS. "Special Dividends" shall have the meaning set
forth in Section 2.
SPECIAL REPURCHASE EVENT. "Special Repurchase Event" shall have the
meaning set forth in Section 8(d)(3).
SPECIAL REPURCHASE EVENT ELECTION. "Special Repurchase Event
Election" shall have the meaning set forth in Section 8(d)(3)(B).
SSA. "SSA" shall have the meaning set forth in Section 8(d)(1)(C).
STATE HEALTH CARE PROGRAM. "State Health Care Program" shall have
the meaning set forth in Section 8(d)(1)(E).
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STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" shall mean
that certain Stock Purchase Agreement dated as of March 25, 1997 between
General Electric and the Company.
SUBSIDIARY. "Subsidiary" shall mean with respect to any Person each
corporation, partnership, joint venture or other entity in which such Person
has, directly or indirectly, any equity interest in the capital stock
thereof, any partnership interest, or any other equity interest therein.
2. DESIGNATION OF SERIES; ISSUANCE AND FACE AMOUNT. This series of
Preferred Stock is designated "Series E 4% Cumulative Redeemable Convertible
Preferred Stock" (hereinafter the "Series E Preferred Stock"), and the number
of shares which shall constitute such series shall be 9,000, which number may
be decreased (but not below the number thereof then outstanding) from time to
time by the Board. The shares of Series E Preferred Stock shall be issued by
the Company for their Face Amount (as herein defined), in such amounts, at
such times and to such persons as shall be specified by the Board, from time
to time.
3. RANK. The Series E Preferred Stock shall, with respect to dividend
rights and rights on any Liquidation Event, rank senior to all Junior
Securities. "Junior Securities" shall mean (i) the Company's Series A 6.0%
Cumulative Preferred Stock, (ii) the Company's Series B Cumulative Preferred
Stock, (iii) the Company's Series C Convertible Preferred Stock, (iv) Common
Stock, and (v) any other classes or series of stock or other equity
securities of the Company; PROVIDED, HOWEVER, that the term "Junior
Securities" shall not include the Series D Preferred Stock. Shares of the
Company's Series E Preferred Stock shall, with respect to dividend rights and
rights on any Liquidation Event, rank on a pari passu basis with shares of
the Series D Preferred Stock.
4. DIVIDENDS.
a. REGULAR DIVIDENDS. The holders of record of the Series E
Preferred Stock shall be entitled to receive, out of funds legally available
for such purpose, cumulative preferential cash dividends accruing from the
Issue Date at the rate of Four Percent (4%) per annum of the Face Amount per
share ("Regular Dividends").
b. SPECIAL DIVIDENDS.
(1) Each of the following shall be a "Special Dividend Event
Trigger Date":
(A) At any time after April 1, 2007, if for fifteen (15) days out of
any twenty (20) consecutive trading days on which the Common Stock is
traded, the Market Price per share of Common Stock shall be less than
83.3% of the then-applicable Conversion Price , then the last such
trading date shall be a Special Dividend Event Trigger Date.
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(b) The date of any Funded Debt Default shall be a Special Dividend
Event Trigger Date.
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(2) Upon any Special Dividend Event Trigger Date, the holders of
record of the Series E Preferred Stock shall be entitled to receive, out of
funds legally available for such purpose, in addition to Regular Dividends,
a special dividend in the following per annum percentages of the Face
Amount per share ("Special Dividends"):
- --------------------------------------------------------------------------------
Special Dividend
Time Period Percentage
- --------------------------------------------------------------------------------
First full calendar month after Special Dividend Event
Trigger Date 1%
- --------------------------------------------------------------------------------
Second full calendar month after Special
Dividend Event Trigger Date 2%
- --------------------------------------------------------------------------------
Third full calendar month after Special Dividend Event
Trigger Date 3%
- --------------------------------------------------------------------------------
Fourth full calendar month after Special Dividend Event
Trigger Date and all time periods thereafter 4%
- --------------------------------------------------------------------------------
(3) At any time after the Special Dividend Percentage becomes 4%
under Section 4(b)(2) above, the Company may purchase all (but not less
than all) of the outstanding shares of Series E Preferred Stock owned by
each holder at a purchase price per share equal to the Face Amount per
share plus Accumulated Dividends. To exercise its right to purchase the
shares of Series E Preferred Stock under this Section 4(b)(3), the Company
shall send a written notice within ten (10) days after the first day of the
fourth full calendar month after a Special Dividend Event Trigger Date to
each holder either electing to repurchase such holder's shares pursuant to
the provisions of this Section 4(b)(3) or declining to so elect (the
"Special Dividend Event Repurchase Offer").
(4) Within 10 days after receipt of a Special Dividend Event
Repurchase Offer, each holder shall send a written notice to the Company
either accepting or rejecting such Special Dividend Event Repurchase Offer.
The Company shall purchase all of the shares of each holder accepting the
Special Dividend Event Repurchase Offer within 10 days after receipt of the
notice from the holder referred to in the previous sentence at a purchase
price per share equal to the Face Amount per share plus Accumulated
Dividends.
(5) With respect to the shares held by any holder of shares of
Series E Preferred Stock that does not accept a Special Dividend Repurchase
Offer, Special Dividends with respect to such shares shall cease to accrue
as of the first day of the first calendar month following the date of the
Special Dividend Event Repurchase Offer (subject to Section 4(b)(6) below).
Any holder of shares
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of Series E Preferred Stock that does not timely send
a written notice to the Company either accepting or rejecting a Special
Dividend Event Repurchase Offer shall be deemed to have rejected such
offer.
(6) Notwithstanding any holder's rejection or deemed rejection
of a Special Dividend Repurchase Offer, upon any later Special Dividend
Event Trigger Date Special Dividends on the shares of Series E Preferred
Stock owned by such holder shall accrue as set forth in Section 4(b)(2)
above.
c. TIME OF PAYMENT.
(1) Regular Dividends shall be cumulative from the Issue Date
and shall be payable in arrears, when and as declared by the Board, on
March 31, June 30, September 30, and December 31 of each year (each such
date being herein referred to as a "Dividend Payment Date"), commencing on
the first such date immediately following the Issue Date. The quarterly
period between consecutive Dividend Payment Dates shall hereinafter be
referred to as a "Dividend Period." Each such Regular Dividend shall be
paid to the holders of record of the Series E Preferred Stock as their
names appear on the share register of the Company on the corresponding
Record Date. As used above, the term "Record Date" means, with respect to
the Regular Dividend payable on March 31, June 30, September 30 and
December 31, respectively, of each year, the preceding March 15, June 15,
September 15 and December 15, or such other record date designated by the
Board of the Company with respect to the Regular Dividend payable on such
respective Dividend Payment Date. Dividends on account of arrears for any
past Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date,
not exceeding 50 days preceding the payment date thereof, as may be fixed
by the Board.
(2) Special Dividends shall be cumulative from the date of the
first day of the first full calendar month after any Special Dividend Event
Trigger Date and shall be payable in arrears, when and as declared by the
Board, on each Dividend Payment Date. Each such Special Dividend shall be
paid to the holders of record of the Series E Preferred Stock as their
names appear on the share register of the Company on the corresponding
Record Date. Special Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 50
days preceding the payment date thereof, as may be fixed by the Board.
d. ACCUMULATION. In the event that full cash Regular Dividends (and
any full cash Special Dividends) are not paid to the holders of all outstanding
shares of Series E Preferred Stock, and funds available shall be insufficient to
permit payment in full in cash to all such holders of the preferential amounts
to which they are they entitled, the entire amount available for payment of cash
dividends shall be distributed among the holders of the Series E Preferred Stock
ratably in proportion to the full
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amount to which they would otherwise be respectively entitled, and any
remainder not paid in cash to the holders of the Series E Preferred Stock
shall cumulate as provided in this subsection 4(d). If, on any Dividend
Payment Date, the holders of the Series E Preferred Stock shall not have
received the full Regular Dividends and full Special Dividends provided for
in this Section 4, then such dividends shall cumulate, whether or not earned
or declared, with additional dividends thereon to accrue at the rate of eight
percent (8%) per annum for each succeeding full Dividend Period during which
such dividends shall remain unpaid. Unpaid dividends for any period less
than a full Dividend Period shall cumulate on a day-to-day basis and shall be
computed on the basis of a 360 day year. "Accumulated Dividends" shall mean,
as of any date, all Regular Dividends and Special Dividends that are either
undeclared or unpaid as of such date.
e. RESTRICTION WITH RESPECT TO JUNIOR SECURITIES.
(1) So long as any Series E Preferred Stock shall remain
outstanding, no regular periodic cash dividend whatsoever shall be declared
or paid upon or set apart for payment on any class of Junior Securities,
unless in each instance at such time no Accumulated Dividends, Change in
Control Dividend A or Change in Control Dividend B shall be accrued but
unpaid.
(2) So long as any Series E Preferred Stock shall remain
outstanding, no shares of Junior Securities shall be redeemed or purchased
for cash by the Company or any parent or subsidiary thereof nor shall any
moneys be paid to or made available for a sinking fund for redemption or
purchase of any shares of Junior Securities.
(3) The restrictions set forth in Sections 4(e)(1) and 4(e)(2)
above shall not apply to (i) up to $100,000 per calendar year applied to
redemption or purchase by the Company of Junior Securities owned by
employees of the Company in connection with the separation of such
employees from their employment with the Company, or (ii) any particular
cash dividend, redemption or purchase if the holders of a majority of then
outstanding shares of Series E Preferred Stock consent in writing to the
declaration or payment of such cash dividend, redemption or purchase, as
the case may be.
5. LIQUIDATION PREFERENCE.
a. GENERAL. Upon a Liquidation Event, the holders of Series E
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its shareholders, whether
from capital, surplus or earnings ("Available Assets"), before any payment
shall be made in respect of any Junior Security, an amount equal to the Face
Amount per share PLUS an amount equal to all Accumulated Dividends, if any
(in the aggregate, the "Liquidation Preference Amount"). If upon a
Liquidation Event, the Available Assets shall be insufficient to pay the
holders of the Series E Preferred Stock the full Liquidation Preference
Amount, the holders of the Series E Preferred Stock shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares
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held by them upon such distribution if all amounts payable on or with respect
to said shares were paid in full.
b. NOTICE REQUIRED. Written notice of any voluntary or
involuntary Liquidation Event, stating the payment date and the place where
the distributable amount shall be payable, shall be given by mail, postage
prepaid, not less than thirty (30) days prior to the payment date stated
therein, to the holders of record of the Series E Preferred Stock at their
respective addresses as the same shall then appear on the books of the
Company.
6. CONVERSION.
a. EXERCISE OF CONVERSION RIGHT. Each holder of Series E
Preferred Stock shall have the right, at its option, at any time from the
Issue Date through December 31, 2006, to convert, subject to the terms and
provisions of this Section 6, all or any portion of its Series E Preferred
Stock then outstanding into such number of fully paid and non-assessable
shares of Common Stock as results from dividing (i) the sum of (A) the Face
Amount of all shares of Series E Preferred Stock to be converted plus (B) any
Accumulated Dividends on such shares, by (ii) the applicable Conversion Price
(as defined below) on the Conversion Date (as defined below). Such
conversion shall be deemed to have been made at the close of business on the
date that the certificate or certificates for shares of Series E Preferred
Stock shall have been surrendered for conversion and written notice shall
have been received as provided in Section 6(b) (the "Conversion Date"), so
that the person or persons entitled to receive the shares of Common Stock
upon conversion of such shares of Series E Preferred Stock shall be treated
for all purposes as having become the record holder or holders of such shares
of Common Stock at such time and such conversion shall be at the Conversion
Price in effect at such time. Upon conversion of any shares of Series E
Preferred Stock pursuant to this Section 6, the rights of the holder of such
shares upon the Conversion Date shall be the rights of a holder of Common
Stock only, and each such holder shall not have any rights in its former
capacity as a holder of shares of Series E Preferred Stock.
b. NOTICE TO COMPANY. In order to convert all or any portion of
its outstanding Series E Preferred Stock into shares of Common Stock, the
holder of such Series E Preferred Stock shall deliver the shares of Series E
Preferred Stock to be converted to the Company at its principal office,
together with written notice that it elects to convert those shares of Series
E Preferred Stock into shares of Common Stock in accordance with the
provisions of this Section 6. Such notice shall specify the number of shares
of Series E Preferred Stock to be converted and the name or names in which
the holder wishes the certificates for shares of Common Stock to be
registered, together with the address or addresses of the person or persons
so named, and, if so required by the Company, shall be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder of the shares of Series E
Preferred Stock to be converted or by its attorney duly authorized in writing.
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c. DELIVERY OF CERTIFICATE. As promptly as practicable after the
surrender as hereinabove provided of shares of Series E Preferred Stock for
conversion into shares of Common Stock, the Company shall deliver or cause to
be delivered to the holder, or the holder's designees, certificates
representing the number of fully paid and non-assessable shares of Common
Stock into which the shares of Series E Preferred Stock are entitled to be
converted, together with a cash adjustment in respect of any fraction of a
share to which the holder shall be entitled as provided in Section 6(d), and,
if less than the entire number of shares of Series E Preferred Stock
represented by the certificate or certificates surrendered is to be
converted, a new certificate for the number of shares of Series E Preferred
Stock not so converted. So long as any shares of Series E Preferred Stock
remain outstanding, the Company shall not close its Common Stock transfer
books. The issuance of certificates for shares of Common Stock upon the
conversion of shares of Series E Preferred Stock shall be made without charge
to the holder for any tax in respect of the issuance of such certificates
(other than any transfer, withholding or other tax if the shares of Common
Stock are to be registered in a name different from that of the registered
holder of Series E Preferred Stock).
d. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issued upon any
conversion of any shares of Series E Preferred Stock, but, in lieu thereof,
there shall be paid an amount in cash equal to the same fraction of the
Market Price of a whole share of Common Stock as of the Conversion Date.
e. RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of shares of Series E
Preferred Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series E Preferred Stock
then outstanding. The Company shall take at all times such corporate action
as shall be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of
shares of Series E Preferred Stock in accordance with the provisions of this
Section 6.
f. REGISTRATION. If any shares of Common Stock to be reserved
for the purpose of conversion of Series E Preferred Stock require
registration or listing with, or approval of, any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise, before such shares may be validly issued or
delivered upon conversion, the Company shall, in good faith and as
expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
g. SHARES VALIDLY ISSUED AND NON-ASSESSABLE. All shares of
Common Stock that may be issued upon conversion of the Series E Preferred
Stock shall upon issuance by the Company be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
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Page 15
h. RETIREMENT OF SHARES. Any shares of Series E Preferred Stock
converted pursuant to the provisions of this Section 6 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as
to series, subject to reissuance by the Company as shares of Preferred Stock
of one or more series, as may be determined from time to time by the Board.
7. CONVERSION PRICE. As used herein, the "Conversion Price" shall
initially be the greater of (i) the Average Market Price as of the Issue Date
and (ii) the Base Conversion Price, subject to adjustment as set forth below.
The "Base Conversion Price" shall be $6.00 per share of Common Stock (as such
Common Stock is constituted as of the date of this Certificate, such amount
to be proportionately adjusted in the event of any stock dividend, stock
split, subdivision, reclassification, combination or similar event with
respect to the Common Stock). No payment or adjustment shall be made for any
dividends on the Common Stock issuable in such conversion. The Conversion
Price shall be subject to adjustment from time to time as follows:
a. COMMON STOCK ISSUED AT LESS THAN THE CONVERSION PRICE. If the
Company shall issue any Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance,
the Conversion Price in effect immediately prior to each such issuance shall
immediately be reduced to the price determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the Conversion Price in
effect immediately prior to such issuance and (B) the consideration, if any,
received by the Company upon such issuance, by (ii) the total number of
shares of Common Stock outstanding immediately after such issuance. For the
purposes of any adjustment of the Conversion Price pursuant to this Section
7(a), the following provisions shall be applicable:
(1) CASH. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Company shall be deemed to
be the amount of the cash proceeds received by the Company for such Common
Stock before deducting therefrom any discounts, commissions, taxes or
other expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale
thereof.
(2) CONSIDERATION OTHER THAN CASH. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of capital
stock or other securities of the Company) for a consideration in whole or
in part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof
as determined by the Board; provided that such fair value as determined by
the Board shall not exceed the aggregate Market Price of the shares of
Common Stock being issued as of the date the Board authorizes the issuance
of such shares.
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(3) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii) securities by
their terms convertible into or exchangeable for Common Stock (whether or
not at the time so convertible or exchangeable) or (iii) options, warrants
or rights to purchase such convertible or exchangeable securities (whether
or not at the time exercisable):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued at the time such options, warrants or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections (1) and (2)
above), if any, received by the Company upon the issuance of
such options, warrants or rights plus the minimum purchase
price provided in such options, warrants or rights for the
Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options,
warrants or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such
securities and related options, warrants or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration (determined in
the manner provided in subsections (1) and (2) above), if any,
to be received by the Company upon the conversion or exchange
of such securities, or upon the exercise of any related
options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof;
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or
rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to
be received by the Company upon such exercise, conversion or
exchange, including, but not limited to, a change resulting
from the anti-dilution provisions thereof, the Conversion Price
as then in effect shall forthwith be readjusted to such
Conversion Price as
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Page 17
would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised prior
to such change, or of such convertible or exchangeable securities
not converted or exchanged prior to such change, upon the basis
of such change;
(D) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert
or exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options,
warrants, rights or such convertible or exchangeable securities
on the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities, if any; and
(E) if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further adjustment
of the Conversion Price shall be made for the actual issuance
of Common Stock upon the exercise, conversion, or exchange
thereof;
provided, however, that no increase in the Conversion Price shall be made
pursuant to subsections (A) or (B) of this subsection (3).
b. EXCLUDED STOCK. For purposes of Section 7(a), "Excluded
Stock" shall mean (i) shares of Common Stock issued or reserved for issuance
by the Company as a stock dividend payable in shares of Common Stock, or upon
any subdivision or split-up of the outstanding shares of Common Stock or
Series E Preferred Stock, or upon conversion of shares of Series E Preferred
Stock; (ii) shares of Common Stock reserved for issuance under options and
warrants outstanding on the date hereof; (iii) 750,000 shares of Common Stock
reserved for issuance to key employees and directors of the Corporation
pursuant to the Company's employee stock option plan in effect as of the date
hereof; (iv) shares of Series E Preferred Stock and shares of Common Stock
issuable upon the conversion thereof, and (v) 77,520 shares of Common Stock
issuable upon the conversion of the shares of Series C Convertible Preferred
Stock outstanding on the date hereof.
c. STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS OR
COMBINATIONS. If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify the outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect at the time
of the record date for such dividend or distribution
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or the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of any shares of Series
E Preferred Stock surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such shares of Series E Preferred Stock
been converted immediately prior to such date. Successive adjustments in the
Conversion Price shall be made whenever any event specified above shall occur.
d. OTHER DISTRIBUTIONS. In case the Company shall fix a record
date for the making of a distribution to all holders of shares of its Common
Stock (i) of shares of any class other than its Common Stock, (ii) of
evidence of indebtedness of the Company or any subsidiary of the Company,
(iii) of assets, or (iv) of rights or warrants, in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price per
share on such record date, less (B) the fair market value (as determined by
the Board) of said shares or evidences of indebtedness or assets or rights or
warrants to be so distributed, by (2) the number of shares of Common Stock
outstanding on such record date; PROVIDED, HOWEVER, that, so long as there
are no Accumulated Dividends on the Series E Preferred Stock or the Series E
Preferred Stock then outstanding for any previous Dividend Payment Date, the
provisions of this Section 7(d) shall not apply to distributions consisting
of cash dividends on the shares of Common Stock up to an amount equal to 50%
of consolidated net income of the Company and its Subsidiaries as of the
calendar year immediately preceding the proposed record date for such
dividend. Any adjustment provided for by this Section 7(d) shall be made
successively whenever such a record date is fixed.
e. CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In case of
any consolidation with or merger of the Company with or into another
corporation or other entity, or in case of any sale, lease or conveyance to
another entity of the assets of the Company as an entirety or substantially
as an entirety, each share of Series E Preferred Stock shall after the date
of such consolidation, merger, sale, lease or conveyance be convertible into
the number of shares of stock or other securities or property (including
cash) to which the Common Stock issuable (at the time of such consolidation,
merger, sale, lease or conveyance) upon conversion of such share of Series E
Preferred Stock would have been entitled upon such consolidation, merger,
sale, lease or conveyance; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the
holders of the shares of Series E Preferred Stock shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any
shares of stock or other securities or property thereafter deliverable on the
conversion of the shares of Series E Preferred Stock. Nothing in this
Section 7(e) shall be construed in any way to derogate from the right of the
holders of the Series E Preferred Stock to require the Company to repurchase
their shares at the Change in Control Repurchase Price upon a Change in
Control, as set forth in Section 8(c) hereof.
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f. NOTICE TO HOLDERS. In the event the Company shall propose to
take any action of the type described in subsections (a), (c), (d), and (e)
of this Section 7, the Company shall give notice to each holder of shares of
Series E Preferred Stock, which notice shall specify the record date, if any,
with respect to any such action and the approximate date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion of
shares of Series E Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 10
days prior to the date so fixed, and in the case of all other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action.
g. STATEMENT REGARDING ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series E Preferred
Stock pursuant to this Section 7, the Company shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. Each such statement shall be signed by the Company's public
accountants.
h. TREASURY STOCK. For the purposes of this Section 7, the sale
or other disposition of any Common Stock theretofore held in the Company's
treasury shall be deemed to be an issuance thereof.
i. GOOD FAITH. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the holders of the shares of Series E Preferred Stock shares against
impairment of any kind.
8. VOTING RIGHTS; PROTECTIVE PROVISIONS; CHANGE OF CONTROL; REPURCHASE
UPON CERTAIN EVENTS.
a. GENERAL. Except as specifically set forth in the DGCL or
provided in the balance of this Section 8, the holders of shares of Series E
Preferred Stock shall not be entitled to any voting rights with respect to
any matters voted upon by stockholders.
b. PROTECTIVE PROVISIONS. So long as any shares of Series E
Preferred Stock are outstanding, the written consent or the affirmative vote
at a meeting called for that purpose of the holders of a majority of the
shares of Series E Preferred Stock then outstanding, voting separately as a
class, shall be necessary to validate or
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Page 20
effectuate any of the following: (i) amend, repeal, alter or change any of
the rights, preferences or privileges of the shares of Series E Preferred
Stock; (ii) create (by reclassification of an existing class or series, or
otherwise) any new class or series of shares of the Company's capital stock,
except for classes or series of shares ranking, with respect to dividend
rights and rights on any Liquidation Event, junior to the Series E Preferred
Stock and the Series E Preferred Stock; (iii) issue any shares of the
Company's capital stock, except for classes or series of shares ranking, with
respect to dividend rights and rights on any Liquidation Event, junior to the
Series E Preferred Stock and the Series E Preferred Stock; or (iv) take any
action that materially and adversely affects the legal rights, preferences or
privileges of the shares of Series E Preferred Stock. At any time when there
are any Accumulated Dividends or any Change in Control Special Dividend A
accrued but unpaid for any reason, the holders of a majority of the shares of
Series E Preferred Stock then outstanding, voting separately as a class,
shall be necessary to validate or effectuate (i) any acquisition by the
Company of all or substantially all of the assets of another Person, (ii) any
acquisition by the Company of all or substantially all of the equity
interests in any Person, and (iii) any merger or recapitalization transaction
to which the Company is a party.
c. HOLDER'S ELECTION UPON CHANGE OF CONTROL.
(1) GENERALLY. In the event of any Change in Control, each
holder of shares of Series E Preferred Stock shall have the right, at such
holder's election as set forth below, to receive in respect of each share
owned by such holder a sum equal to (i) the then applicable Face Value,
PLUS (ii) Accumulated Dividends, PLUS (iii) a "Change of Control Special
Dividend A" equal to 18% of the then applicable Face Value.
(2) COMPANY'S NOTIFICATION OBLIGATION.
(A) The Company shall notify each holder of shares of Series E
Preferred Stock in writing within 15 days before any Change in Control
pursuant to a transaction to which the Company is a party (a "Company
Change of Control Transaction") setting forth a description of the
nature of the Change in Control and the date at which such Change in
Control is anticipated to take place.
(B) The Company shall notify each holder of shares of Series E
Preferred Stock in writing as soon as the Company has Knowledge of any
Change of Control pursuant to a transaction that is not a Company
Change of Control Transaction (an "Other Change of Control
Transaction") setting forth a description of the nature of the Change
in Control and the date at which such Change in Control took place or
is anticipated to take place.
(C) The notices described in clauses (A) and (B) above are
collectively denominated "Change in Control Notices".
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(3) HOLDER'S ELECTION. Within five (5) days after receipt of
the Change of Control Notice, each holder shall notify the Company in
writing whether or not such holder will require such holder's shares of
Series E Preferred Stock to be redeemed by the Company pursuant to this
Section. If a holder does not timely notify the Company in writing
pursuant to the previous sentence, such holder will be deemed to have
waived its right to require such holder's shares of Series E Preferred
Stock to be redeemed by the Company pursuant to this Section; provided,
however, that such waiver shall only apply to the Change of Control
relating to the relevant Change of Control Notice, and not any subsequent
Change of Control or Change of Control Notice.
(4) COMPANY CHANGE OF CONTROL. The Company shall redeem the
shares of each holder of Series E Preferred Stock so electing such a
redemption in connection with a Company Change of Control Transaction by
making cash payments to such holder in respect of each share owned by such
holder as follows: (i) a sum equal to the then applicable Face Value PLUS
Accumulated Dividends on or prior to the date of the Company Change in
Control Transaction as a condition precedent to the effectiveness of such
Company Change in Control Transaction, and (ii) a sum equal to the Change
in Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Company Change in Control
Transaction. Any Company Change of Control Transaction shall be void and
of no force and effect if the payments set forth in clause (i) of this
Section 8(c)(4) are not made on or prior to the date of such Company Change
in Control Transaction.
(5) OTHER CHANGES OF CONTROL. The Company shall redeem the
shares of each holder of Series E Preferred Stock so electing such a
redemption in connection with an Other Change of Control Transaction as
promptly as practicable after receipt of such holder's notice of such
election by making cash payments to such holder in respect of each share
owned by such holder as follows: (i) a sum equal to the then applicable
Face Value PLUS Accumulated Dividends plus a sum equal to the Change in
Control Special Dividend A as soon as funds are legally available for
payment thereof after the date of the Other Change in Control Transaction.
d. SPECIAL REPURCHASE EVENTS.
(1) REPRESENTATIONS. The Company represents and warrants to
each holder of shares of Series E Preferred Stock as follows:
(A) Except as otherwise disclosed in the Disclosure Schedule to the
Stock Purchase Agreement (as such term is defined therein), neither
the Company nor any of its Affiliates since inception has provided any
research, educational or study grants or other financial support of
any kind to any hospital, physician, or health care provider.
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(B) Neither the Company nor any of its Affiliates since inception has
received notice that the Company or any Subsidiary has been, or to the
Company's knowledge has been, the subject of any investigative
proceeding before any federal or state regulatory authority or the
agent of any such authority, including without limitation federal and
state health authorities.
(C) Neither the Company nor any Affiliate, nor the officers,
directors, employees or agents of any of the Company or any Affiliate,
and none of the Persons who provide professional services under
agreements with any of the Company or any Affiliate as agents of such
entities have engaged in any activities which are prohibited, or are
cause for civil penalties or mandatory or permissive exclusion from
Medicare or Medicaid, under Sections 1320a-7, 1320a-7a, 1320a-7b, or
1395nn of Title 42 of the United States Code, the federal Civilian
Health and Medical Plan of the Uniformed Services statute ("CHAMPUS"),
or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited
by any private accrediting organization from which the Company or any
of its Affiliates seeks accreditation or by generally recognized
professional standards of care or conduct, including but not limited
to the following activities:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for
any benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program that is (i) for an
item or service that the Person presenting or causing to be presented
knows or should know was not provided as claimed, or (ii) for an item
or service and the Person presenting knows or should know that the
claim is false or fraudulent;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in
return for referring, or to induce the referral of, an individual to a
Person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by
CHAMPUS, Medicare or Medicaid, or any other State Health Care Program
or any Federal Health Care Program, or (iii) in return for, or to
induce, the purchase, lease, or order, or the
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arranging for or recommending of the purchase, lease, or order, of
any good, facility, service, or item for which payment may be made
in whole or in party by CHAMPUS, Medicare or Medicaid or any other
State Health Care Program or any Federal Health Care Program; or
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein
not misleading) or a material fact with respect to (i) the conditions
or operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or any other State Health Care Program
certification or any Federal Health Care Program certification, or
(ii) information required to be provided under Section 1124(A) of the
Social Security Act ("SSA") (42 U.S.C. Section 1320a-3).
(D) Neither the Company nor any other Person who after the Issue Date
will have a direct or indirect ownership interest (as those terms are
defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any
Affiliate of 5% or more (other than General Electric Company, a New
York corporation ("General Electric")), or who will have an ownership
or control interest (as defined in SSA Section 1124(a)(3), or any
regulations promulgated thereunder) in the Company or any Affiliate
(other than General Electric), or who will 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 Company or any Affiliate and (ii) to
the best Knowledge of the Company and any Affiliate, no Person or
entity with any relationship with such entity (including without
limitation a parent company or shareholder of, or partner in an
Affiliate) who after the Issue Date will have an indirect ownership
interest (as that term is defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Company or any Affiliate of 5% or more (other
than General Electric): (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:
(a) 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;
(b) criminal offenses under federal or state law relating to
patient
<PAGE>
Page 24
neglect or abuse in connection with the delivery of a health
care item or service;
(c) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a
program operated by or financed in whole or in part by any federal,
state or local governmental agency;
(d) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described
in (a) through (c) above; or
(e) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
(2) COVENANTS. The Company covenants that as long as any shares
of Series E Preferred Stock are outstanding:
(A) The operations of the Company and its Affiliates will be
conducted in accordance with all Applicable Laws, including, without
limitation, all such laws, regulations, orders and requirements
promulgated by any Governmental Authority or relating to consumer
protection, equal opportunity, health care industry regulation, third
party reimbursement (including Medicare and Medicaid), environmental
protection, fire, zoning and building and occupational safety matters,
except for violations that individually or in the aggregate would not
and, insofar as may reasonably be foreseen, in the future will not,
have a Material Adverse Effect on the Company or any Subsidiary.
(B) Without limiting the generality of the foregoing, the operations
of the Company and its Affiliates will be conducted in accordance with
all laws, regulations, orders and requirements relating to health care
industry regulation and third party reimbursement (including Medicare
and Medicaid).
(C) Without limiting the generality of the foregoing, the Company and
all Affiliates shall comply in all material respects with all
directives, orders, instructions, bulletins and other announcements
received from third party payors and their agents (including without
limitation Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, and including without
limitation preparation and submission of claims for reimbursement.
Nothing in this Section 8(d)(2)(C) shall be construed as or is
intended to create any third party beneficiaries.
<PAGE>
Page 25
(3) SPECIAL REPURCHASE EVENTS. The failure of any
representation or warranty of the Company contained in Section 8(d)((1) to
be true on the Issue Date in any material respect, or the Company's breach
of any of the covenants set forth in Section 8(d)(2), shall be a "Special
Repurchase Event". Upon any Special Repurchase Event, each holder of
shares of Series E Preferred Stock shall have the right, at such holder's
election as set forth below, to receive in respect of each share owned by
such holder a sum equal to (i) the then applicable Face Value, PLUS (ii)
Accumulated Dividends.
(A) The Company shall notify each holder of Series E Preferred Stock
in writing as soon as commercially practicable upon the occurrence of
any Special Repurchase Event (a "Company Special Repurchase Event
Notice"), and each holder may notify the Company in writing within 30
days after such holder has actual knowledge of the occurrence of any
Special Repurchase Event (a "Holder Special Repurchase Event Notice").
Upon receipt of a Holder Special Repurchase Event Notice, the Company
shall send copies of such Holder Special Repurchase Event Notice to
all other holders, if any, of shares of Series E Preferred Stock. A
Company Special Repurchase Event Notice or a Holder Special Repurchase
Event Notice shall be denominated herein a "Special Repurchase Event
Notice".
(B) Within ten (10) days after receipt of any Special Repurchase
Event Notice (or a copy thereof), each holder shall send a written
notice to the Company either electing to have such holder's shares
repurchased pursuant to the provisions of this Section 8(d) or
declining to so elect (the "Special Repurchase Event Election").
Within 10 days after receipt of each holder's Special Repurchase Event
Election, the Company shall repurchase each share of Series E
Preferred Stock of each such holder electing to have such holder's
shares repurchased pursuant to the provisions of this Section 8(d) at
a price per share equal to the Face Amount per share plus Accumulated
Dividends.
(4) CUMULATIVE REMEDIES. The remedies provided to the holders of the
shares of Series E Preferred Stock set forth in this Section 8(d) with
respect to any misrepresentation or breach of covenant contained herein
shall be without prejudice to any other remedies of such holders for such
misrepresentation or breach, including without limitation (in the case of
General Electric) any remedies of General Electric under the Stock Purchase
Agreement.
9. REDEMPTION.
a. OPTIONAL REDEMPTION. The Company may at any time from and after
January 1, 2007, and from time to time thereafter, redeem out of funds legally
available therefor all of the shares of Series E Preferred Stock at its
election expressed by resolution of the Board, upon not less than thirty (30)
days' prior notice to the holders of record of the Series E Preferred Stock to
be redeemed, given by mail, at the
<PAGE>
Page 26
Redemption Price (as hereinafter defined) on the Redemption Date (as
hereinafter defined). The Company shall not redeem less than all the
outstanding shares of Series E Preferred Stock under this Section 9(a).
b. COMPANY'S ELECTION UPON CHANGE IN CONTROL. In the event of any
Change in Control, the Company may redeem out of funds legally available
therefor all of the shares of Series E Preferred Stock at its election
expressed by resolution of the Board upon not less than thirty (30) days' prior
notice to the holders of record of the Series E Preferred Stock to be redeemed,
given by mail. Upon such resolution of the Board, each holder of shares of
Series E Preferred Stock shall have the right to receive on the Redemption Date
(as defined below) in respect of each share owned by such holder a sum equal to
(i) the then applicable Face Value, PLUS (ii) Accumulated Dividends, PLUS (iii)
a "Change of Control Special Dividend B" equal to 23% of the then applicable
Face Value. The Company shall not redeem less than all of the outstanding
shares of Series E Preferred Stock under this Section 9(b).
c. REDEMPTION DATE. The "Redemption Date" shall be the date fixed
for redemption in the notice of redemption under Sections 9(a) or 9(b) above.
The Redemption Date with respect to any Company Change in Control Transaction
shall be a date on or before the effective date of a Change in Control.
d. REDEMPTION PRICE. The price at which outstanding shares of
Series E Preferred Stock shall be redeemed pursuant to Section 9(a) shall be
the Face Amount per share, as then in effect, together with all Accumulated
Dividends on such shares to the Redemption Date (the "Redemption Price").
e. NOTICE OF REDEMPTION. Each notice of redemption shall state (i)
the Redemption Date, (ii) the number of shares of Series E Preferred Stock to
be redeemed, (iii) as the case may be, pursuant to Sections 9(a) and 9(b)
above, either (x) the Redemption Price or (y) the sum equal to (A) the then
applicable Face Value, PLUS (B) Accumulated Dividends, PLUS (C) the Change of
Control Special Dividend B equal to 5% of the then applicable Face Value
applicable to the shares to be redeemed, (iv) the place or places where such
shares are to be surrendered, and (v) that dividends on shares to be redeemed
will cease to accrue on the Redemption Date. No defect in any such notice to
any holder of Series E Preferred Stock shall affect the validity of the
proceedings for the redemption of any other shares of such Series E Preferred
Stock.
f. RETIREMENT OF SHARES. Any shares of Series E Preferred Stock
redeemed pursuant to the provisions of this Section 9 shall be retired and
given the status of authorized and unissued Preferred Stock, undesignated as to
series, subject to reissuance by the Company as shares of Preferred Stock of
one or more series, as may be determined from time to time by the Board.
g. CONDITION PRECEDENT TO CHANGE IN CONTROL. If the Company fails
to pay all amounts payable to the holders of shares of Series E Preferred Stock
due in respect of a redemption pursuant to Section 9(b) hereof prior on or
prior to the Redemption Date, any related Company Change of Control Transaction
shall be void
<PAGE>
Page 27
and of no force and effect.
h. RESTRICTIONS ON REDEMPTIONS. No shares of Series E Preferred
Stock shall be redeemed under this Section 9: (i) at any time that such
redemption is prohibited by the DGCL; or (ii) at any time that the terms and
provisions of any contract or other agreement of the Company in effect as of
the Issue Date providing financing or working capital to the Company
specifically prohibits such redemption or provides that such redemption would
constitute a breach thereof or a default thereunder.
10. NO SINKING FUND. No sinking fund shall be established for the
retirement or redemption of shares of Series E Preferred Stock.
11. PREEMPTIVE OR SUBSCRIPTION RIGHTS. No holder of shares of Series E
Preferred Stock shall have any preemptive or subscription rights in respect of
any securities of the Company that may be issued.
12. NO OTHER RIGHTS. The shares of Series E Preferred Stock shall not
have any designations, preferences or relative, participating, optional or
other special rights except as expressly set forth in the Company's Certificate
of Incorporation, this Certificate or as otherwise required by law.
<PAGE>
Page 28
RESOLVED, FURTHER, that the Secretary of the Company be, and he hereby is,
authorized, empowered and directed to execute an Amended Certificate of
Designation, Preferences and Rights of Series E Preferred Stock and that such
Certificate be delivered to and filed with the Secretary of State of the State
of Delaware pursuant to the provisions of Section 103 and Section 151(g) of the
DGCL, both as amended.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate of
Designation to be executed by its Secretary as of March 25, 1997.
ALLIANCE IMAGING, INC.
By:____________________________________
Terrence M. White,
Secretary
<PAGE>
CERTIFICATE OF ELIMINATION
OF
SERIES A PREFERRED STOCK
AND
SERIES B PREFERRED STOCK
Alliance Imaging, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "CORPORATION"), hereby certifies as follows:
1. The Certificate of Incorporation of the Corporation (the "CERTIFICATE
OF INCORPORATION") was filed with the Secretary of State of the State of
Delaware on May 27, 1987; a Certificate of Amendment of Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
August 18, 1987; a Certificate of Ownership and Merger Merging Alliance Imaging,
Inc, a California corporation, into the Corporation was filed with the Secretary
of State of the State of Delaware on July 21, 1988; the Certificate of
Incorporation was amended in its entirety pursuant to the Certificate of
Ownership and Merger Merging Casper Acquisition Corp, a Delaware corporation,
into the Corporation filed with the Secretary of State of the State of Delaware
on November 15, 1988; was amended in its entirety pursuant to the Certificate of
Ownership and Merger Merging CTFG Acquisition Corp., a Delaware corporation,
into the Corporation filed with the Secretary of State of the State of Delaware
on March 21, 1989; was amended and restated in its entirety pursuant to the
Restated Certificate of Incorporation of the Corporation filed with the
Secretary of State of the State of Delaware on May 13, 1991; was amended by the
Certificate of Amendment of Restated Certificate of Incorporation of the
Corporation filed with the Secretary of State of the State of Delaware on May
29, 1991; was amended by the Certificate of Correction of Certificate of
Amendment of Restated Certificate of Incorporation of the Corporation filed with
the Secretary of State of the State of Delaware on June 20, 1991; was amended by
the Certificate of Ownership and Merger of Clinical Imaging Centers, Inc., a
California corporation, into the Corporation filed with the Secretary of State
of the State of Delaware on July 6, 1992; and was amended by the Certificate of
Amendment of Restated Certificate of Incorporation of the Corporation filed with
the Secretary of State of the State of Delaware on July 15, 1994; a Certificate
of Designation of Series A 6.0% Cumulative Preferred Stock (the "SERIES A
CERTIFICATE OF DESIGNATION") and a Certificate of Designation of Series B
Convertible Preferred Stock (the "SERIES B CERTIFICATE OF DESIGNATION") were
filed with the Secretary of State of the State of Delaware on January 23, 1995;
a Certificate of Ownership and Merger of Alliance General Imaging, Inc., a
California corporation, into the Corporation was filed with the Secretary of
State of the State of Delaware on March 9, 1995 and a Certificate of
<PAGE>
Ownership and Merger of Atlantic/Gulf Imaging, Inc., a Georgia corporation, into
the Corporation was filed with the Secretary of State of the State of Delaware
on October 19, 1995; a Certificate of Designation of Series C 5% Cumulative
Convertible Redeemable Preferred Stock was filed with the Secretary of State of
the State of Delaware on April 26, 1996; a Certificate of Designation of Series
D 4% Cumulative Redeemable Convertible Preferred Stock and a Certificate of
Designation of Series E 4% Cumulative Redeemable Convertible Preferred Stock
were filed with the Secretary of State of the State of Delaware on December 30,
1996; and a Certificate of Ownership and Merger Merging Sun MRI Services, Inc.,
a California corporation, into the Corporation was filed with the Secretary of
State of the State of Delaware on December 30, 1996.
2. Pursuant to Section 151(g) of the General Corporation Law of the State
of Delaware, this Certificate of Elimination was authorized and adopted, and the
filing hereof was directed, by the Corporation's Board of Directors as of
February 27, 1997. A copy of the resolutions, in substantially the form adopted
by the Board of Directors as of February 27, 1997, is attached hereto as EXHIBIT
A.
3. No shares issued pursuant to the Series A Certificate of Designation
remain outstanding, and none will be issued pursuant thereto.
4. No shares were issued pursuant to the Series B Certificate of
Designation, and none will be issued pursuant thereto.
5. Upon filing of this Certificate of Elimination, the Certificate of
Incorporation, as amended and restated to date, shall be amended to eliminate
the Series A Certificate of Designation and the Series B Certificate of
Designation.
IN WITNESS WHEREOF, Alliance Imaging, Inc. has caused this Certificate of
Elimination to the executed by its Secretary on February 27, 1997.
ALLIANCE IMAGING, INC.
By: __________________________
Terrence M. White, Secretary
2
<PAGE>
EXHIBIT A
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS
OF
ALLIANCE IMAGING, INC.
NOW, THEREFORE, BE IT RESOLVED, that none of the authorized shares of the
Series A Preferred or Series B Preferred are outstanding, and no such shares
will be issued subject to the Series A Certificate of Designation or the Series
B Certificate of Designation; and
FURTHER RESOLVED, that the officers of this corporation be, and each of
them hereby is, authorized, empowered and directed to prepare, or cause to be
prepared, execute and file, or cause to be filed, with the Secretary of State of
the State of Delaware a Certificate of Elimination (the "CERTIFICATE OF
ELIMINATION") indicating therein that none of the authorized shares of the
Series A Preferred or Series B Preferred are outstanding, the Series A
Certificate of Designation and the Series B Certificate of Designation (both of
which certificates of designation were filed with the Delaware Secretary of
State on January 23, 1995) shall be eliminated and that no shares of Series A
Preferred or Series B Preferred will be issued pursuant thereto; and
RESOLVED FURTHER, that the officers of this corporation be, and each of
them, hereby is, authorized, empowered and directed to do, or cause to be done
all such further acts or things and to sign and deliver, or cause to be signed
and delivered, all such further documents, instruments and certificates, in the
name and on behalf of this corporation, as such officer of this corporation may
deem necessary, advisable or appropriate in connection with the Certificate of
Elimination.
<PAGE>
(CIGNA)
AMENDED AND RESTATED STANDSTILL AGREEMENT
This Amended and Restated Standstill Agreement (the "Agreement") is
entered into as of December 31, 1996, between Alliance Imaging, Inc., a
Delaware corporation (the "Company"), and each of the entities identified on
the signature pages hereto (each a "Holder" and collectively the "Holders").
RECITALS
A. As of the date of this Agreement, the Company and the holders of
the Company's issue of 7.50% Senior Subordinated Debentures due 2005 and
Series A 6.0% Cumulative Preferred Stock (together, the "Securities") are
completing transactions whereby the Securities are being repurchased by the
Company for cash (the "Refinancing Transaction").
B. Each of the Holders is the owner, as of the date hereof, of the
number of shares (including shares issuable upon the exercise of warrants
currently held by each such Holder) (the "Restricted Shares") of Common
Stock, $.01 par value per share (the "Stock"), set forth beneath its name on
the signature pages hereto.
C. The parties acknowledge and agree that the Company and its
subsidiaries, as of the date hereof and after giving effect to previous
restructuring transactions and the Refinancing Transaction, will have the
right to certain valuable federal and state net operating loss tax
carryforwards (collectively, the "NOL").
D. The parties desire to enter into this Agreement in order to set
forth their agreement concerning certain restrictions on the purchase, sale
or transfer of the Restricted Shares and other shares of Stock, in order to
minimize the potential that a purchase, sale or transfer would result in a
limitation on the use or otherwise affect adversely the value of the NOL.
E. Concurrently with the execution of this Agreement, the Company is
offering to enter into those certain Amended and Restated Standstill
Agreements with the previous holders of the Company's Securities, Richard N.
Zehner and DLJ Capital Corporation (the "Other Standstill Agreements"). This
Agreement amends, restates and supersedes in its entirety that certain
Standstill Agreement between the Company and the Holders dated as of December
31, 1994, and, to the extent that the parties to the Other Standstill
Agreements elect to enter into their respective Amended and Restated
Standstill Agreements, then such Amended and Restated Standstill Agreements
shall likewise amend, restate and supersede in their entirety the preexisting
<PAGE>
Standstill Agreements between the Company and the applicable counterparties
dated as of December 31, 1994 (the "Preexisting Standstill Agreements").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which hereby is acknowledged, the parties
hereby agree as follows:
1. STANDSTILL PROVISIONS. Each Holder agrees that, at all times from
and after the date of this Agreement and through January 31, 1998, it shall
not, except as permitted in Section 2 hereof, take any of the following
actions, and it shall not cause its respective shareholders, officers,
directors, Subsidiaries and other Affiliates (as such terms are defined in
Section 3 below) to take any of the following actions in such Holder's name
or on such Holder's behalf, and shall cause its respective Subsidiaries and
Affiliates not to, in all instances whether directly or indirectly and
whether alone, jointly or collectively:
(a) acquire, agree to acquire, offer to acquire or own or
otherwise hold any Stock of the Company or any other Voting Stock (as defined
below) of the Company, excluding only the continued holding of the Restricted
Shares; or
(b) sell or otherwise transfer, agree to sell or otherwise transfer
or offer to sell or otherwise transfer any of the Restricted Shares or other
shares of Voting Stock.
2. PERMITTED TRANSFERS. Notwithstanding the provisions of Section 1,
this Agreement does not prohibit the following:
(a) a transfer of Restricted Shares by any Holder to any Person in
connection with (i) a sale of all or substantially all of the assets of the
Company and its subsidiaries to a Person which is not an Affiliate of the
Company or (ii) a reorganization, merger, consolidation or other transaction
or transactions (whether or not the Company is a party thereto and
specifically including, without limitation, open market purchases of
securities) as a result of which any person or entity or "group" of persons
and/or entities becomes the "beneficial owner" (as those terms are defined in
and construed by judicial authority under Rule 13d-3 promulgated under the
Exchange Act, as that Rule may be amended from time to time) of Stock and/or
options, warrants or other rights to acquire Stock and/or securities
convertible into or exchangeable or exercisable for Stock, representing in
the aggregate greater than 50% of the ordinary voting power of the Company in
the election of directors (any such event described in clauses (i) and (ii)
of this Section 2 being a "Change of Control"), provided that such transfer
is effective no earlier than the consummation date of such Change of Control;
PROVIDED, HOWEVER, that prior to such transfer becoming effective or any
agreement or commitment for such
-2-
<PAGE>
transfer being made or becoming effective, the Holder shall give written
notice to the Company, in order to provide the Company with the opportunity
to analyze the effects of the proposed transfer on the NOL and to discuss the
same with the Holder, and such proposed transfer shall not become effective
earlier than ten (10) business days following the date that such written
notice is delivered. Notwithstanding anything in the foregoing to the
contrary, nothing herein shall prohibit any transfer of Restricted Shares by
any Holder to the Company;
(b) the sale by any Holder of not more than one percent (1%) of
such Holder's Restricted Shares during any calendar month, beginning with
January 1997; or
(c) the purchase of Stock by any Holder issuable upon exercise of
warrants currently held by such Holder.
3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning given to such term in Rule
12b-2 under the Exchange Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, including the rules and regulations thereunder.
(c) "Person" shall mean any individual, partnership, firm,
corporation or other entity, as well as any entity or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
(d) "Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which such Person owns, directly or
indirectly, securities that entitle such Person to elect a majority of the
board of directors or other individuals or Persons performing similar
management functions for such corporation or other entity.
(e) "Voting Stock" shall mean the Stock and any other securities
of the Company which are entitled to vote generally in the election of
directors of the Company and the term "Voting Stock" shall also mean all
other securities which are convertible into, exchangeable for or exercisable
for such Stock or other voting securities.
-3-
<PAGE>
4. GENERAL PROVISIONS.
4.1 REMEDIES.
(a) Each Holder acknowledges that damages would be an inadequate
remedy for its breach of any of the provisions of this Agreement, and that
his breach of this Agreement will result in immeasurable and irreparable harm
to the Company. Therefore, the Company shall be entitled to seek and obtain
temporary, preliminary and permanent injunctive relief from any court of
competent jurisdiction restraining any Holder from committing or continuing
any breach of any provision of this Agreement.
(b) In addition to the remedy described in paragraph (a) of this
Section 4.1, the Company shall be entitled to seek and obtain all other
rights and remedies to which it is entitled under applicable law by reason of
any Holder's breach of any provision of this Agreement.
4.2 NOTICES. Any written notice required or permitted by this
Agreement shall be given personally, by telegraph, facsimile or telex or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address for such party specified below or to such other
address as the party may from time to time advise the other parties, and
shall be deemed given and received upon personal delivery (in the case of
personal deliveries), upon confirmation by answerback or other electronic
verification (in the case of transmissions by telegraph, facsimile or telex)
or upon the delivery date indicated on the return receipt (in the case of
notices sent by mail):
If to the Company: Alliance Imaging, Inc.
3111 North Tustin Avenue
Suite 150
Orange, California 92665
Attn: Chief Financial Officer
Facsimile: 714-921-5678
If to a Holder: To the address or number for the Holder indicated
on the signature page hereto.
4.3 AMENDMENTS AND TERMINATION; ENTIRE AGREEMENT. This Agreement
may be amended or terminated only by a writing executed by the parties. This
Agreement constitutes the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior oral and written
understandings and agreements relating to such subject matter.
4.4 AMENDMENT OF OTHER STANDSTILL AGREEMENTS. The Company will not,
without the consent of each Holder, amend any Other Standstill Agreement or
Preexisting Standstill Agreement, as applicable, such that any
-4-
<PAGE>
provision therein which is substantially identical to a provision contained
herein is made more favorable to the other party or parties thereto, unless
the Company also offers concurrently to amend this Agreement in a like manner.
4.5 SUCCESSORS AND ASSIGNS. No party shall be entitled to assign
any of its rights or obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.
4.6 LEGEND; FURTHER ASSURANCES. Each Holder authorizes the
Company to place an appropriate legend on the certificate(s) representing the
Restricted Shares to reflect the restrictions contained in this Agreement.
Each party shall perform any further acts and execute and deliver any further
documents that may be reasonably necessary or advisable to carry out the
provisions of this Agreement.
4.7 PROVISIONS SUBJECT TO APPLICABLE LAW. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so
that they will not render this Agreement invalid, illegal or unenforceable
under any applicable law. If any provision of this Agreement or any
application thereof shall be held to be invalid, illegal or unenforceable,
the validity, legality and enforceability of other provisions of this
Agreement or of any other application of such provision shall in no way be
affected thereby.
4.8 WAIVER OF RIGHTS. No party shall be deemed to have waived any
right or remedy that it has under this Agreement unless this Agreement
expressly provides a period of time within which such right or remedy must be
exercised and such period has expired, or unless such party has expressly
waived the same in writing. The waiver by a party of a right or remedy
hereunder shall not be deemed to be a waiver of any other right or remedy or
of any subsequent right or remedy of the same kind.
4.9 COUNTERPARTS; NUMBER. This Agreement may be executed in two
or more counterparts, and by each party on a separate counterpart, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument. Where appropriate to the context
of this Agreement, use of the singular shall be deemed also to refer to the
plural and use of the plural shall be deemed also to refer to the singular.
4.10 GOVERNING LAWS; EXPENSES RESULTING FROM LITIGATION. This
Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York, without giving effect to
the conflict of laws principles thereof. The unsuccessful party to any
action or proceeding hereunder involving the enforcement or interpretation of
this Agreement shall pay to the successful party all costs and expenses,
including,
-5-
<PAGE>
without limitation, reasonable attorney's fees, incurred therein by the
successful party, all of which shall be included in and as a part of the
award or judgment rendered in such proceeding or action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ALLIANCE IMAGING, INC.
By:__________________________________
Its:_________________________________
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY*
By: CIGNA Investments, Inc.
By:__________________________________
Its:_________________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-6-
<PAGE>
CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY*
By: CIGNA Investments, Inc.
By:__________________________________
Its:_________________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
INSURANCE COMPANY OF
NORTH AMERICA*
By: CIGNA Investments, Inc.
By:__________________________________
Its:_________________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-7-
<PAGE>
LIFE INSURANCE COMPANY
OF NORTH AMERICA*
By: CIGNA Investments, Inc.
By:__________________________________
Its:_________________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
___________________
* THIS ENTITY IS EITHER THE REGISTERED OWNER OF ONE OR MORE OF THE SECURITIES
PERTAINING HERETO OR IS A BENEFICIAL OWNER OF ONE OR MORE OF SUCH SECURITIES
OWNED BY AND REGISTERED IN THE NAME OF A NOMINEE FOR THAT ENTITY.
-8-
<PAGE>
AMENDED AND RESTATED STANDSTILL AGREEMENT
This Amended and Restated Standstill Agreement (the "Agreement") is
entered into as of December 31, 1996, between Alliance Imaging, Inc., a
Delaware corporation (the "Company"), and Richard N. Zehner (the "Holder").
RECITALS
A. As of the date of this Agreement, the Company and the holders of
the Company's issue of 7.50% Senior Subordinated Debentures due 2005 and
Series A 6.0% Cumulative Preferred Stock (together, the "Securities") are
completing transactions whereby the Securities are being repurchased by the
Company for cash (the "Refinancing Transaction").
B. The Holder is the owner, as of the date hereof, of 267,139 shares
(the "Restricted Shares") of Common Stock, $.01 par value per share (the
"Stock"), which represent approximately 2.45% of the issued and outstanding
Stock as of the date hereof.
C. The parties acknowledge and agree that the Company and its
subsidiaries, as of the date hereof and after giving effect to previous
restructuring transactions and the Refinancing Transaction, will have the
right to certain valuable federal and state net operating loss tax
carryforwards (collectively, the "NOL").
D. The parties desire to enter into this Agreement in order to set
forth their agreement concerning certain restrictions on the purchase, sale
or transfer of the Restricted Shares and other shares of Stock, in order to
minimize the potential that a purchase, sale or transfer would result in a
limitation on the use or otherwise affect adversely the value of the NOL.
E. Concurrently with the execution of this Agreement, the Company is
offering to enter into those certain Amended and Restated Standstill
Agreements with the previous holders of the Company's Senior Notes due 2003,
the previous holders of the Securities and DLJ Capital Corporation (the
"Other Standstill Agreements"). This Agreement amends, restates and
supersedes in its entirety that certain Standstill Agreement between the
Company and Holder dated as of December 31, 1994, and, to the extent that the
parties to the Other Standstill Agreements elect to enter into their
respective Amended and Restated Standstill Agreements, then such Amended and
Restated Standstill Agreements shall likewise amend, restate and supersede in
their entirety the preexisting Standstill Agreements between the Company and
the applicable counterparties dated as of December 31, 1994 (the "Preexisting
Standstill Agreements").
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which hereby is acknowledged, the parties
hereby agree as follows:
1. STANDSTILL PROVISIONS. The Holder agrees that, at all times from
and after the date of this Agreement and through January 31, 1998, he shall
not, except as permitted in Section 2 hereof, take any of the following
actions, whether directly or indirectly:
(a) acquire, agree to acquire, offer to acquire or own or
otherwise hold any Stock of the Company or any other Voting Stock (as defined
below) of the Company, excluding only the continued holding of the Restricted
Shares; or
(b) sell or otherwise transfer, agree to sell or otherwise
transfer or offer to sell or otherwise transfer any of the Restricted Shares
or other shares of Voting Stock.
2. PERMITTED TRANSFERS. Notwithstanding the provisions of Section 1,
this Agreement does not prohibit the following:
(a) a transfer of Restricted Shares by the Holder to any Person in
connection with (i) a sale of all or substantially all of the assets of the
Company and its subsidiaries to a Person which is not an Affiliate of the
Company or (ii) a reorganization, merger, consolidation or other transaction
or transactions (whether or not the Company is a party thereto and
specifically including, without limitation, open market purchases of
securities) as a result of which any person or entity or "group" of persons
and/or entities becomes the "beneficial owner" (as those terms are defined in
and construed by judicial authority under Rule 13d-3 promulgated under the
Exchange Act, as that Rule may be amended from time to time) of Stock and/or
options, warrants or other rights to acquire Stock and/or securities
convertible into or exchangeable or exercisable for Stock, representing in
the aggregate greater than 50% of the ordinary voting power of the Company in
the election of directors (any such event described in clauses (i) and (ii)
of this Section 2 being a "Change of Control"), provided that such transfer
is effective no earlier than the consummation date of such Change of Control;
PROVIDED, HOWEVER, that prior to such transfer becoming effective or any
agreement or commitment for such transfer being made or becoming effective,
the Holder shall give written notice to the Company, in order to provide the
Company with the opportunity to analyze the effects of the proposed transfer
on the NOL and to discuss the same with the Holder, and such proposed
transfer shall not become effective earlier than ten (10) business days
following the date that such written notice is delivered;
(b) the purchase of Stock pursuant to the exercise of options
granted to Holder pursuant to the Company's 1991 Stock Option Plan, or any
other stock option plan approved by the Company's Board of Directors; or
-2-
<PAGE>
(c) the sale of not more than 25,000 shares of Stock (as such
Stock is presently constituted, such number to be proportionately adjusted in
the event of any stock split, combination or similar event) in any calendar
quarter.
3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning given to such term in Rule
12b-2 under the Exchange Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, including the rules and regulations thereunder.
(c) "Person" shall mean any individual, partnership, firm,
corporation or other entity, as well as any entity or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
(d) "Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which such Person owns, directly or
indirectly, securities that entitle such Person to elect a majority of the
board of directors or other individuals or Persons performing similar
management functions for such corporation or other entity.
(e) "Voting Stock" shall mean the Stock and any other securities
of the Company which are entitled to vote generally in the election of
directors of the Company and the term "Voting Stock" shall also mean all
other securities which are convertible into, exchangeable for or exercisable
for such Stock or other voting securities.
4. GENERAL PROVISIONS.
4.1 REMEDIES.
(a) The Holder acknowledges that damages would be an inadequate
remedy for its breach of any of the provisions of this Agreement, and that
his breach of this Agreement will result in immeasurable and irreparable harm
to the Company. Therefore, the Company shall be entitled to seek and obtain
temporary, preliminary and permanent injunctive relief from any court of
competent jurisdiction restraining the Holder from committing or continuing
any breach of any provision of this Agreement.
(b) In addition to the remedy described in paragraph (a) of this
Section 4.1, the Company shall be entitled to seek and obtain all other
rights and remedies to which it is entitled under applicable law by reason of
the Holder's breach of any provision of this Agreement.
4.2 NOTICES. Any written notice required or permitted by this
Agreement shall be given personally, by telegraph, facsimile or telex or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address for such party specified below or to such other
address as the party may from time to time
-3-
<PAGE>
advise the other parties, and shall be deemed given and received upon
personal delivery (in the case of personal deliveries), upon confirmation by
answerback or other electronic verification (in the case of transmissions by
telegraph, facsimile or telex) or upon the delivery date indicated on the
return receipt (in the case of notices sent by mail):
If to the Company: Alliance Imaging, Inc.
3111 North Tustin Avenue
Suite 150
Orange, California 92665
Attn: Chief Financial Officer
Facsimile: 714-921-5678
If to the Holder: To the address or number for the Holder indicated
on the signature page hereto.
4.3 AMENDMENTS AND TERMINATION; ENTIRE AGREEMENT. This Agreement
may be amended or terminated only by a writing executed by the parties. This
Agreement constitutes the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior oral and written
understandings and agreements relating to such subject matter.
4.4 AMENDMENT OF OTHER STANDSTILL AGREEMENTS. The Company will
not, without the consent of the Holder, amend any Other Standstill Agreement
or Preexisting Standstill Agreement, as applicable, such that any provision
therein which is substantially identical to a provision contained herein is
made more favorable to the other party or parties thereto, unless the Company
also offers concurrently to amend this Agreement in a like manner.
4.5 SUCCESSORS AND ASSIGNS. No party shall be entitled to assign
any of its rights or obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.
4.6 LEGEND; FURTHER ASSURANCES. The Holder authorizes the Company
to place an appropriate legend on the certificate(s) representing the
Restricted Shares to reflect the restrictions contained in this Agreement.
Each party shall perform any further acts and execute and deliver any further
documents that may be reasonably necessary or advisable to carry out the
provisions of this Agreement.
4.7 PROVISIONS SUBJECT TO APPLICABLE LAW. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so
that they will not render this Agreement invalid, illegal or unenforceable
under any applicable law. If any provision of this Agreement or any
application thereof shall be held to be invalid, illegal or unenforceable,
the validity, legality and enforceability of other provisions of this
-4-
<PAGE>
Agreement or of any other application of such provision shall in no way be
affected thereby.
4.8 WAIVER OF RIGHTS. No party shall be deemed to have waived any
right or remedy that it has under this Agreement unless this Agreement
expressly provides a period of time within which such right or remedy must be
exercised and such period has expired, or unless such party has expressly
waived the same in writing. The waiver by a party of a right or remedy
hereunder shall not be deemed to be a waiver of any other right or remedy or
of any subsequent right or remedy of the same kind.
4.9 COUNTERPARTS; NUMBER. This Agreement may be executed in two
or more counterparts, and by each party on a separate counterpart, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument. Where appropriate to the context
of this Agreement, use of the singular shall be deemed also to refer to the
plural and use of the plural shall be deemed also to refer to the singular.
4.10 GOVERNING LAWS; EXPENSES RESULTING FROM LITIGATION. This
Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York, without giving effect to
the conflict of laws principles thereof. The unsuccessful party to any
action or proceeding hereunder involving the enforcement or interpretation of
this Agreement shall pay to the successful party all costs and expenses,
including, without limitation, reasonable attorney's fees,
-5-
<PAGE>
incurred therein by the successful party, all of which shall be included in
and as a part of the award or judgment rendered in such proceeding or action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ALLIANCE IMAGING, INC.
By______________________________
Its ____________________________
________________________________
Richard N. Zehner
Address for Notice:
________________________________
________________________________
________________________________
Attn:___________________________
Facsimile:______________________
-6-
<PAGE>
AMENDED AND RESTATED STANDSTILL AGREEMENT
This Amended and Restated Standstill Agreement (the "Agreement") is
entered into as of December 31, 1996, between Alliance Imaging, Inc., a
Delaware corporation (the "Company"), and each of the former holders of the
Securities (as hereinafter defined) (each a "Holder" and collectively the
"Holders").
RECITALS
A. As of the date of this Agreement, the Company and the holders of
the Company's issue of 7.50% Senior Subordinated Debentures due 2005 and
Series A 6.0% Cumulative Preferred Stock (together, the "Securities") are
completing transactions whereby the Securities are being repurchased by the
Company for cash (the "Refinancing Transaction").
B. Each of the Holders is the owner, as of the date hereof, of the
number of shares (including shares issuable upon the exercise of warrants
currently held by each such Holder) (the "Restricted Shares") of Common
Stock, $.01 par value per share (the "Stock"), set forth beneath its name on
the signature pages hereto.
C. The parties acknowledge and agree that the Company and its
subsidiaries, as of the date hereof and after giving effect to previous
restructuring transactions and the Refinancing Transaction, will have the
right to certain valuable federal and state net operating loss tax
carryforwards (collectively, the "NOL").
D. The parties desire to enter into this Agreement in order to set
forth their agreement concerning certain restrictions on the purchase, sale
or transfer of the Restricted Shares and other shares of Stock, in order to
minimize the potential that a purchase, sale or transfer would result in a
limitation on the use or otherwise affect adversely the value of the NOL.
E. Concurrently with the execution of this Agreement, the Company is
offering to enter into those certain Amended and Restated Standstill
Agreements with the previous holders of the Company's Senior Notes due 2003,
Richard N. Zehner and DLJ Capital Corporation (the "Other Standstill
Agreements"). This Agreement amends, restates and supersedes in its entirety
that certain Standstill Agreement between the Company and the Holders dated
as of December 31, 1994, and, to the extent that the parties to the Other
Standstill Agreements elect to enter into their respective Amended and
Restated Standstill Agreements, then such Amended and Restated Standstill
Agreements shall likewise amend, restate and supersede in their entirety the
preexisting
<PAGE>
Standstill Agreements between the Company and the applicable counterparties
dated as of December 31, 1994 (the "Preexisting Standstill Agreements").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which hereby is acknowledged, the parties
hereby agree as follows:
1. STANDSTILL PROVISIONS. Each Holder agrees that, at all times from
and after the date of this Agreement and through January 31, 1998, it shall
not, except as permitted in Section 2 hereof, take any of the following
actions, and it shall not cause its respective shareholders, officers,
directors, Subsidiaries and other Affiliates (as such terms are defined in
Section 3 below) to take any of the following actions in such Holder's name
or on such Holder's behalf, and shall cause its respective Subsidiaries and
Affiliates not to, in all instances whether directly or indirectly and
whether alone, jointly or collectively:
(a) acquire, agree to acquire, offer to acquire or own or
otherwise hold any Stock of the Company or any other Voting Stock (as defined
below) of the Company, excluding only the continued holding of the Restricted
Shares; or
(b) sell or otherwise transfer, agree to sell or otherwise
transfer or offer to sell or otherwise transfer any of the Restricted Shares
or other shares of Voting Stock.
2. PERMITTED TRANSFERS. Notwithstanding the provisions of Section 1,
this Agreement does not prohibit the following:
(a) a transfer of Restricted Shares by any Holder to any Person in
connection with (i) a sale of all or substantially all of the assets of the
Company and its subsidiaries to a Person which is not an Affiliate of the
Company or (ii) a reorganization, merger, consolidation or other transaction
or transactions (whether or not the Company is a party thereto and
specifically including, without limitation, open market purchases of
securities) as a result of which any person or entity or "group" of persons
and/or entities becomes the "beneficial owner" (as those terms are defined in
and construed by judicial authority under Rule 13d-3 promulgated under the
Exchange Act, as that Rule may be amended from time to time) of Stock and/or
options, warrants or other rights to acquire Stock and/or securities
convertible into or exchangeable or exercisable for Stock, representing in
the aggregate greater than 50% of the ordinary voting power of the Company in
the election of directors (any such event described in clauses (i) and (ii)
of this Section 2 being a "Change of Control"), provided that such transfer
is effective no earlier than the consummation date of such Change of Control;
PROVIDED, HOWEVER, that prior to such transfer becoming effective or any
agreement or commitment for such transfer being made or becoming effective,
the Holder shall give written notice to the Company, in order to provide the
Company with the opportunity to analyze the effects of the proposed transfer
on the NOL and to discuss the same with the Holder, and such proposed
transfer shall not become effective earlier than ten (10)
-2-
<PAGE>
business days following the date that such written notice is delivered.
Notwithstanding anything in the foregoing to the contrary, nothing herein
shall prohibit any transfer of Restricted Shares by any Holder to the
Company; or
(b) the sale by any Holder of not more than one percent (1%) of
such Holder's Restricted Shares during any calendar month, beginning with
January 1997; or
(c) the purchase of Stock by any Holder issuable upon the exercise
of warrants currently held by such Holder.
3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning given to such term in Rule
12b-2 under the Exchange Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, including the rules and regulations thereunder.
(c) "Person" shall mean any individual, partnership, firm,
corporation or other entity, as well as any entity or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
(d) "Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which such Person owns, directly or
indirectly, securities that entitle such Person to elect a majority of the
board of directors or other individuals or Persons performing similar
management functions for such corporation or other entity.
(e) "Voting Stock" shall mean the Stock and any other securities
of the Company which are entitled to vote generally in the election of
directors of the Company and the term "Voting Stock" shall also mean all
other securities which are convertible into, exchangeable for or exercisable
for such Stock or other voting securities.
4. GENERAL PROVISIONS.
4.1 REMEDIES.
(a) Each Holder acknowledges that damages would be an inadequate
remedy for its breach of any of the provisions of this Agreement, and that
his breach of this Agreement will result in immeasurable and irreparable harm
to the Company. Therefore, the Company shall be entitled to seek and obtain
temporary, preliminary and permanent injunctive relief from any court of
competent jurisdiction restraining any Holder from committing or continuing
any breach of any provision of this Agreement.
(b) In addition to the remedy described in paragraph (a) of this
Section 4.1, the Company shall be entitled to seek and obtain all other
rights and
-3-
<PAGE>
remedies to which it is entitled under applicable law by reason of any
Holder's breach of any provision of this Agreement.
4.2 NOTICES. Any written notice required or permitted by this
Agreement shall be given personally, by telegraph, facsimile or telex or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address for such party specified below or to such other
address as the party may from time to time advise the other parties, and
shall be deemed given and received upon personal delivery (in the case of
personal deliveries), upon confirmation by answerback or other electronic
verification (in the case of transmissions by telegraph, facsimile or telex)
or upon the delivery date indicated on the return receipt (in the case of
notices sent by mail):
If to the Company: Alliance Imaging, Inc.
3111 North Tustin Avenue
Suite 150
Orange, California 92665
Attn: Chief Financial Officer
Facsimile: 714-921-5678
If to a Holder: To the address or number for the Holder indicated
on the signature page hereto.
4.3 AMENDMENTS AND TERMINATION; ENTIRE AGREEMENT. This Agreement
may be amended or terminated only by a writing executed by the parties. This
Agreement constitutes the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior oral and written
understandings and agreements relating to such subject matter.
4.4 AMENDMENT OF OTHER STANDSTILL AGREEMENTS. The Company will
not, without the consent of each Holder, amend any Other Standstill Agreement
or Preexisting Standstill Agreement, as applicable, such that any provision
therein which is substantially identical to a provision contained herein is
made more favorable to the other party or parties thereto, unless the Company
also offers concurrently to amend this Agreement in a like manner.
4.5 SUCCESSORS AND ASSIGNS. No party shall be entitled to assign
any of its rights or obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.
4.6 LEGEND; FURTHER ASSURANCES. Each Holder authorizes the
Company to place an appropriate legend on the certificate(s) representing the
Restricted Shares to reflect the restrictions contained in this Agreement.
Each party shall perform any further acts and execute and deliver any further
documents that may be reasonably necessary or advisable to carry out the
provisions of this Agreement.
-4-
<PAGE>
4.7 PROVISIONS SUBJECT TO APPLICABLE LAW. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so
that they will not render this Agreement invalid, illegal or unenforceable
under any applicable law. If any provision of this Agreement or any
application thereof shall be held to be invalid, illegal or unenforceable,
the validity, legality and enforceability of other provisions of this
Agreement or of any other application of such provision shall in no way be
affected thereby.
4.8 WAIVER OF RIGHTS. No party shall be deemed to have waived any
right or remedy that it has under this Agreement unless this Agreement
expressly provides a period of time within which such right or remedy must be
exercised and such period has expired, or unless such party has expressly
waived the same in writing. The waiver by a party of a right or remedy
hereunder shall not be deemed to be a waiver of any other right or remedy or
of any subsequent right or remedy of the same kind.
4.9 COUNTERPARTS; NUMBER. This Agreement may be executed in two
or more counterparts, and by each party on a separate counterpart, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument. Where appropriate to the context
of this Agreement, use of the singular shall be deemed also to refer to the
plural and use of the plural shall be deemed also to refer to the singular.
4.10 GOVERNING LAWS; EXPENSES RESULTING FROM LITIGATION. This
Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York, without giving effect to
the conflict of laws principles thereof. The unsuccessful party to any
action or proceeding hereunder involving the enforcement or interpretation of
this Agreement shall pay to the successful party all costs and expenses,
including, without limitation, reasonable attorney's fees,
-5-
<PAGE>
incurred therein by the successful party, all of which shall be included in
and as a part of the award or judgment rendered in such proceeding or action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ALLIANCE IMAGING, INC.
By:__________________________________
Its:_______________________________
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-6-
<PAGE>
THE TRAVELERS INSURANCE COMPANY
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
THE TRAVELERS INDEMNITY COMPANY
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-7-
<PAGE>
THE TRAVELERS LIFE AND ANNUITY
COMPANY
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: Lincoln Investment Management,
Inc., its attorney-in-fact
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-8-
<PAGE>
BEDROCK ASSET TRUST I
By:__________________________________
Its:_______________________________
No. of Shares:_______________________
Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Attn:________________________________
Facsimile:___________________________
-9-
<PAGE>
(DLJ CAPITAL CORPORATION)
AMENDED AND RESTATED STANDSTILL AGREEMENT
This Amended and Restated Standstill Agreement (the "Agreement") is entered
into as of December 31, 1996, between Alliance Imaging, Inc., a Delaware
corporation (the "Company"), and DLJ Capital Corporation (the "Holder").
RECITALS
A. As of the date of this Agreement, the Company and the holders of the
Company's issue of 7.50% Senior Subordinated Debentures due 2005 and Series A
6.0% Cumulative Preferred Stock (together, the "Securities") are completing
transactions whereby the Securities are being repurchased by the Company for
cash (the "Refinancing Transaction").
B. The Holder is the owner, as of the date hereof, of the number of
shares (including shares issuable upon the exercise of warrants currently held
by the Holder) (the "Restricted Shares") of Common Stock, $.01 par value per
share (the "Stock"), set forth beneath its name on the signature pages hereto.
C. The parties acknowledge and agree that the Company and its
subsidiaries, as of the date hereof and after giving effect to previous
restructuring transactions and the Refinancing Transaction, will have the right
to certain valuable federal and state net operating loss tax carryforwards
(collectively, the "NOL").
D. The parties desire to enter into this Agreement in order to set forth
their agreement concerning certain restrictions on the purchase, sale or
transfer of the Restricted Shares and other shares of Stock, in order to
minimize the potential that a purchase, sale or transfer would result in a
limitation on the use or otherwise affect adversely the value of the NOL.
E. Concurrently with the execution of this Agreement, the Company is
offering to enter into those certain Amended and Restated Standstill Agreements
with the previous holders of the Company's Senior Notes due 2003, the previous
holders of the Securities and Richard N. Zehner (the "Other Standstill
Agreements"). This Agreement amends, restates and supersedes in its entirety
that certain Standstill Agreement between the Company and the Holder dated as of
December 31, 1994, and, to the extent that the parties to the Other Standstill
Agreements elect to enter into their respective Amended and Restated Standstill
Agreements, then such Amended and Restated Standstill Agreements shall likewise
amend, restate and supersede in their entirety the preexisting Standstill
Agreements between the Company and the
<PAGE>
applicable counterparties dated as of
December 31, 1994 (the "Preexisting Standstill Agreements").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which hereby is acknowledged, the parties
hereby agree as follows:
1. STANDSTILL PROVISIONS. The Holder agrees that, at all times from and
after the date of this Agreement and through January 31, 1998, it shall not,
except as permitted in Section 2 hereof, take any of the following actions, and
it shall not cause its respective shareholders, officers, directors,
Subsidiaries and other Affiliates (as such terms are defined in Section 3 below)
to take any of the following actions in such Holder's name or on such Holder's
behalf, and shall cause its respective Subsidiaries and Affiliates not to, in
all instances whether directly or indirectly and whether alone, jointly or
collectively:
(a) acquire, agree to acquire, offer to acquire or own or otherwise
hold any Stock of the Company or any other Voting Stock (as defined below) of
the Company, excluding only the continued holding of the Restricted Shares; or
(b) sell or otherwise transfer, agree to sell or otherwise transfer
or offer to sell or otherwise transfer any of the Restricted Shares or other
shares of Voting Stock.
2. PERMITTED TRANSFERS. Notwithstanding the provisions of Section 1,
this Agreement does not prohibit the following:
(a) a transfer of Restricted Shares by the Holder to any Person in
connection with (i) a sale of all or substantially all of the assets of the
Company and its subsidiaries to a Person which is not an Affiliate of the
Company or (ii) a reorganization, merger, consolidation or other transaction or
transactions (whether or not the Company is a party thereto and specifically
including, without limitation, open market purchases of securities) as a result
of which any person or entity or "group" of persons and/or entities becomes the
"beneficial owner" (as those terms are defined in and construed by judicial
authority under Rule 13d-3 promulgated under the Exchange Act, as that Rule may
be amended from time to time) of Stock and/or options, warrants or other rights
to acquire Stock and/or securities convertible into or exchangeable or
exercisable for Stock, representing in the aggregate greater than 50% of the
ordinary voting power of the Company in the election of directors (any such
event described in clauses (i) and (ii) of this Section 2 being a "Change of
Control"), provided that such transfer is effective no earlier than the
consummation date of such Change of Control; PROVIDED, HOWEVER, that prior to
such transfer becoming effective or any agreement or commitment for such
transfer being made or becoming effective, the Holder shall give written notice
-2-
<PAGE>
to the Company, in order to provide the Company with the opportunity to analyze
the effects of the proposed transfer on the NOL and to discuss the same with the
Holder, and such proposed transfer shall not become effective earlier than ten
(10) business days following the date that such written notice is delivered;
(b) the sale by the Holder of not more than one percent (1%) of such
Holder's Restricted Shares during any calendar month, beginning with January
1997;
(c) the purchase of Stock by the Holder issuable upon exercise of
warrants currently held by the Holder; or
(d) (i) a transfer by the Holder or its Affiliates (which are
registered under the Exchange Act) of Stock (other than Restricted Shares) in
connection with its normal trading activities as a broker-dealer; (ii) a
transfer by the Holder or its Affiliates of Stock (other than Restricted Shares)
which are held by the Holder or its Affiliates for the account of any other
person or entity or in the name of a customer account; (iii) a transfer of Stock
(other than Restricted Shares) by the Holder or its Affiliates which are held in
an investment advisory account; (iv) a transfer of Stock (other than Restricted
Shares) by Donaldson, Lufkin & Jenrette Securities Corporation, as Custodian
under a Custody Agreement dated December 15, 1992; (iv) a transfer of Restricted
Shares or other Stock to any DLJ Entity.
Notwithstanding anything in the foregoing to the contrary, nothing herein shall
prohibit any transfer of Restricted Shares by the Holder to the Company.
3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning given to such term in Rule
12b-2 under the Exchange Act.
(b) "DLJ Entity" shall mean Donaldson, Lufkin & Jenrette, Inc., and
each of its consolidated Subsidiaries.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, including the rules and regulations thereunder.
(d) "Person" shall mean any individual, partnership, firm,
corporation or other entity, as well as any entity or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
(e) "Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which such Person owns, directly or indirectly,
securities that entitle such Person to elect a majority of the board of
directors
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<PAGE>
or other individuals or Persons performing similar management functions for
such corporation or other entity.
(f) "Voting Stock" shall mean the Stock and any other securities of
the Company which are entitled to vote generally in the election of directors of
the Company and the term "Voting Stock" shall also mean all other securities
which are convertible into, exchangeable for or exercisable for such Stock or
other voting securities.
4. GENERAL PROVISIONS.
4.1 REMEDIES.
(a) The Holder acknowledges that damages would be an inadequate
remedy for its breach of any of the provisions of this Agreement, and that his
breach of this Agreement will result in immeasurable and irreparable harm to the
Company. Therefore, the Company shall be entitled to seek and obtain temporary,
preliminary and permanent injunctive relief from any court of competent
jurisdiction restraining the Holder from committing or continuing any breach of
any provision of this Agreement.
(b) In addition to the remedy described in paragraph (a) of this
Section 4.1, the Company shall be entitled to seek and obtain all other rights
and remedies to which it is entitled under applicable law by reason of the
Holder's breach of any provision of this Agreement.
4.2 NOTICES. Any written notice required or permitted by this
Agreement shall be given personally, by telegraph, facsimile or telex or by
registered, certified or express mail, return receipt requested, postage
prepaid, to the address for such party specified below or to such other address
as the party may from time to time advise the other parties, and shall be deemed
given and received upon personal delivery (in the case of personal deliveries),
upon confirmation by answerback or other electronic verification (in the case of
transmissions by telegraph, facsimile or telex) or upon the delivery date
indicated on the return receipt (in the case of notices sent by mail):
If to the Company: Alliance Imaging, Inc.
3111 North Tustin Avenue
Suite 150
Orange, California 92665
Attn: Chief Financial Officer
Facsimile: 714-921-5678
If to the Holder: To the address or number for the Holder indicated
on the signature page hereto.
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<PAGE>
4.3 AMENDMENTS AND TERMINATION; ENTIRE AGREEMENT. This Agreement may
be amended or terminated only by a writing executed by the parties. This
Agreement constitutes the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior oral and written understandings
and agreements relating to such subject matter.
4.4 AMENDMENT OF OTHER STANDSTILL AGREEMENTS. The Company will not,
without the consent of the Holder, amend any Other Standstill Agreement or
Preexisting Standstill Agreement, as applicable, such that any provision therein
which is substantially identical to a provision contained herein is made more
favorable to the other party or parties thereto, unless the Company also offers
concurrently to amend this Agreement in a like manner.
4.5 SUCCESSORS AND ASSIGNS. No party shall be entitled to assign any
of its rights or obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.
4.6 LEGEND; FURTHER ASSURANCES. The Holder authorizes the Company to
place an appropriate legend on the certificate(s) representing the Restricted
Shares to reflect the restrictions contained in this Agreement. Each party
shall perform any further acts and execute and deliver any further documents
that may be reasonably necessary or advisable to carry out the provisions of
this Agreement.
4.7 PROVISIONS SUBJECT TO APPLICABLE LAW. All provisions of this
Agreement shall be applicable only to the extent that they do not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Agreement invalid, illegal or unenforceable under any
applicable law. If any provision of this Agreement or any application thereof
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of other provisions of this Agreement or of any other
application of such provision shall in no way be affected thereby.
4.8 WAIVER OF RIGHTS. No party shall be deemed to have waived any
right or remedy that it has under this Agreement unless this Agreement expressly
provides a period of time within which such right or remedy must be exercised
and such period has expired, or unless such party has expressly waived the same
in writing. The waiver by a party of a right or remedy hereunder shall not be
deemed to be a waiver of any other right or remedy or of any subsequent right or
remedy of the same kind.
4.9 COUNTERPARTS; NUMBER. This Agreement may be executed in two or
more counterparts, and by each party on a separate counterpart, each of which
shall be deemed an original, but all of which taken together shall constitute
but one and the same instrument. Where appropriate to the context
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<PAGE>
of this Agreement, use of the singular shall be deemed also to refer to the
plural and use of the plural shall be deemed also to refer to the singular.
4.10 GOVERNING LAWS; EXPENSES RESULTING FROM LITIGATION. This
Agreement shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of New York, without giving effect to the
conflict of laws principles thereof. The unsuccessful party to any action or
proceeding hereunder involving the enforcement or interpretation of this
Agreement shall pay to the successful party all costs and expenses, including,
without limitation, reasonable attorney's fees, incurred therein by the
successful party, all of which shall be included in and as a part of the award
or judgment rendered in such proceeding or action.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
ALLIANCE IMAGING, INC.
By:
----------------------------------
Its:
-------------------------------
DLJ CAPITAL CORPORATION
By:
----------------------------------
Its:
-------------------------------
No. of Shares:
-----------------------
Address for Notice:
-------------------------------------
-------------------------------------
-------------------------------------
Attn:
--------------------------------
Facsimile:
---------------------------
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<PAGE>
BRIDGE LOAN AGREEMENT
BETWEEN
ALLIANCE IMAGING, INC.,
AS BORROWER
AND
GENERAL ELECTRIC COMPANY,
AS LENDER
DATED AS OF DECEMBER 31, 1996
1
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Page 2
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS 1
1.1. Defined Terms. 1
1.2. Exhibits and Schedules Incorporated 8
ARTICLE II. SENIOR LOAN 9
2.1. Senior Loan 9
2.2. Senior Note 9
2.3. Interest; Payments 9
2.4. Prepayments 9
2.5. Maturity Date 9
2.6. Default Interest 9
2.7. Payments on Non-Business Days; Calculations 9
2.8. Stamp Taxes, Etc 9
2.09. Costs of Closing 10
2.10. Use of Proceeds 10
ARTICLE III. CONDITIONS PRECEDENT TO CLOSING AND LOANS 10
3.1. Conditions Precedent to Closing 10
3.2. Closing Mechanics 11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BORROWER 11
4.1. Organization, Powers and Good Standing 11
4.2. Capitalization 12
4.3. Subsidiaries 13
4.4. Authorization 13
4.5. Governmental and Other Consents; No Violation 14
4.6. Litigation 14
4.7. Financial Statements 14
4.8. Proprietary Information 15
4.9. Registration Rights 15
4.10. Contracts 15
4.11. Absence of Changes 16
4.12. Intellectual Property 17
4.13. Compliance with Other Instruments 17
4.14. Compliance with Law; Approvals 17
4.15. Title to Assets 18
4.16. Plant, Property and Equipment 19
4.17. Accounts and Notes Receivable 19
4.18. Indebtedness 19
4.19. Real Property 19
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Page 3
4.20. Employee Plans and Arrangements 20
4.21. Employees 22
4.22. Insurance 23
4.23. Environmental Compliance 23
4.24. No Undisclosed Liabilities 24
4.25. Taxes 24
4.26. No Research Grants 25
4.27. Certain Regulatory Matters 26
4.28. Transactions with Affiliates 26
4.29. Reports; SEC Documents 26
4.30. Disclosure 26
4.31. Brokers 26
4.32. Certain Additional Regulatory Matters 26
4.33. Medicare/Medicaid Participation 27
ARTICLE V. COVENANTS OF BORROWER 28
5.1. Corporate Existence, Etc. 28
5.2. Payment of Taxes 28
5.3. Maintenance of Properties 29
5.4. Maintenance of Insurance 29
5.5 Expenses. 29
5.6. Conversion Stock. 29
5.7. Compliance with Note Purchase Agreement. 29
5.8. Certain Regulatory Matters 29
ARTICLE VI. DEFAULTS AND REMEDIES 30
6.1. Default 30
6.2. Acceleration Upon Default. 31
6.3. Repayment of Funds Advanced. 31
6.4. Rights Cumulative, No Waiver. 31
ARTICLE VII. LENDER'S OPTION TO EXTEND MATURITY DATE;
OPTIONAL CONVERSION OF SENIOR LOAN 32
7.1. Lender's Option to Extend Maturity Date 32
7.2. Conversion of Senior Loan Prior to Maturity Date 32
7.3. Conversion of Senior Loan After Maturity Date 33
7.4. Acknowledgement 33
ARTICLE VIII. MISCELLANEOUS PROVISIONS 33
8.1. Indemnity 33
8.2. Notices 34
8.3. Attorneys' Fees and Expenses; Enforcement 34
8.4. Immediately Available Funds 34
8.5. Successors and Assigns 34
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Page 4
8.6. Participations 34
8.7. Severability 35
8.8. No Waiver; Successors 35
8.9. Time 35
8.10. Headings 35
8.11. Governing Law 35
8.12. Integration; Interpretation 35
8.13. Waiver of Allocation Rights 36
8.14. Usury Savings 36
8.15. Revival 36
8.16. Counterparts 37
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Page 5
BRIDGE LOAN AGREEMENT
BRIDGE LOAN AGREEMENT (this "AGREEMENT") dated as of December 31,
1996 between Alliance Imaging, Inc., a Delaware corporation (the "BORROWER"),
and General Electric Company, a New York corporation acting through GE
Medical Systems (the "LENDER").
RECITALS
WHEREAS, Borrower has requested that Lender make a loan to Borrower
in a principal amount of $18,000,000, and Lender has agreed to make the
requested loan upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
1.1 DEFINED TERMS. The following capitalized terms generally used
in this Agreement shall have the meanings defined or referenced below.
Certain other capitalized terms used only in specific sections of this
Agreement are defined in such sections.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls or is controlled by or is under common
control with such Person, and, with respect to the Borrower only, includes
any other Person with whom the Borrower has any joint venture, partnership,
or other shared investment interest. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to (i)
direct or cause the direction of management or policies of such Person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise) or (ii) vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person.
"AGREEMENT" is defined in the preamble hereto.
"APPLICABLE LAW" means, with respect to any Person, any federal, state
or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or any
of their respective properties, assets, officers, directors, employees,
consultants or agents.
"APPROVALS" is defined in Section 4.14(d).
<PAGE>
Page 6
"BANKRUPTCY CODE" means Title 11 of the United States Code, as
amended from time to time, and any state law relating to creditor's rights,
reorganization or insolvency generally.
"BENEFIT ARRANGEMENT" means any material benefit arrangement that is
not an Employee Benefit Plan, including (i) each employment, consulting or
change of control agreement, (ii) each arrangement providing for fringe
benefits, insurance coverage or workers' compensation benefits, (iii) each
bonus, incentive, or performance pay or deferred bonus, incentive, or
performance pay arrangement, (iv) each arrangement providing any termination
allowance, severance or similar benefits, (v) each equity compensation plan,
(vi) each deferred compensation plan and (vii) each compensation policy and
practice maintained by the Borrower covering the employees, former employees,
officers, former officers, directors and former directors of the Borrower,
and the beneficiaries of any of them.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit
Arrangement.
"BORROWER" is defined in the preamble hereto.
"BUSINESS DAY" means a day of the week (other than any Saturday or
Sunday) on which banks are not authorized or required to close in the State
of California. Unless specifically referenced in this Agreement as a
Business Day, all references to "days" shall be to calendar days.
"BSC" is defined in Section 5.8(b).
"CAPITAL STOCK" means any and all shares, interests,
participations, or other equivalents (however designated) of capital stock
and any rights (other than debt securities convertible into capital stock),
warrants or options to acquire such capital stock.
"CHAMPUS" is defined in Section 4.32.
"CHANGE IN CONTROL" shall be deemed to have occurred (i) at such
time as any person (as defined in Section 13(d)(3) of the Securities and
Exchange Act of 1934) at any time shall directly or indirectly acquire more
than Forty Percent (40%) of the voting power of the Common Stock of the
Borrower, (ii) upon consummation of a merger or consolidation of the Borrower
into or with another corporation in which the shareholders of the Borrower
immediately prior to the consummation of such transaction shall own less than
Fifty Percent (50%) of the voting securities of the surviving corporation (or
the parent corporation of the surviving corporation where the surviving
corporation is wholly-owned by the parent corporation) immediately following
the consummation of such transaction or (iii) the sale, transfer or lease of
all or substantially all of the assets of the company; in any of cases (i),
(ii) and (iii), in a single transaction or series of transactions.
<PAGE>
Page 7
"CHARTER DOCUMENTS" is defined in Section 4.13.
"CLAIMS" is defined in Section 8.1.
"CLOSING" means the consummation of the transactions contemplated
by this Agreement to be consummated on the Closing Date.
"CLOSING DATE" means the date upon which each of the conditions
precedent set forth in Section 3.1 hereof is satisfied or waived by Lender in
its sole and absolute discretion.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
"COMMON STOCK" is defined in Section 4.2.
"CONTRACT" means all contracts and agreements, contract rights,
executory commitments, license agreements, purchase and sales orders, written
or oral, relating to the operation of the business of the Borrower or any
Subsidiary.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any
provision of any agreement or other instrument to which that Person is a
party or by which it or any of the properties owned or leased by it is bound
or otherwise subject.
"CONVERSION DATE" is defined in Section 7.1(a).
"CONVERSION NOTICE" is defined in Section 7.1(a).
"CONVERSION TRANSACTIONS" is defined in Section 7.1(b).
"CONVERSION STOCK" means the shares of Common Stock issuable upon
conversion of the shares of Series D Preferred Stock.
"CURRENT CUSTOMER" is defined in SECTION 4.10(a).
"DEFAULT" is defined in SECTION 6.1.
"DEFAULT RATE" is defined in SECTION 2.8.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as defined
in Section 3(3) of ERISA, that is sponsored or contributed to by the Borrower
or any ERISA Affiliate covering employees or former employees of the
Borrower, or with respect to which the Borrower or any ERISA Affiliate is a
party or is otherwise bound.
"EMPLOYEE PENSION BENEFIT PLAN" means any Employee Benefit Plan, as
defined in Section 3(2) of ERISA, that is regulated under Title IV of ERISA
or is subject to the funding requirements of Part III of Title I of ERISA or
Section 412
<PAGE>
Page 8
of the Code, other than a Multiemployer Plan.
"EMPLOYMENT AGREEMENTS" is defined in Section 4.20(a).
"ENVIRONMENTAL LAW" means all laws, ordinances and regulations
regulating or otherwise concerning the environment or relating to Hazardous
Materials, including, without limitation, the Clean Air Act, as amended, 42
U.S.C. Section 7401 ET SEQ.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 ET SEQ.; the Resource Conservation and
Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 ET SEQ.; the
Comprehensive Environment Response, Compensation and Liability Act of 1980,
as amended (including the Superfund Amendments and Reauthorization Act of
1986, "CERCLA"), 42 U.S.C. Section 9601 ET SEQ.; the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 2601 ET SEQ.; the Occupational Safety and
Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 ET SEQ.; the
Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 ET
SEQ.; the Safe Drinking Water Act, as amended, 42 U.S.C. Section 300f ET
seq.; and all comparable state and local laws, orders and regulations of
applicable jurisdictions.
"EXISTING PREFERRED STOCK" means, collectively, the Series A
Preferred Stock, the Series B Preferred Stock, and the Series C Preferred
Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" of the Borrower means any other Person that,
together with the Borrower as of the relevant measuring date under ERISA, was
or is required to be treated as a single employer under Section 414 of the
Code.
"FINANCIAL STATEMENTS" is defined in SECTION 4.7.
"GAAP" is defined in SECTION 4.7.
"GOVERNMENTAL AUTHORITY" means any federal, territorial, state or
local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any
political or other subdivision, department or branch of any of the foregoing,
in all such cases whether domestic or foreign.
"GROUP HEALTH PLAN" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"HAZARDOUS MATERIALS" means oil, flammable explosives, asbestos,
urea formaldehyde insulation, radioactive materials, hazardous wastes, toxic
or contaminated substances or similar materials, including, without
limitation, any
<PAGE>
Page 9
substances which are "hazardous substances," "hazardous wastes,"
"hazardous materials" or "toxic substances" under any Environmental Laws.
"INTEREST PAYMENT DATE" shall have the meaning ascribed to such
term in the Senior Note.
"KNOWLEDGE" OR "KNOWLEDGE," with respect to any Person, means the
actual knowledge of such Person, after reasonable inquiry. For purposes
hereof, a Person shall be deemed to have actual knowledge of the contents of
all books and records with respect to which such Person has reasonable
access. Without limiting the generality of the foregoing, with respect to
any Person that is a corporation, partnership or other business entity,
actual knowledge shall be deemed to include the actual knowledge of all
principal employees of any such Person (which, for purposes of the Borrower,
shall include without limitation Richard N. Zehner, Vincent S. Pino, Terrence
M. White, Jay A. Mericle, Terry A. Andrues, Neil M. Culinan, Ph.D., Cheryl A.
Ford, and Michael W. Grismer) as well as the Chief Executive Officer,
President, Chief Financial Officer and all Vice Presidents in the case of
corporate Persons, and general partners in the case of general or limited
partnerships, as the case may be.
"LEASE AGREEMENTS" is defined in Section 4.19(b).
"LEASED REAL PROPERTY" means all real property leased, occupied,
operated or controlled by the Borrower or any Subsidiary or otherwise related
to or used in the business of the Borrower or any Subsidiary.
"LENDER" is defined in the preamble hereto.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether
known or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and
whether or not the same is required to be accrued on the financial statements
of such Person.
"LIEN" means any lien, mortgage, pledge, security interest, charge,
or encumbrance of any kind (including any conditional sale or other title
retention agreement or any lease in the nature thereof) and any agreement to
give or refrain from giving any lien, mortgage, pledge, security interest,
charge, or other encumbrance of any kind.
"LOAN" means the Senior Loan.
"LOAN DOCUMENTS" means, collectively, this Agreement and the Senior
Note, as hereafter amended, supplemented, replaced or modified, each as
properly executed and in recordable form, if necessary.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person or
designated
<PAGE>
Page 10
group of Persons, a change in, or effect on, or group of such changes in or
effects on, the operations, financial condition or results of operations,
prospects, assets or Liabilities of the Person or group of Persons, as the
case may be, taken as a whole, that results in a material adverse effect on,
or a material adverse change in, the operations, financial condition, results
of operations, prospects, assets or Liabilities of the Person or group of
Persons, as the case may be, taken as a whole, excluding adverse changes in
the general economy.
"MATERIAL CONTRACTS" is defined in Section 4.10(b).
"MATURITY DATE" means February 28, 1997; provided, however, that if
Lender exercises its option to extend the Maturity Date to March 31, 1997, as
set forth in Section 7.1, , or if Lender fails to timely deliver the
Conversion Notice to Borrower as provided in Section 7.2(c), then the
"Maturity Date" shall mean March 31, 1997.
"MAXIMUM AMOUNT" is defined in Section 8.14.
"MULTIEMPLOYER PLAN" means any multiemployer plan as defined in
either Section 3(37) or 4001(a)(3) of ERISA.
"MULTIPLE EMPLOYER PLAN" means any Employee Benefit Plan sponsored
by more than one employer, within the meaning of Sections 4063 or 4064 of
ERISA or Code Section 413(c).
"NOTE PURCHASE AGREEMENT" is defined in Section 5.7.
"OBLIGATIONS" means each and all of the obligations of Borrower
under or with respect to the Loan or the Loan Documents.
"PERMITTED ENCUMBRANCES" means: (i) Liens for taxes, assessments or
charges for claims that are not yet due and payable or being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with of GAAP; (ii) statutory Liens of carriers, warehousemen, mechanics,
materialmen, bankers and other Liens imposed by law and created in the
ordinary course of business for amounts that are not material, and that are
not yet due and payable or that are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP; (iii)
Liens incurred and deposits made in the ordinary course of business to secure
the performance (including by way of surety bonds or appeal bonds) of
tenders, bids, leases, contracts, statutory obligations or similar
obligations or arising as a result of progress payments under contracts, in
each case in the ordinary course of business and not relating to the
repayment of debt; (iv) easements, rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges,
encumbrances; (v) building restrictions, zoning laws and other statutes,
laws, rules, regulations, ordinances and restrictions; (vi) leases or
subleases approved by, or deemed
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Page 11
approved by Lender; (vii) any attachment or judgment Lien, not otherwise
constituting a Default hereunder, in existence less than thirty (30) days
after the entry thereof or with respect to which (A) execution has been
stayed, (B) payment is covered in full by insurance to which Lender has been
made the loss payable party, or (C) Borrower is in good faith prosecuting an
appeal or other appropriate proceedings for review and has set aside on its
books and granted to Lender a priority perfected security interest in such
reserves as may be required by GAAP with respect to such judgment or award;
and (viii) Liens with respect to purchase money security interests (including
refinancings thereof) granted in the ordinary course of the Borrower's
business, consistent with past practice.
"PERSON" means an individual, a corporation, a partnership, a
limited liability company, a trust, an unincorporated organization or any
other entity or organization, including a government or any agency or
political subdivision thereof and, for the purpose of the definition of
"ERISA Affiliate" a trade or business.
"PLAN AFFILIATE" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to
such Person, and with respect to any employee benefit plan or arrangement,
any Person sponsoring, maintaining or contributing to such plan or
arrangement.
"PROHIBITED TRANSACTION" means a transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"REFINANCING AGREEMENTS" means the Assignment and Amended &
Restated Standstill Agreement between the Borrower, on the one hand, and
Northwestern Mutual Life Insurance Company, The Travelers Insurance Company,
The Travelers Indemnity Company, the Travelers Life and Annuity Company, The
Lincoln National Life Insurance Company and Bedrock Asset Trust I, on the
other hand, dated as of December 31, 1996.
"REFINANCING TRANSACTIONS" means the transactions contemplated by
the Refinancing Agreements, including without limitation (i) the repurchase
by the Borrower of the Subordinated Debentures for the face amount thereof
plus accrued and unpaid interest through the date of such repurchase, and
(ii) the repurchase by the Borrower of all outstanding shares of its Series A
Preferred Stock for an aggregate of $6,830,000 plus accrued and unpaid
dividends through the closing date of such repurchase.
"SEC DOCUMENTS" is defined in Section 4.29.
"SECURITIES" means, collectively, the Series D Preferred Stock, the
Conversion Stock, the Series E Preferred Stock, and the Series E Conversion
Stock.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any
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Page 12
similar federal statute and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"SENIOR LOAN" means the Senior Loan made by Lender to Borrower
pursuant to Section 2.1 in the principal amount not to exceed Eighteen
Million Dollars ($18,000,000), all pursuant to the terms and conditions of
this Agreement.
"SENIOR NOTE" means a note in the form of the Senior Note attached
hereto as EXHIBIT A, as hereafter amended, supplemented, replaced or modified.
"SERIES A PREFERRED STOCK" means the Borrower's Series A 6.0%
Cumulative Preferred Stock.
"SERIES B PREFERRED STOCK" means the Borrower's Series B Cumulative
Preferred Stock.
"SERIES C PREFERRED STOCK" means the Borrower's Series C
Convertible Preferred Stock.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of Series D 4% Cumulative Redeemable
Convertible Preferred Stock in the form set forth as EXHIBIT B hereto.
"SERIES D PREFERRED STOCK" means the Series D 4% Cumulative
Redeemable Convertible Preferred Stock, with the rights, preferences and
privileges set forth in the Series D Certificate of Designation.
"SERIES E CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of Series E 4% Cumulative Redeemable
Convertible Preferred Stock in the form set forth as EXHIBIT C hereto.
"SERIES E CONVERSION STOCK" means the shares of Common Stock
issuable, upon certain conditions, by the Borrower to the Lender in respect
of the Series E Preferred Stock.
"SERIES E PREFERRED STOCK" means the Series E 4% Cumulative
Redeemable Convertible Preferred Stock, with the rights, preferences and
privileges set forth in the Series E Certificate of Designation.
"STATE HEALTH CARE PROGRAM" is defined in Section 4.33.
"SUBORDINATED DEBENTURES" means the Borrower s 7.50% Senior
Subordinated Debentures due 2005.
"SUBSIDIARY" is defined in Section 4.3.
"TAX" OR "TAXES" means any tax or other similar Liability imposed or
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collected by any Governmental Authority, including all federal, state,
county, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, occupation, property, excise, value added,
withholding and other taxes, duties or assessments (including the recapture
of any tax items such as investment tax credits), together with any related
interest, penalties and additions and shall include any transferee or
secondary Liability for a Tax and any Liability arising as a result of being
(or ceasing to be) a member of any affiliated, consolidated, combined, or
unitary group or being included (or required to be included) in any Tax
Return relating thereto.
"TAX AGREEMENT" means any sharing, allocation, indemnity or other
agreement or arrangement (written or unwritten) relating to Taxes (other than
this Agreement).
"TAX RETURN" means any return, report, information return or other
documents (including any related or supporting schedules, statements or
information) filed or required to be filed with any Tax authority or
Governmental Authority in connection with the determination, assessment or
collection of any Taxes of any Person or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
1.2 EXHIBITS AND SCHEDULES INCORPORATED. All Exhibits and
Schedules attached hereto are hereby incorporated into this Agreement.
ARTICLE II. SENIOR LOAN
2.1 SENIOR LOAN. Upon the terms of, and subject to the conditions
set forth in, this Agreement, Lender agrees to make a loan (the "SENIOR
LOAN") to Borrower in the principal amount of Eighteen Million Dollars. The
Senior Loan, or any portion thereof, once repaid, cannot be reborrowed.
2.2 SENIOR NOTE. The Senior Loan shall be evidenced by the Senior
Note. The date and amount of each payment made on account of the principal
of the Senior Loan, and interest thereon, shall be recorded by Lender on its
books and records, which books and records shall constitute prima facie
evidence of the accuracy of the information contained therein, but the
failure of Lender to make any such notation shall not affect the obligations
of Borrower hereunder or under the Senior Note.
2.3 INTEREST; PAYMENTS. Interest shall accrue upon the
outstanding principal amount of the Senior Loan at the rate provided in the
Senior Note, and such interest shall be payable as required therein.
Interest on the Loan shall be computed on the basis of actual days elapsed in
a year of 360 days (including the first day but excluding the last day)
occurring in the period for which it is payable.
2.4 PREPAYMENTS. Borrower shall not have the right to prepay the
Loan at any time.
2.5 MATURITY DATE. On the Maturity Date, the Senior Loan shall
mature
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and be repaid in full, and all sums due and owing under this Agreement
and the other Loan Documents shall be paid in full. All payments due to
Lender under this Agreement, whether at the Maturity Date or otherwise, shall
be paid in immediately available funds.
2.6 DEFAULT INTEREST. After the occurrence and during the
continuance of a Default, all amounts outstanding under any Loan Document,
including without limitation the outstanding principal balance of the Senior
Loan, shall, at the option of the Lender, bear interest at the rate of
interest applicable to overdue payments of principal and interest under the
Senior Note (the "DEFAULT RATE").
2.7 PAYMENTS ON NON-BUSINESS DAYS; CALCULATIONS. If any payment
to be made under any Loan Document shall be stated to be due on a day which
is not a Business Day, then the date for payment thereof shall be extended to
the next following Business Day.
2.8 STAMP TAXES, ETC. The Borrower shall pay any Taxes on the
issuance, execution and delivery of the Loan Documents, any stamp or other
taxes levied by any jurisdiction on the execution, delivery, filing,
recording, performance and enforcement of the Loan Documents, and all Taxes
levied by any jurisdiction by reason or in respect of any payments under the
Senior Note, hereunder or under any other Loan Document (other than any tax
on, or measured by, the net income of Lender by the jurisdiction in which it
is organized or maintains its principal office).
2.9 COSTS OF CLOSING. Whether or not the Closing occurs, Borrower
will reimburse Lender for all reasonable legal fees and expenses, and all
other costs incurred by Lender or its counsel in connection with this
Agreement and the transactions contemplated hereby, including without
limitation the Loan, provided that Borrower's maximum responsibility
therefore shall be $81,000. Such reimbursement shall be due on the Closing
Date or, if the Closing does not occur, promptly upon Borrower's receipt from
the Lender of a bill for such costs and expenses.
2.10 USE OF PROCEEDS. The proceeds of the Loan shall be used by
the Borrower solely (i) to make payments due from it to the holders of the
Series A Preferred Stock and the Subordinated Debentures pursuant to the
Refinancing Agreements, (ii) to make payments with respect to the transaction
costs referred to in Section 2.9 and (iii) to the extent any proceeds remain
after the payments set forth in items (i) and (ii) above, for general working
capital purposes, all in accordance with the Funds Flow Memorandum attached
hereto as Exhibit D. All Persons receiving proceeds under clause (i) above
shall acknowledge receipt of such amounts and that such amounts shall
represent payment in full of the amounts owed to such Persons under the
instruments or agreements evidencing such obligations of the Borrower.
ARTICLE III. CONDITIONS PRECEDENT TO CLOSING AND LOANS
3.1 CONDITIONS PRECEDENT TO CLOSING. The Lender's obligation to
make the Senior Loan, and the occurrence of the Closing Date, shall be
subject to satisfaction
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or waiver, in Lender's sole and absolute discretion, of each of the following
conditions precedent on or prior to December 31, 1996:
(a) COMPLIANCE. There shall be no Default and each of the
representations and warranties contained in Article 4 hereof shall be true
and correct on and as of the Closing Date.
(b) SENIOR NOTE. The Borrower shall have delivered to the Lender
the Senior Note, in form and substance satisfactory to the Lender in its sole
and absolute discretion, duly executed by the Borrower.
(c) CORPORATE DOCUMENTS. The Lender shall have received true and
complete copies of the following documents from the applicable Governmental
Authority, dated a recent date prior to the Closing, for the Borrower: (i)
tax status certificates, if available, showing no unpaid tax Liabilities; and
(ii) a good standing certificate from the jurisdiction in which the Borrower
is organized.
(d) CORPORATE PROCEEDINGS. The Lender shall have received a copy
of the resolutions, in form and substance satisfactory to the Lender, of the
Board of Directors of Borrower, authorizing the execution, delivery and
performance of the Loan Documents and the transactions contemplated thereby,
as well as the adoption of the Series D Certificate of Designation and the
Series E Certificate of Designation.
(e) FEES AND EXPENSES. The Lender shall have received evidence
(including, without limitation payment instructions given by the Borrower)
that all fees and expenses payable to the Lender have been paid in full.
(f) CERTIFICATES OF DESIGNATION. The Borrower shall have adopted
and duly filed with the Secretary of State of Delaware the Series D
Certificate of Designation and the Series E Certificate of Designation.
(g) REFINANCING. The Refinancing Agreements shall have been
executed by the parties thereto. On the Closing Date, the Refinancing
Transactions shall have been consummated.
(h) OPINION OF BORROWER S COUNSEL. The Lender shall have received
the legal opinion of Irell & Manella LLP, counsel to the Borrower, in the
form set forth as Exhibit E hereto.
(i) OTHER DOCUMENTS. The Lender shall have received such other
documents, instruments, agreements, certificates, forms of evidence and other
materials relating to the transactions contemplated hereby as the Lender may
reasonably require.
(j) COMPLETION OF REVIEW OF BORROWER. The Lender shall have
completed and been satisfied in its sole discretion with its review of the
business, operations, properties, assets, liabilities, prospects and
condition, financial and
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otherwise, of the Borrower and its Subsidiaries.
3.2 CLOSING MECHANICS. Upon the satisfaction (or waiver in the
Lender's sole and absolute discretion) of each of the conditions precedent
set forth in SECTION 3.1, the Lender shall disburse the proceeds of the Loan
by making the payments set forth in the Flow of Funds Memo. The Senior Loan
shall be deemed made, and interest shall begin to accrue, upon disbursement
thereof.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BORROWER
As a material inducement to Lender's entry into this Agreement,
Borrower represents and warrants to Lender as of the date hereof and
continuing thereafter that, except as set forth in Schedule 4 attached hereto
(the "BORROWER DISCLOSURE SCHEDULE"):
4.1 ORGANIZATION, POWERS AND GOOD STANDING. The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted. The Borrower is
duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify, either alone or together
with all other such failures, would have a Material Adverse Effect on the
Borrower. Schedule 4.1 includes true and complete copies of the Borrower's
Certificate of Incorporation and Bylaws currently in effect and a list of all
states or other jurisdictions in which the Borrower is qualified to do
business. All of the terms and provisions of the Certificate of
Incorporation and Bylaws are legal, valid and enforceable.
4.2 CAPITALIZATION.
(a) The authorized capital of the Borrower consists of: (i)
Twenty-Five Million (25,000,000) shares of common stock ("COMMON STOCK"),
10,913,388 shares of which are issued and outstanding as of the date hereof
and shall be issued and outstanding as of the Closing; (ii) One Million
(1,000,000) shares of Preferred Stock, of which (A) 155,000 shares of Series
A Preferred Stock have been designated and authorized, 155,000 shares of
which are issued and outstanding as of the date hereof (all of which will be
repurchased by the Borrower as part of the Refinancing Transactions); (B)
125,000 shares of Series B Preferred Stock have been designated and
authorized, no shares of which are issued and outstanding as of the date
hereof; and (C) 4,000 shares of Series C Preferred Stock have been designated
and authorized, 3,876 shares of which are issued and outstanding as of the
date hereof. The outstanding shares of Common Stock and Existing Preferred
Stock are fully paid, non assessable, free and clear of all encumbrances and
have been issued in compliance with all state and federal securities laws.
None of such shares is subject to any preemptive rights.
(b) Upon the consummation of the Refinancing Transactions and the
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transactions contemplated by this Agreement, the authorized capital of the
Borrower will consist of: (i) Twenty-Five Million (25,000,000) shares of
Common Stock, 10,913,388 shares of which will be issued and outstanding
immediately after the Closing Date; (ii) One Million (1,000,000) shares of
Preferred Stock, of which (A) no shares of Series A Preferred Stock or Series
B Preferred Stock will have been designated and authorized, (B) 4,000 shares
of Series C Preferred Stock will have been designated and authorized, 3,876
shares of which will be issued and outstanding immediately after the Closing
Date; (C) Eighteen Thousand (18,000) shares of Series D Preferred Stock will
have been designated and authorized, no shares of which will be issued and
outstanding immediately after the Closing Date; and (D) Nine Thousand (9,000)
shares of Series E Preferred Stock will have been designated and authorized,
none of which will be issued and outstanding immediately after the Closing
Date.
(c) The rights, preferences, privileges and restrictions of the
Series D Preferred Stock are as stated in the Series D Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series E Preferred Stock are as stated in the Series E Certificate of
Designation.
(d) Except (i) as otherwise contemplated by this Agreement, (ii)
for the issuance, sale or grant of rights to purchase (including options and
warrants) aggregating up to 990,983 shares of Common Stock to key employees
and directors of the Borrower outstanding on the date hereof, (iii) for
warrants relating to an aggregate of 328,900 shares of Common Stock
outstanding on the date hereof, and (iv) for 77,520 shares of Common Stock
currently issuable upon conversion of the Company's outstanding Series C
Preferred Stock, the Borrower has not become subject to any commitment or
obligation, either absolute or conditional, to issue, deliver or sell, or
cause to be issued, delivered or sold, under offers, stock option agreements,
stock bonus agreements, stock purchase plans, incentive compensation plans,
warrants, options, calls, conversion rights or otherwise, any shares of the
Capital Stock of the Borrower. Except as provided in this Agreement, the
Borrower is not a party or subject to any agreement or understanding, and, to
the Borrower's Knowledge, there is no agreement or understanding between any
persons and/or entities, that affects or relates to the voting or giving of
written consents with respect to any of the Borrower's voting securities.
4.3 SUBSIDIARIES. SCHEDULE 4.3 sets forth a correct and complete
list of: (i) the name, number of shares, partnership interests or other
equity interests held, and percentage ownership by the Borrower in each
corporation, partnership, joint venture or other entity in which the Borrower
has, directly or indirectly, any equity interest in the capital stock
thereof, any partnership interest, or any other equity interest therein
(individually a "SUBSIDIARY" and collectively "SUBSIDIARIES".) Except as
specifically set forth in SCHEDULE 4.3, the Borrower owns of record and
beneficially all of the outstanding capital stock of each of the Subsidiaries
free and clear of all Liens. Each of the Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, is entitled to own, lease or operate the properties and assets
it now owns, leases or operates, and is qualified to do business, is in good
standing and has all required and appropriate licenses in each jurisdiction
in which its
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failure to obtain or maintain such qualification, good standing or licensing,
or group of the foregoing, would have a Material Adverse Effect on such
Subsidiary. The shares of capital stock of each Subsidiary shown in SCHEDULE
4.3 to be issued and outstanding have been validly authorized and issued and
are validly outstanding, fully paid and non assessable. No Subsidiary holds
shares of its capital stock in its treasury, and there are not outstanding
(i) any options, warrants or other rights with respect to the capital stock
of any of the Subsidiaries, (ii) any securities convertible into or
exchangeable for shares of such stock or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options,
warrants or other securities of any of them. The Borrower has provided or
made available to the Lender copies of the certificates of incorporation,
articles of incorporation, partnership agreements, limited liability company
operating agreements, joint venture agreements, or other governing documents
with respect to each Subsidiary.
4.4 AUTHORIZATION.
(a) The Borrower has all corporate and other requisite authority
to execute, deliver and carry out and perform its obligations under the terms
of the Loan Documents and the other agreements referred to herein, and all of
the transactions contemplated hereunder and thereunder, including the sale
and issuance of the Securities. The execution and delivery of the Loan
Documents, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary action on the part of the
Borrower and, except as set forth herein, no other approval is required for
the performance by the Borrower of its obligations hereunder, or thereunder.
The Loan Documents and the other agreements referred to herein have been, and
at Closing will be, duly executed and delivered by the Borrower.
(b) The Loan Documents and the other agreements referred to
herein, when executed and delivered by the Borrower, will constitute valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
(c) The Board of Directors of the Borrower, by a unanimous written
consent, has in light of and subject to the terms and conditions set forth
herein, (i) determined that the Loan Documents, the other agreements referred
to herein, and the transactions contemplated hereby and thereby, taken
together, are in the best interest of the Borrower and its shareholders and
(ii) approved the Loan Documents, the other agreements referred to herein,
and the transactions contemplated hereby and thereby. All required notices
to, and approvals and consents of, the Borrower's shareholders for the Loan
Documents and the other agreements referred to herein, and the consummation
of the transactions contemplated hereby and thereby, have been validly given
and obtained.
4.5 GOVERNMENTAL AND OTHER CONSENTS; NO VIOLATION. No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any
other Person is required on the part of the Borrower in connection with the
Borrower's valid execution, delivery or performance
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of the Loan Documents or the other agreements referred to herein. The
execution, delivery and performance by Borrower of each Loan Document to
which it is party, and the consummation of the transactions contemplated
thereby, do not and will not (a) violate any provision of the Borrower's
Certificate of Incorporation or Bylaws as currently in effect, (b) conflict
with, result in a breach of, or constitute (or, with the giving of notice or
lapse of time or both, would constitute) a default under, or, except for
consents that have been obtained and are in full force and effect, require
the approval or consent of any Person pursuant to, any Contractual Obligation
of Borrower, or (c) result in the creation or imposition of any Lien upon any
asset of Borrower.
4.6 LITIGATION. There is no action, suit, claim, arbitration,
litigation, legal, administrative or other proceeding, or investigation (by
any Governmental Authority or otherwise) pending against or affecting the
Borrower, any Subsidiary or the assets, products or business of any of them
or, to the Knowledge of the Borrower, any reasonable basis therefor or threat
thereof, other than disputes and claims arising in the ordinary course of the
Borrower's business that could not in the aggregate have a Material Adverse
Effect on the Borrower and its Subsidiaries. Neither the Borrower nor any
Subsidiary is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or other Governmental Authority.
There is no action, suit, claim, arbitration, litigation, legal,
administrative or other proceeding, or investigation by the Borrower or any
Subsidiary currently pending or that the Borrower or any Subsidiary currently
intends to initiate. There are no judicial or administrative actions,
proceedings or investigations pending or, to the Borrower's Knowledge,
threatened, against the Borrower, any Subsidiary or any of their respective
businesses, assets or products that seek to enjoin, question the validity of,
or rescind the transactions contemplated by this Agreement or any of the
other agreements referred to herein or otherwise prevent the Borrower from
complying with the terms and provisions of this Agreement or any of such
other agreements.
4.7 FINANCIAL STATEMENTS AND REPORTS.
(a) The financial statements contained in the SEC Documents
(collectively, the "FINANCIAL STATEMENTS") have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated and with each other (except
that the Financial Statements may not contain all footnotes required by GAAP)
and fairly present the consolidated financial condition of the Borrower and
the Subsidiaries and the consolidated results of operations as of such dates
and for such periods indicated. Since September 30, 1996, there has not been
any material adverse change to the financial condition of the Borrower or any
Subsidiary as set forth in the Financial Statements. There are no
Liabilities required by GAAP to be disclosed in the Financial Statements that
are not disclosed in the Financial Statements. Except as reflected in the
Financial Statements, neither the Borrower nor any Subsidiary is a guarantor
or indemnitor of any indebtedness of any other Person. The Borrower
maintains a standard system of accounting established and administered in
accordance with GAAP. The Borrower's accounting policies relating to revenue
recognition, reserves, capitalization expense, depreciation and amortization
are administered in accordance
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with GAAP. The general ledger, accounts receivable, accounts payable, bank
reconciliations and payroll records of the Borrower have been maintained in
the ordinary course and contain a correct and complete record of the matters
typically contained in records of such nature.
(b) SCHEDULE 4.7(b) lists all management letters and all other
letters (other than audit letters included in the SEC Documents) delivered to
the Borrower by the Borrower's independent auditing firm(s) relating to the
results of operations, financial statements or internal controls of the
Borrower or any Subsidiary insofar as the same may pertain to the business or
assets of the Borrower and any Subsidiary during any period from and after
January 1, 1994.
(c) Since January 1, 1994, there has been no material disagreement
(within the meaning of Item 304(a)(1)(iv) of Regulation S-K under the
Securities Act between the Borrower and its independent auditing firm(s)
concerning any aspect of the manner in which the Borrower has reported upon
the financial condition and results of operations of the business or assets
of the Borrower since such date, that has not been resolved to the
satisfaction of the relevant independent auditing firm.
4.8 PROPRIETARY INFORMATION. To the Borrower's Knowledge (which
for purposes hereof shall not include the knowledge of the applicable
officer, director or employee), none of the officers, directors or employees
of the Borrower or any of its Subsidiaries is in violation of any agreement
regarding proprietary information and inventions. To the Borrower's
Knowledge (which for purposes hereof shall not include the knowledge of the
applicable officer or employee), none of the officers or employees of the
Borrower or any of its Subsidiaries is in violation of any prior employment
contract or proprietary information agreement with any Person.
4.9 REGISTRATION RIGHTS. Neither the Borrower nor any Subsidiary
is a party to any agreement or commitment that obligates the Borrower to
register under the Securities Act any of its presently outstanding securities
or any of its securities that may hereafter be issued.
4.10 CONTRACTS.
(a) "CURRENT CUSTOMER" means any Person from whom the Borrower or
any Subsidiary has recognized revenue since January 1, 1995 through the date
hereof or to whom the Borrower or any Subsidiary has any obligation to
complete work or honor any contractual warranty or has any obligation or
Liabilities. Since January 1, 1996 no Current Customers of the business have
canceled or terminated their Contracts, or notified the Borrower or any
Subsidiary in writing or, to the Knowledge of the Borrower or any Subsidiary,
orally, of their specific intent to cancel or terminate their contract,
except any such cancellations, terminations or notifications that in the
aggregate could not have a Material Adverse Effect (taking into account
revenue generated from replacement customers) on the Borrower and its
Subsidiaries.
(b) SCHEDULE 4.10(b) contains a correct and complete list of all
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agreements, contracts, indebtedness, liabilities and other obligations to
which the Borrower or any Subsidiary is a party or by which it is bound that
are material to the conduct and operations of its business and properties,
which provide for payments to or by the Borrower or any Subsidiary in excess
of $500,000 annually or $2,000,000 in the aggregate, which obligate the
Borrower or any Subsidiary to share, license or develop any product or
technology, or which involve transactions or proposed transactions between
the Borrower and any Subsidiary on the one hand, and the officers, directors,
Affiliates or any Affiliate of the Borrower or any Subsidiary, on the other
hand (collectively, the "MATERIAL CONTRACTS"), excluding any such Material
Contracts that are contracts with Current Customers.
(c) The Borrower and the Subsidiaries have in all material
respects performed, and are now performing in all material respects, the
obligations under, and are not in default (or to the Borrower's Knowledge,
would by the lapse of time and/or the giving of notice or otherwise be in
default) in respect of, any of the Material Contracts. To the Borrower's
Knowledge, each of the Material Contracts is in full force and effect and is
a valid and enforceable obligation against the Borrower or a Subsidiary, as
applicable, and the other party thereto, in accordance with its terms.
4.11 ABSENCE OF CHANGES. Since January 1, 1996, except as
reflected in the Financial Statements or the SEC Documents, neither the
Borrower nor any Subsidiary has (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for money
borrowed other than in the ordinary course or any other Liabilities other
than in the ordinary course; (iii) made any loans or advances to any Person
(other than advances for business or travel expenses) or guaranteed the
obligations of any Person; (iv) sold, exchanged or otherwise disposed of any
of its assets or rights, other than the sale, exchange or other disposition
of its equipment and services in the ordinary course of business consistent
with past practice; (v) incurred any change in the assets, Liabilities,
financial condition, operating results, prospects or business of the Borrower
from that reflected in the Financial Statements, except changes in the
ordinary course of business consistent with past practice that have not been,
in the aggregate, materially adverse; (vi) suffered any damage, destruction
or loss, whether or not covered by insurance, materially and adversely
affecting the assets, properties, financial condition, operating results,
prospects or business of the Borrower (as such business is presently
conducted and as it is proposed to be conducted); (vii) waived a valuable
right or a debt owed to it, except in the ordinary course of business
consistent with past practice; (viii) satisfied or discharged any Lien, claim
or encumbrance or payment of any obligation, except in the ordinary course of
business consistent with past practice and that is not material to the
assets, properties, financial condition, operating results, prospects or
business of the Borrower or any Subsidiary (as such business is presently
conducted and as it is proposed to be conducted); (ix) agreed to or made any
material change or amendment to any Material Contract, except in the ordinary
course of business consistent with past practice; (x) made any material
change in any compensation arrangement or agreement with any employee; (xi)
permitted or allowed any of its assets to be subjected to any material Lien,
other than Liens on equipment in the ordinary course of business consistent
with past practice; (xii)
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written up the value of any inventory, notes or accounts receivable, or
other assets; (xiii) licensed, sold, transferred, pledged, modified,
disclosed, disposed of or permitted to lapse any right to the use of any
Intellectual Property Right; (xiv) made any change in any method of
accounting or accounting practice or any change in depreciation or
amortization policies or rates previously adopted; (xv) paid, lent or
advanced any amount to, or sold, transferred or leased any assets to, or
entered into any agreement or arrangement with, any of its Affiliates, except
for directors' fees, and employment compensation to officers; (xvi) made
capital expenditures or commitments therefor, other than such capital
expenditures or commitments made in the ordinary course consistent with past
practice and not exceeding, in the aggregate, $22,000,000 for the period from
September 30, 1996 through the Closing Date and (xvii) to the Borrower's
Knowledge, incurred or suffered any other event or condition of any character
that could reasonably be expected to result in a Material Adverse Effect on
the Borrower or any Subsidiary.
4.12 INTELLECTUAL PROPERTY.. The Borrower and each of the
Subsidiaries owns or possesses adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, technology, software,
trade secrets, know-how and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of their
respective businesses will conflict with, and have not received any notice of
any claim of conflict with, any such rights of others.
4.13 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Borrower nor
any Subsidiary is in violation or default of any provisions of its Charter or
Bylaws (the "CHARTER DOCUMENTS"), or of any provision of Applicable Law.
Neither the Borrower nor any Subsidiary is in violation or default of any
instrument, judgment, order, writ, decree or oral or written contract or
other agreement to which it is a party or by which it is bound, except with
respect to any such defaults which could not have a Material Adverse Effect
on the Borrower or the relevant Subsidiary, as the case may be. The
execution, delivery and performance of the Loan Documents and the other
agreements referred to in this Agreement, and the consummation of the
transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with any provision of the Charter Documents or
Applicable Law, or any instrument, judgment, order, writ, decree, contract or
other agreement, and will not be an event that results in the creation of any
Lien upon any assets of the Borrower or any Subsidiary or constitute a
default under or give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Borrower or any
Subsidiary is entitled, under any contract or any license, franchise, permit
or similar authorization relating to the Borrower or any Subsidiary or by
which its business or assets may be bound.
4.14 COMPLIANCE WITH LAW; APPROVALS.
(a) The operations of the Borrower and its Affiliates have been
and will continue to be conducted in accordance with all Applicable Laws,
including, without limitation, all such laws, regulations, orders and
requirements promulgated by or relating to consumer protection, equal
opportunity, health, third party reimbursement (including
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Medicare and Medicaid), environmental protection, fire, zoning and building
and occupational safety matters, except for violations that individually or
in the aggregate would not and, insofar as may reasonably be foreseen, in the
future will not, have a Material Adverse Effect on the Borrower or any
Subsidiary.
(b) Neither the Borrower nor any Affiliate has received notice of
any violation (or of any investigation, inspection, audit, or other
proceeding by any Governmental Authority involving allegations of any
violation ) of any Applicable Law, or is in material default with respect to
any Applicable Law, and to the best Knowledge of the Borrower and all
Affiliates, no investigation, inspection, audit, or other proceeding by any
Governmental Authority involving allegations of violation of any Applicable
Law is threatened or contemplated.
(c) Neither the Borrower nor any Affiliate has any Knowledge of
any proposed change in any Applicable Law that would materially adversely
affect the transactions contemplated by this Agreement or all or any material
part of the assets or business of the Borrower or any Affiliate.
(d) Each of the Borrower and its Affiliates has, and all
professional employees or agents of each of the Borrower and its Affiliates
have, all licenses, franchises, permits, authorizations, including
certificates of need, or approvals from all Governmental Authorities
("APPROVALS") required for the conduct of the business of each of the
Borrower and its Affiliates and the occupancy and operation, for its present
uses, of the real and personal property which each of the Borrower and its
Affiliates owns or leases, except where the failure to have such Approvals
would not, individually or in the aggregate, have a Material Adverse Effect
on any of the Borrower or any Affiliate, and neither the Borrower nor any
Affiliate or the professional employees or agents of either is in violation
of any such Approval or any terms or conditions thereof, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on any of the Borrower or any Affiliate. Each of the Borrower
and its Affiliates has all Approvals required for the conduct of the business
of each of the Borrower and its Affiliates and the occupancy and operation,
for its present uses, of the real and personal property which each of the
Borrower and its Affiliates owns or leases, and neither the Borrower nor any
Affiliate is in violation of any such Approval or the terms or conditions
thereof.
(e) SCHEDULE 4.14(e) sets forth a true and complete list of all
Approvals issued or granted to each of the Borrower and any Affiliate
(excluding any licenses granted to any natural person); such list contains a
summary description of each such item and, where applicable, specifies the
date issued, granted or applied for, the expiration date and the current
status thereof.
(f) All such Approvals are in full force and effect, have been
issued to and fully paid for by the holder thereof and, to the Knowledge of
each of the Borrower and its Affiliates, no suspension or cancellation
thereof has been threatened.
(g) No such Approvals will in any way be affected by, or terminate
or
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lapse by reason of, the transactions contemplated by this Agreement.
4.15 TITLE TO ASSETS. The Borrower and the Subsidiaries
have good and valid title to or a valid leasehold interest in all of the
material tangible assets owned or leased by them, or otherwise used in or
pertaining to the business of the Borrower and the Subsidiaries as presently
conducted, including all material tangible assets reflected in the Borrower's
most recent balance sheet included in the Financial Statements and all
material tangible assets purchased or otherwise acquired by the Borrower or
any Subsidiary since the date of such balance sheet (except for properties
and assets sold since such date in the ordinary course consistent with past
practice). None of such material tangible assets is subject to any material
Lien except for Permitted Encumbrances.
4.16 PLANT, PROPERTY, AND EQUIPMENT. To the Borrower's
Knowledge, the Leased Real Property, and other plant, property, equipment,
leasehold improvements and other material tangible assets of the business,
conform in all material respects with Applicable Law; are structurally sound
with no material defects; are in good operating condition and repair
(ordinary wear and tear excepted); and are adequate in all material respects
for the purposes for which they are being used.
4.17 ACCOUNTS AND NOTES RECEIVABLE. Except to the extent of
applicable reserves for doubtful accounts and contract reserves shown on the
Borrower's most recent balance sheet included in the Financial Statements,
all of the accounts, notes and other receivables owed to the Borrower or any
Subsidiary as of the date hereof or thereafter acquired or arising prior to
the Closing Date, constitute, and as of the Closing Date will constitute,
valid and enforceable claims (subject, as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting creditors' rights, and, with respect to the remedy of specific
performance, equitable doctrines applicable thereto) arising from bona fide
transactions on the part of the Borrower and the Subsidiaries and, to the
Borrower's Knowledge, bona fide transactions for parties other than the
Borrower and the Subsidiary in the ordinary course, and there are no claims,
refusals to pay or other rights of set-off against any thereof (other than
ordinary course disputes that could not in the aggregate have a Material
Adverse Effect on the Borrower and its Subsidiaries, taken as a whole). None
of such accounts is pledged to any third party. The reserve for doubtful
accounts shown on the Borrower's most recent balance sheet included in the
Financial Statements is in accordance with GAAP.
4.18 INDEBTEDNESS. SCHEDULE 4.18 sets forth a true and
complete list of all indebtedness of the Borrower or any Subsidiary for
borrowed money as of December 1, 1996.
4.19 REAL PROPERTY.
(a) NO OWNED REAL PROPERTY. Neither the Borrower nor any
Subsidiary has or has ever had any fee or other direct or indirect ownership
interest in any real property.
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(b) LEASED REAL PROPERTY AGREEMENTS. SCHEDULE 4.19(b) sets
forth a true and complete list of all Leased Real Property and a list of all
of the agreements (as amended) to which the Borrower or any Subsidiary is a
party relating thereto (the "LEASE AGREEMENTS"). To the Borrower's
Knowledge, all the Lease Agreements are in full force and effect and are
valid and enforceable against the other parties thereto in accordance with
their terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto). Neither the Borrower nor any
Subsidiary is in default under any of the Lease Agreements. To the
Borrower's Knowledge, no other Person party to the Lease Agreements is in
default under any of the Lease Agreements. There are no other agreements
that concern any right, title or interest in or to the Leased Real Property
or grant to a third party the right to occupy the premises used in the
business, other than Permitted Liens. The Closing will not affect the rights
to the continued use and possession of the Leased Real Property on the terms
and conditions specified in the Lease Agreements for the purposes for which
such property is now used in the business.
(c) LEASES OF REAL PROPERTY TO OTHERS. To the Borrower's
Knowledge, no Leased Real Property is subject to any lease or other right of
use of possession by any Person other than the Borrower or a Subsidiary.
(d) LEGAL PROCEEDINGS AFFECTING PROPERTY. To the Borrower's
Knowledge, there is not: (i) any planned public improvement that will result
in any charge being levied or assessed against any Leased Real Property or
that would create any encumbrance upon such property, (ii) any condemnation
proceeding with respect to any Leased Real Property, (iii) any proposal by a
tax authority to change materially the assessed value or assessment rates of
any Leased Real Property, or (iv) any other claim, suit, proceeding, order or
demand of any Governmental Authority or any Persons that could have a
material adverse impact on the value, right to develop, use or condition of
any Leased Real Property.
(e) DISPUTES. There is no currently pending material claim,
dispute or controversy with respect to any of the Lease Agreements. To the
Borrower's Knowledge, no Person has raised any material claim, dispute or
controversy with respect to any of the Lease Agreements since January 1, 1995.
4.20 EMPLOYEE PLANS AND ARRANGEMENTS.
(a) There are no employment, consulting, change of control,
severance pay, continuation pay, termination pay, loans, guarantees or
indemnification agreements or other similar agreements of any nature
whatsoever (collectively, "EMPLOYMENT AGREEMENTS") between the Borrower, on
the one hand, and any current or former shareholder, officer, director,
employee or Affiliate of the Borrower or any consultant or agent of the
Borrower, on the other hand, that, as a direct result of the transactions
contemplated by this Agreement, (i) will require any payment by the Borrower
or any consent or waiver from any shareholder, officer, director, employee or
Affiliate of the Borrower or any
<PAGE>
Page 26
consultant or agent of the Borrower, or (ii) will result in any change in the
nature of any rights of any shareholder, officer, director, employee or
Affiliate of the Borrower or any consultant or agent of the Borrower under
any such Employment Agreement or other similar agreement (including, without
limitation, any accelerated payments, deemed satisfaction of goals or
conditions, new or increased benefits, or additional or accelerated vesting).
(b) SCHEDULE 4.20(b) sets forth all Employee Benefit Plans and
Benefit Arrangements of the Borrower and each Subsidiary that are currently
in effect.
(c) Neither the Borrower nor any of its ERISA Affiliates
sponsors or has sponsored, maintained, contributed to, or incurred an
obligation to contribute to, any Employee Pension Benefit Plan (whether or
not terminated).
(d) Neither the Borrower nor any of its ERISA Affiliates
sponsors or has sponsored, maintained, contributed to, or incurred an
obligation to contribute to any Multiemployer Plan or Multiple Employer Plan
(whether or not terminated).
(e) No agreement, commitment or obligation exists to increase
benefits under any Benefit Plan or to adopt any new Benefit Plan. Further,
no individual will accrue or receive additional benefits, service or
accelerated rights to payments of benefits under any Benefit Plan, including
the right to receive any parachute payment, as defined in Section 280G of the
Code, or become entitled to severance, termination allowance or similar
payments as a result of the transactions contemplated by this Agreement, and
the Borrower is not a party to any agreement or arrangement that could result
in the payment of any such benefits or payments.
(f) No Employee Benefit Plan has participated in, engaged in
or been a party to any Prohibited Transaction, and neither the Borrower nor
any of its ERISA Affiliates has had asserted against it any claim for any
excise tax or penalty imposed under ERISA or the Code with respect to any
Employee Benefit Plan nor, to the knowledge of the Borrower, is there a basis
for any such claim. No officer, director or employee of the Borrower or any
ERISA Affiliate has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan, with respect to which breach the Borrower is or could
be directly or indirectly liable.
(g) Other than routine uncontested claims for benefits, there
is no claim pending involving any Benefit Plan by any Person against such
plan or the Borrower or any ERISA Affiliate, nor, to the knowledge of the
Borrower, is any such claim threatened. There is no pending or to the
knowledge of the Borrower, threatened, Proceeding involving any Employee
Benefit Plan before the Internal Revenue Service, the United States
Department of Labor or any other Governmental Authority.
(h) There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any
Employee Benefit Plan.
<PAGE>
Page 27
(i) Each Benefit Plan has been maintained in all material
respects, by its terms and in operation, in accordance with both its plan
documents and with ERISA, the Code and all other Applicable Laws. The
Borrower and its ERISA Affiliates have made full and timely payment of all
amounts required to be contributed under the terms of each Benefit Plan and
Applicable Law or required to be paid as expenses or benefits under such
Benefit Plan, and has made adequate provision for reserves to satisfy
contributions and payments not yet made because they are not yet due under
the terms of the Benefit Plan or Applicable Law. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code is and has
always been so qualified, and either has received a favorable determination
letter with respect to such qualified status from the IRS or has filed a
request for such a determination letter with the IRS within the remedial
amendment period such that such determination of qualified status will apply
from and after the effective date of any such Employee Benefit Plan.
(j) With respect to any Group Health Plans maintained by the
Borrower or its ERISA Affiliates, whether or not for the benefit of the
Borrower's employees, the Borrower and its ERISA Affiliates have complied in
all material respects with the provisions of COBRA. The Borrower is not
obligated to provide health care benefits of any kind to its retired or
former employees or their dependents pursuant to any agreement or
understanding.
(k) Except pursuant to the provisions of COBRA, neither the
Borrower nor any ERISA Affiliate maintains any Employee Benefit Plan that
provides benefits described in Section 3(1) of ERISA to any former employees
or retirees, or the beneficiaries of any of them, of the Borrower or its
ERISA Affiliates.
(l) The Borrower has made available to the Lender a copy of
(i) the three (3) most recently filed Federal Form 5500 series and
accountant's opinion, if applicable, for each Employee Benefit Plan other
than Multiemployer Plans. All information provided by the Borrower, as
applicable, to any individual in connection with the preparation of any such
opinion or report was true, correct and complete in all respects.
(m) Each Benefit Plan can be amended or terminated at any time
without approval from any Person, without advance notice, and without any
liability other than for benefits accrued prior to such amendment or
termination.
(n) In connection with any Employee Pension Benefit Plan
currently maintained by the Borrower or any ERISA Affiliate, (i) there have
been no accumulated funding deficiencies (within the meaning of Code Section
412), whether or not waived, (ii) there have been no reportable events
(within the meaning of ERISA Section 4043(b)), and (iii) no circumstances
exist that would warrant a termination of any such plan by the Pension
Benefit Guaranty Corporation pursuant to ERISA Section 4042. No Employee
Pension Benefit Plan has been terminated within the last five years in other
than a standard termination under Section 4041(b) of ERISA and all
liabilities under such plans have been adequately and properly discharged.
<PAGE>
Page 28
4.21 EMPLOYEES.
(a) Neither the Borrower nor any Subsidiary has or has ever
had any employees represented by collective bargaining agents.
(b) The Borrower and each Subsidiary has complied in all
material respects with all Applicable Laws respecting employment and
employment practices, terms and conditions of employment, and wages and
hours. Neither the Borrower nor any Subsidiary has or could reasonably be
expected to have any material Liability to any former employee or individual
who provided services to the Borrower in a capacity other than as an employee
in circumstances where such Liability arises or would arise under the express
terms of a Benefit Plan. No charges of employment or labor law violations
exist or, to the Borrower's Knowledge, are threatened, before any
Governmental Authority concerning any current, prospective or former
employees or independent contractors of the Borrower or any Subsidiary, and
no valid basis exists for any such charge.
(c) There is no strike, labor dispute, work slowdown or work
stoppage actually pending or, to the Knowledge of the Borrower, threatened,
against the Borrower or any of its Subsidiaries or, to the Knowledge of the
Borrower, any of its key subcontractors or suppliers. No collective
bargaining representation petition is pending or, to the Knowledge of
Borrower, threatened against the Borrower or any Subsidiary.
4.22 INSURANCE. Each of the Borrower and each Subsidiary has
in full force and effect and will maintain (i) insurance on its assets and
activities of a type customarily insured, covering property damage and loss
of income by fire or other casualty, in amounts customary for companies
similarly situated as the Borrower or the Subsidiary, as the case may be, and
(ii) insurance protection against all Liabilities, claims and risks against
which, and in such amounts as, are customary for companies similarly situated
as the Borrower to insure.
4.23 ENVIRONMENTAL COMPLIANCE.
(a) The Borrower and each Subsidiary has obtained all
approvals, authorizations, certificates, consents, licenses, orders and
permits or other similar authorizations of any Governmental Authority, or
from any other Person, that are required under any Environmental Law and
relate to its business, its assets or its products. SCHEDULE 4.23(a) sets
forth (i) all permits, licenses and other authorizations issued under any
Environmental Law to the Borrower or any Subsidiary relating to its business,
its assets or its products and (ii) a description and good faith estimate by
the Borrower of the costs of all capital expenditures that may be necessary
to maintain or continue to be qualified for each such permit, license or
other authorization.
(b) The Borrower and each Subsidiary is in compliance in all
material respects with all terms and conditions of all approvals,
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of any Governmental Authority (and all other Persons)
required under all Environmental Laws
<PAGE>
Page 29
and used in its business or that relate to its assets, and is also in
compliance in all material respects with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws.
(c) There is no pending or, to the Borrower's Knowledge,
threatened, proceeding, citation or notice of violation under any
Environmental Law relating to the Borrower or any Subsidiary, or any of the
equipment, business or assets of the Borrower or any Subsidiary.
(d) There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
that may interfere with or prevent continued compliance by the Borrower or
any Subsidiary with any Environmental Law, or that may give rise to any
Liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (1) under any Environmental Law,
(2) based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release of any Hazardous Material, or (3)
resulting from exposure to workplace hazards.
(e) Neither the Borrower nor any Subsidiary is required to
make any capital or other expenditures to comply with any Environmental Law
nor is there any reasonable basis on which any Governmental Authority could
take any action that would require any such capital expenditures.
4.24 NO UNDISCLOSED LIABILITIES. There are no Liabilities of
the Borrower or any Subsidiary required to be reflected on a balance sheet
prepared in accordance with GAAP except: (a) Liabilities accrued or reserved
on the Financial Statements; and (b) Liabilities incurred in the ordinary
course of business since the most recent Financial Statement that are not
individually or in the aggregate material to the Borrower or any Subsidiary.
4.25 TAXES.
(a) All Borrower Tax Returns have been properly and timely
filed and all such Tax Returns are correct and complete in all material
respects. Each affiliated group with which any of the Borrower and its
Subsidiaries files a consolidated or combined Tax Return has filed all such
Tax Returns that it was required to file for each taxable period during which
any of the Borrower and its Subsidiaries was a member of the group. All such
consolidated and combined Tax Returns were correct and complete in all
material respects.
(b) All Taxes due and payable by the Borrower and/or its
Subsidiaries (whether or not shown on any Tax Return) have been timely paid
in full. All income Taxes owed by any affiliated group with which any of the
Borrower and its Subsidiaries files a consolidated or combined Tax Return
(whether or not shown on any Tax Return) have been paid for each taxable
period during which any of the Borrower and the Subsidiaries was a member of
the group.
<PAGE>
Page 30
(c) There is no (nor is there any pending request for an)
agreement, waiver or consent providing for an extension of time with respect
to the assessment or collection of, or statute of limitations regarding, any
Taxes or the filing of any Tax Returns that is currently in effect and no
power of attorney granted by or with respect to the Borrower or any
Subsidiary with respect to any Tax matter is currently in force.
(d) There is no pending audit, examination or investigation
with respect to any Borrower Tax Returns, nor is there pending any notice of
the initiation thereof; there is no action, suit, proceeding (administrative
or court), claim, demand, deficiency or additional assessment pending or, to
the Knowledge of Borrower, threatened with respect to any Borrower Tax
Returns.
(e) The Borrower and its Subsidiaries have withheld all Taxes
required to have been withheld and paid by them on their behalf in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party, and such withheld Taxes have either been
duly paid to the proper Governmental Authority or set aside in accounts for
such purpose.
(f) None of the Borrower and its Subsidiaries (A) has been a
member of any affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which is the Borrower) and
(B) has any liability for the Taxes of any person as defined in Section
7701(a)(1) of the Code (other than the Borrower and its Subsidiaries) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign tax), as a transferee or successor, by contract, or otherwise.
(g) The charges, accruals and reserves for Taxes (including
deferred Taxes) currently reflected on the Financial Statements in accordance
with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Borrower and its Subsidiaries in respect of taxable periods that end on or
before the Closing Date and for any taxable periods that begin before the
Closing Date and end thereafter to the extent such Taxes are attributable to
the portion of such period ending on the Closing Date (determined under the
closing of the books method of allocation).
(h) Neither the Borrower nor any Subsidiary has agreed,
requested, or been requested to make, or is required to make, any adjustment
to taxable income for any taxable period after the Closing under Section
481(a) or 263A of the Code or any comparable provision of state or foreign
tax laws by reasons of a change in accounting method or otherwise.
(i) There are no encumbrances (other than Permitted
Encumbrances) on any asset or property of the Borrower or any Subsidiary
arising out of, connected with, or related to any Tax imposed on the
Borrower, its Subsidiaries, or any of their businesses or properties.
(j) The Borrower is not a party to, is not bound by, and has no
obligation (or potential obligation) under any Tax Agreement.
<PAGE>
Page 31
(k) Neither the Borrower nor any Subsidiary is a party to any
agreement with an Affiliate relating to a foreign sales corporation or "FSC"
within the meaning of Section 922 of the Code; or a domestic international
sales corporation or "DISC" within the meaning of Section 992 of the Code.
(l) All Tax years (or periods) with respect to the Federal
income Tax Liabilities of the Borrower, and its assets or operations are
closed.
(m) Other than the elections made in the Tax Returns provided
to or made available to the Lender, no agreement, consent, or election for
foreign, Federal, state or local tax purposes that would affect or be binding
on the Borrower or any Subsidiary after the Closing has been filed or entered
into by the Borrower or any Subsidiary. No consent has been filed with
respect to the Borrower or any Subsidiary under Section 341(f) of the Code.
(n) SCHEDULE 4.25 lists all federal, state, local, and foreign
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit, other than (i) Tax Returns relating to
closed years, and (ii) Tax Returns that have been audited, where such audit
did not result in any material change in any tax due from Borrower or any
Subsidiary to any Governmental Authority. Correct and complete copies of all
federal Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Borrower or any of its Subsidiaries
since January 1, 1995 have been delivered or made available to Lender.
4.26 NO RESEARCH GRANTS. Neither the Borrower nor any of its
Subsidiaries since inception has provided any research, educational or study
grants or other financial support of any kind to any hospital, physician, or
health care provider.
4.27 CERTAIN REGULATORY MATTERS. To the Borrower's Knowledge,
neither the Borrower nor any of its Subsidiaries since inception has been the
subject of any investigative proceeding before any Governmental Authority or
the agent of any such authority, including without limitation federal and
state health authorities.
4.28 TRANSACTIONS WITH AFFILIATES. Except for regular salary
payments and fringe benefits under an individual's compensation package with
the Borrower or any Subsidiary, none of the officers, employees, directors or
other Affiliates of the Borrower or any Subsidiary or members of their
families is a party to any agreements, understandings, indebtedness or
proposed transactions with the Borrower or any Subsidiary or is directly
interested in any Contract with the Borrower or any Subsidiary. Neither the
Borrower nor any Subsidiary has guaranteed or assumed any obligations of
their respective officers, directors, employees or other Affiliates, or
members of any of their families. To the Borrower's Knowledge, none of such
persons has any direct or indirect ownership interest in any firm or entity
with which the Borrower or any Subsidiary is affiliated or with which the
Borrower or any Subsidiary has a business relationship, or any entity that
competes with the Borrower or any Subsidiary, other than publicly traded
companies that may compete with the Borrower or any Subsidiary.
<PAGE>
Page 32
4.29 REPORTS; SEC DOCUMENTS. All material reports, documents
and notices required to be filed, maintained or furnished with or to any
Governmental Authority by the Borrower or any Subsidiary have been so filed,
maintained or furnished. All such reports, documents and notices were
complete and correct in all material respects on the date filed (or were
corrected in or superseded by a subsequent filing such that no Liabilities
exist with respect to the original filing, maintenance or furnishing
thereof). The Borrower has heretofore furnished to or made available to the
Lender complete copies of all registration statements, reports and proxy
statements, including amendments thereto, filed with the Securities and
Exchange Commission (the "SEC") since January 1, 1995 and prior to the date
of this Agreement (collectively, the "SEC DOCUMENTS"). None of the SEC
Documents contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained therein not
misleading.
4.30 DISCLOSURE. Neither this Agreement nor the other
agreements referred to in this Agreement nor any other statements or
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they are made, not misleading.
4.31 BROKERS. Neither the Borrower nor any Subsidiary has
dealt with, or incurred liability for a fee to, any finder, broker,
investment banker or financial advisor in connection with any of the
transactions contemplated by this Agreement or the negotiations looking
toward the consummation of such transactions.
4.32 CERTAIN ADDITIONAL REGULATORY MATTERS. Neither the
Borrower nor any Affiliate, nor the officers, directors, employees or agents
of any of the Borrower or any Affiliate, and none of the persons who provide
professional services under agreements with any of the Borrower or any
Affiliate as agents of such entities have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or permissive
exclusion from Medicare or Medicaid, under Sections 1320a-7, 1320a-7a,
1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute
("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which the Borrower or any of its
Affiliates seeks accreditation or by generally recognized professional
standards of care or conduct, including but not limited to the following
activities:
(a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for
any benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
<PAGE>
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(c) presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other state health
care program 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;
(d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring, or to induce the referral of, an individual to a person for
the furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid, or other state health care program, or (iii) in return for, or to
induce, the purchase, lease, or order, or the arranging for or recommending
of the purchase, lease, or order, of any good, facility, service, or item for
which payment may be made in whole or in party by CHAMPUS, Medicare or
Medicaid or any other state health care program; or
(e) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading)
or a material fact with respect to (i) the conditions or operations of a
facility in order that the facility may qualify for CHAMPUS, Medicare,
Medicaid or any other state health care program certification, or (ii)
information required to be provided under Section 1124(A) of the Social
Security Act ("SSA") (42 U.S.C. Section 1320a-3).
4.33 MEDICARE/MEDICAID PARTICIPATION. (i) Neither the Borrower
nor any other Person who after the Closing will have a direct or indirect
ownership interest (as those terms are defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Borrower or any Affiliate of 5% or more (other than
Lender), or who will have an ownership or control interest (as defined in SSA
Section 1124(a)(3), or any regulations promulgated thereunder) in the
Borrower or any Affiliate (other than Lender), or who will be an officer,
director, agent (as defined in 42 C.F.R. Section 1001.1001(a)(2)), or
managing employee (as defined in SSA Section 1126(b) or any regulations
promulgated thereunder) of the Borrower or any Affiliate and (ii) to the best
Knowledge of the Borrower and any Affiliate, no person or entity with any
relationship with such entity (including without limitation a parent company
or shareholder of, or partner in an Affiliate) who after the Closing will
have an indirect ownership interest (as that term is defined in 42 C.F.R.
Section 1001.1001(a)(2)) in the Borrower or any Affiliate of 5% or more
(other than Lender): (1) has had a civil monetary penalty assessed against it
under 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 (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:
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(a) criminal offenses relating to the delivery of an item or
service under Medicare or any State Health Care Program;
(b) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health care
item or service;
(c) criminal offenses under federal or state law relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local governmental
agency;
(d) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense described in (a)
through (c) above; or
(e) criminal offenses under federal or state law relating to
the unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
ARTICLE V. COVENANTS OF BORROWER
The Borrower covenants that until indefeasible payment and
performance of all Obligations:
5.1 CORPORATE EXISTENCE, ETC. The Borrower shall, at all times
preserve and keep in full force and effect its corporate existence and all
material rights and franchises.
5.2 PAYMENT OF TAXES. The Borrower shall pay and discharge all
Taxes imposed upon it or any of its properties or in respect of any of its
franchises, business, income or property before any penalty shall be incurred
with respect to such Taxes, provided, however, that, unless and until
foreclosure, distraint, levy, sale or similar proceedings shall have
commenced, the Borrower need not pay or discharge any such Tax so long as the
validity or amount thereof is being contested in good faith and by
appropriate proceedings and so long as any reserves or other appropriate
provisions as may be required by GAAP shall have been made therefor.
5.3 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or
cause to be maintained in good repair, working order and condition (ordinary
wear and tear excepted), all properties and other assets useful or necessary
to its business, and from time to time Borrower shall make or cause to be
made all appropriate repairs, renewals and replacements thereto.
5.4 MAINTENANCE OF INSURANCE. The Borrower shall maintain
insurance in at least such amounts, of such character and against at least
such risks as is maintained by companies of established repute engaged in the
same or a similar business in the same general area as the Borrower. Such
insurance shall include all-risk property insurance, public liability,
property damage and flood insurance (if such
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insurance is required under applicable law).
5.5 EXPENSES. Borrower shall immediately pay Lender upon
demand all reasonable costs and expenses incurred by Lender in connection
with: (a) the preparation of this Agreement (and all Exhibits and Schedules
thereto), the Senior Note, the Series D Certificate of Designation, and the
Series E Certificate of Designation; PROVIDED, HOWEVER, that the Borrower's
maximum responsibility therefore shall be $81,000; and (b) following a
Default, the enforcement or satisfaction by Lender of any of Borrower's
obligations under this Agreement or the Senior Note.
5.6 CONVERSION STOCK. The Borrower shall at all times keep
available out of its authorized but unissued shares of Common Stock, for the
purpose of effecting the conversion of the shares of Series D Preferred Stock
and the shares of Series E Preferred Stock, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the shares of Series D Preferred Stock and Series E Preferred
Stock from time to time outstanding. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the then outstanding shares of Series D Preferred Stock and
Series E Preferred Stock, the Borrower shall forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
5.7 COMPLIANCE WITH NOTE PURCHASE AGREEMENT. So long as any
portion of the Obligations has not been indefeasibly satisfied in full,
Borrower shall comply in all respects with the terms of the Note Purchase
Agreement dated as of April 14, 1989, as amended to the date hereof (the
"NOTE PURCHASE AGREEMENT"). Without limiting the foregoing, the Borrower
shall comply with all affirmative and negative covenants contained in the
Note Purchase Agreement.
5.8 CERTAIN REGULATORY MATTERS.
(a) The operations of the Borrower and its Affiliates will be
conducted in accordance with all Applicable Laws, including, without
limitation, all such laws, regulations, orders and requirements promulgated
by or relating to consumer protection, equal opportunity, health, third party
reimbursement (including Medicare and Medicaid), environmental protection,
fire, zoning and building and occupational safety matters, except for
violations that individually or in the aggregate would not and, insofar as
may reasonably be foreseen, in the future will not, have a Material Adverse
Effect on the Borrower or any Subsidiary.
(b) Without limiting the generality of the foregoing, the
Borrower and all Affiliates shall comply in all material respects with all
directives, orders, instructions, bulletins and other announcements received
from third party payors and their agents (including without limitation
Medicare carriers and fiscal intermediaries) regarding participation in third
party payment programs, and including without limitation preparation and
submission of claims for reimbursement. Without limiting the generality of
the foregoing, the Borrower and all Affiliates shall follow instructions
recently received
<PAGE>
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in a bulletin from Blue Shield of California ("BSC") limiting reimbursement
of the services of independent physiological laboratories to Medicare
beneficiaries in BSC's region to cardiovascular studies, diagnostic
ultrasound studies, and non-invasive vascular studies, all conducted
according to the common procedural terminology ("CPT") codes listed in the
most recent version of the CPT codebook for such studies, and shall refrain
from submitting claims for Medicare reimbursement for MRI or CT studies to
BSC until and unless written approval to submit such claims is received from
the medical director of BSC, unless the Borrower or any Affiliate identifies
an alternative proper resolution of such matter that is acceptable to the
Lender, in its sole discretion. Nothing in this Section 5.8 shall be
construed as or is intended to create any third party beneficiaries.
ARTICLE VI. DEFAULTS AND REMEDIES
6.1 DEFAULT. The occurrence of any one or more of the
following shall constitute an event of default (hereinafter, "DEFAULT") under
this Agreement and the other Loan Documents:
(a) Borrower (i) shall fail to pay as and when due any
scheduled installment of principal due hereunder or under the
Senior Note; or (ii) shall fail to pay within one day after the
due date thereof any interest, any fees or any other amount
payable hereunder or under the Senior Note; or
(b) Borrower shall fail to perform or observe any agreement
or covenant in any Section of Article V, including without
limitation the covenants incorporated by reference to the Note
Purchase Agreement in Section 5.7 (provided, however, that with
respect to the covenants incorporated by reference in Section 5.7,
no Default shall be deemed to have occurred until the expiration
of any grace or cure period provided for in the Note Purchase
Agreement with respect to such covenant); or
(c) Borrower shall fail to perform any other obligation
under any of the Loan Documents (other than those referred to in
Sections 6.1(a) and 6.1(b) above) for a period of thirty (30) days
after receipt of written notice of such failure (or, if delivery
of such notice is stayed or prohibited by applicable law, for a
period of thirty (30) days after such failure to perform); or
(d) the failure of any representation or warranty of
Borrower in any of the Loan Documents to be true on each date made
or deemed made; or
(e) (i) the filing of a petition by Borrower for relief
under the Bankruptcy Code, or under any other present or future
state or federal law regarding bankruptcy, reorganization or other
debtor relief law; (ii) the filing of any pleading or an answer by
Borrower in any involuntary proceeding under the Bankruptcy Code
or other debtor relief law which admits the jurisdiction of the
court or the petition's material allegations regarding Borrower's
insolvency; (iii) a general assignment by Borrower for the benefit
of creditors; or (iv) Borrower applying for,
<PAGE>
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or the appointment of, a receiver, trustee, custodian or liquidator
of Borrower or any of its assets; or
(f) the failure of Borrower to effect a full dismissal of
any involuntary petition under the Bankruptcy Code or under any
other debtor relief law that is filed against Borrower or in any
way restrains or limits Borrower or Lender regarding the Loan
prior to the earlier of (i) the entry of any court order granting
relief sought in such involuntary petition or (ii) thirty (30)
days after the date of filing of such involuntary petition;
(g) there shall occur any default or event of default under
the Note Purchase Agreement; or
(h) there shall occur any Change in Control.
6.2 ACCELERATION UPON DEFAULT. Upon the occurrence and during
the continuance of a Default specified in Section 6.1(e) or (f), all sums
owing to Lender under the Loan Documents immediately shall be due and
payable. Upon the occurrence and during the continuance of any Default
specified in this Article VII (other than those referred to in the
immediately preceding sentence), Lender may, at its sole option, declare all
sums owing to Lender under the Loan Documents immediately due and payable.
6.3 REPAYMENT OF FUNDS ADVANCED. Any funds expended by Lender
in the exercise of its rights or remedies under this Agreement and the other
Loan Documents shall be payable to Lender upon demand, together with interest
at the rate applicable to the principal balance of the Senior Note from the
date the funds were expended.
6.4 RIGHTS CUMULATIVE, NO WAIVER. All Lender's rights and
remedies provided in this Agreement and the other Loan Documents, together
with those granted by law or at equity, are cumulative and may be exercised
by Lender at any time. Lender's exercise of any right or remedy shall not
constitute a cure of any Default unless all sums then due and payable to
Lender under the Loan Documents are repaid and Borrower has cured all other
Defaults. No waiver shall be implied from any failure of Lender to take, or
any delay by Lender in taking, action concerning any Default or failure of
condition under the Loan Documents, or from any previous waiver of any
similar or unrelated Default or failure of condition. Any waiver or approval
under any of the Loan Documents must be in writing and shall be limited to
its specific terms.
ARTICLE VII. LENDER'S OPTION TO EXTEND MATURITY DATE;
OPTIONAL CONVERSION OF SENIOR LOAN
7.1 LENDER'S OPTION TO EXTEND MATURITY DATE. At any time prior
to the original Maturity Date, Lender shall have the option to extend the
Maturity Date to March 31, 1997. If Lender determines, in its sole
discretion, to extend the Maturity Date to March 31, 1997, Lender shall
deliver written notice of such election to Borrower no later than ten (10)
Business Days prior to the original Maturity Date. Upon delivery of such
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notice, the Maturity Date for all purposes under this Agreement (including
without limitation, with respect to Sections 7.2, 7.3, 7.4, and 7.5) shall be
deemed to be March 31, 1997.
7.2 CONVERSION OF SENIOR LOAN PRIOR TO MATURITY DATE. At any
time at or prior to the Maturity Date, Lender shall have the option, in its
sole discretion, to convert the Senior Loan into shares of Series D Preferred
Stock, and to enter into certain transactions with Borrower related thereto,
as further provided in this Section 7.2.
(a) If Lender determines, in its sole discretion, to convert
the Senior Loan into shares of Series D Preferred Stock, and to enter into
the other Conversion Transactions (as defined below), Lender shall deliver
written notice of such election to Borrower no later than two (2) Business
Days prior to the Maturity Date in substantially the form set forth as
EXHIBIT F hereto (the "CONVERSION NOTICE"); PROVIDED, HOWEVER, that a
Conversion Notice delivered after February 26, 1997 will not be effective if
the Maturity Date is extended to March 31, 1997 solely as a result of the
Lender's not delivering the Conversion Notice prior to the original Maturity
Date (rather than the Lender's exercise of its extension election under
Section 7.1 above). The Conversion Notice shall set forth the effective date
of the Conversion Transactions (as defined below) (the "CONVERSION DATE"),
which date shall not be earlier than five (5) nor later than ten (10)
Business Days following the date of the Conversion Notice.
(b) If Lender timely delivers the Conversion Notice to
Borrower, then Lender and Borrower shall consummate the following
transactions (collectively, the "CONVERSION TRANSACTIONS") as soon as
practicable after the date of the Conversion Notice, but in any event no
later than the Conversion Date:
(i) Lender and Borrower shall enter into a Series D
Preferred Stock Purchase Agreement substantially in the form
attached hereto as EXHIBIT G (with all Exhibits and Schedules
thereto, and all documents to be delivered thereunder (including
without limitation any legal opinions), to be satisfactory to
Lender, in its sole discretion), and Lender and Borrower shall
consummate the transactions contemplated thereby;
(ii) Borrower shall pay to Lender on the Conversion
Date all accrued interest on the Senior Loan in cash (including
without limitation any interest accrued at the Default Rate);
(iii) Borrower and Lender shall enter into an Eleventh
Amendment to the Note Purchase Agreement, substantially in the form
attached hereto as EXHIBIT H, and Lender and Borrower shall
consummate the transactions contemplated thereby.
(c) If Lender does not timely deliver the Conversion Notice to
Borrower pursuant to this Section 7.2, then the Maturity Date shall be
extended automatically to March 31, 1997, and the Maturity Date for all
purposes under this Agreement (including without limitation, with respect to
Sections 7.2, 7.3, 7.4, and 7.5) shall be deemed to be March 31, 1997.
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7.3 CONVERSION OF SENIOR LOAN AFTER MATURITY DATE. If for any
reason all or part of the Senior Loan is still outstanding after the Maturity
Date, then Lender shall have the option, in its sole discretion, to convert
the Senior Loan into shares of Series D Preferred Stock, and to enter into
the other Conversion Transactions, as further provided in this Section 7.3.
(a) If Lender determines, in its sole discretion, to convert
the Senior Loan into shares of Series D Preferred Stock, and to enter into
the other Conversion Transactions, after the Maturity Date, Lender may
deliver a Conversion Notice at any such time to Borrower. The Conversion
Notice shall set forth the Conversion Date.
(b) After delivery of the Conversion Notice to Borrower,
Lender and Borrower shall consummate the Conversion Transactions as soon as
practicable after the date of the Conversion Notice, but in any event no
later than the Conversion Date.
7.4 ACKNOWLEDGEMENT. Lender and Borrower acknowledge and agree
that Lender shall under no circumstances be under any obligation to exercise
its right to elect to enter into the Conversion Transactions contemplated by
this Article 7, that notwithstanding the provisions of this Article 7, if
Lender does not deliver the Conversion Notice, Lender shall have the absolute
right at and at any time after the Maturity Date to repayment of the Senior
Loan and all other amounts due and payable to Lender from Borrower under the
Loan Documents.
ARTICLE VIII. MISCELLANEOUS PROVISIONS
8.1 INDEMNITY. Borrower hereby agrees to defend, indemnify
and hold harmless Lender, and its directors, officers, employees, agents,
successors and assigns from and against any and all losses, damages,
liabilities, claims, actions, judgments, costs and reasonable legal or other
expenses (including, without limitation, reasonable attorneys' fees and
expenses) ("CLAIMS") such indemnified party may incur as a direct or indirect
consequence of: (a) the transactions contemplated hereby; (b) the purpose to
which Borrower applies the proceeds of the Loan; (c) the failure of Borrower
to perform any obligations as and when required by this Agreement or any of
the other Loan Documents; or (d) any failure at any time of any of Borrower's
representations or warranties to be true and correct. Borrower shall
immediately pay to Lender upon demand any amounts owing under this indemnity,
together with interest from the date the indebtedness arises until paid at
the rate of interest applicable to the principal balance of the Senior Note.
BORROWER'S DUTY TO INDEMNIFY LENDER HEREUNDER SHALL SURVIVE THE REPAYMENT OF
THE LOAN.
8.2 NOTICES. All notices, demands, or other communications
under this Agreement and the other Loan Documents shall be in writing and
shall be delivered via confirmed facsimile, overnight courier, by hand
delivery or by certified mail, return receipt requested, to the appropriate
party at the address set forth on the signature page of this Agreement
(subject to change from time to time by written notice to all other parties
to this Agreement). All communications shall be deemed served upon delivery
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of, or if mailed, upon the first to occur of receipt or the expiration of
three (3) days after the deposit in the United States Postal Service mail,
postage prepaid and addressed to the address of Borrower or Lender at the
address specified or, if transmitted via facsimile, upon electronic
confirmation of receipt; PROVIDED, HOWEVER, that non-receipt of any
communication as the result of any change of address or facsimile number of
which the sending party was not notified or as the result of a refusal to
accept delivery shall be deemed receipt of such communication.
8.3 ATTORNEYS' FEES AND EXPENSES; ENFORCEMENT. If any
attorney is engaged by Lender to interpret, administer, enforce or defend any
provision of this Agreement or any of the other Loan Documents, or as a
consequence of any Default under the Loan Documents, with or without the
filing of any legal action or proceeding, Borrower shall immediately pay to
Lender, upon demand, the amount of all reasonable attorneys' fees and
expenses and all costs incurred by Lender in connection therewith, together
with interest thereon from the date of such demand until paid at the rate of
interest applicable to the principal balance of the Senior Note as specified
therein.
8.4 IMMEDIATELY AVAILABLE FUNDS. Unless otherwise expressly
provided for in this Agreement, all amounts payable by Borrower to Lender
shall be payable only in United States currency, immediately available funds.
8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Borrower may not assign or transfer any
interest hereunder without the prior written consent of Lender.
8.6 PARTICIPATIONS. Lender may, at any time, sell, assign or
grant participations in all or any portion of its rights and obligations
under the Loan Documents to one or more Affiliates of Lender, with Borrower's
consent and approval (which consent and approval will not be unreasonably
withheld, conditioned or delayed). Borrower further agrees that, in
connection with any such sale, assignment or participation, Lender may
disseminate to any such actual or potential servicer(s), purchaser(s),
assignee(s) or participant(s) all documents and information (including,
without limitation, all financial information) which has been or is hereafter
provided to or known to Lender with respect to: (a) any Property and its
operation; (b) any party connected with the Loan (including, without
limitation, Borrower; and/or (c) any relationship other than the Loan which
Lender may have with any party connected with the Loan. Borrower shall
supply to Lender all reasonably requested information and execute and deliver
all such instruments and take all such further action Lender may reasonably
request in connection with any such sale, assignment or participation. In
the event of any such sale, assignment or participation, Lender and the
parties to such transaction shall share in the rights and obligations of
Lender as set forth in the Loan Documents only as and to the extent they
agree among themselves. In connection with any such sale, assignment or
participation, Borrower further agrees that the Loan Documents shall be
sufficient evidence of the obligations of Borrower to each purchaser,
assignee, or participant, and upon written request by Lender, Borrower shall
enter into such amendments or modifications to the Loan Documents as may be
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reasonably required in order to evidence any such sale, assignment or
participation. The indemnity obligations of Borrower under the Loan
Documents shall also apply with respect to any purchaser, assignee or
participant.
8.7 SEVERABILITY. If any provision or obligation under this
Agreement and the other Loan Documents shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that
provision shall be deemed severed from the Loan Documents and the validity,
legality and enforceability of the remaining provisions or obligations shall
remain in full force as though the invalid, illegal, or unenforceable
provision had never been a part of the Loan Documents, PROVIDED, HOWEVER,
that if the rate of interest or any other amount payable under the Senior
Note or this Agreement or any other Loan Document, or the right of
collectability therefore, are declared to be or become invalid, illegal or
unenforceable, Lender's obligations to make advances under the Loan Documents
shall not be enforceable by Borrower.
8.8 NO WAIVER; SUCCESSORS. No waiver shall be implied from
any failure of Lender to take, or any delay by Lender in taking, action
concerning any Default or failure of condition, or from any previous waiver
of any similar or unrelated Default or failure of condition. Any waiver or
approval hereunder must be in writing and shall be limited to its specific
terms. No amendment of any provision of this Agreement or any other Loan
Document (including a waiver thereof or consent relating thereto) shall be
effective unless the same shall be in writing and signed by Borrower and
Lender.
8.9 TIME. Time is of the essence of each and every term of
this Agreement.
8.10 HEADINGS. All article, section or other headings
appearing in this Agreement and any of the other Loan Documents are for
convenience of reference only and shall be disregarded in construing this
Agreement and any of the other Loan Documents.
8.11 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of New York.
Borrower and all persons and entities in any manner obligated to Lender under
the Loan Documents consent to the jurisdiction of any Federal or State Court
within the State of New York and also consent to service of process by any
means authorized by New York or Federal Law.
8.12 INTEGRATION; INTERPRETATION. The Loan Documents contain
or expressly incorporate by reference the entire agreement of the parties
with respect to the matters contemplated therein and supersede all prior
negotiations or agreements, written or oral. Any reference to the Loan
Documents includes any amendments, renewals or extensions now or hereafter
approved by Lender in writing.
8.13 WAIVER OF ALLOCATION RIGHTS. Borrower hereby irrevocably
waives, disclaims and renounces any right to designate the portion of the
Obligations satisfied, or deemed to be satisfied, upon payment of any of the
Obligations by any guarantor or surety of all or any portion of the
Obligations, it being the understanding and agreement
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of Borrower, Lender and any such guarantor or surety that Lender may allocate
any and all payments on the Obligations so as to maximize Lender's recovery
against Borrower and all guarantors or sureties.
8.14 USURY SAVINGS. It is the intention of the parties hereto
to conform strictly to the usury and other laws relating to interest from
time to time in force, and all agreements between Borrower and Lender,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever,
whether by acceleration or maturity or otherwise, shall the amount paid or
agreed to be paid to Lender, or collected by Lender for the use, forbearance
or detention of the money to be loaned under the Senior Note, this Agreement
or otherwise, or for the payment or performance of any covenant or obligation
contained herein or in any of the other Loan Documents or in any other
security agreement given to secure the Loan or in any other document
evidencing, securing or pertaining to the Loan, exceed the maximum amount of
interest allowable under applicable law (the "MAXIMUM AMOUNT"). If under any
circumstances whatsoever fulfillment of any provision hereof or any other
Loan Document, at the time performance of such provision shall be due, shall
involve transcending the Maximum Amount, then IPSO FACTO, the obligation to
be fulfilled shall be reduced to the Maximum Amount. For the purposes of
calculating the actual amount of interest paid and or payable, in respect of
laws pertaining to usury or such other laws, all sums paid or agreed to be
paid to the holder of the Senior Note for the use, forbearance or detention
of the Loan shall, to the extent permitted by applicable law, be amortized,
allocated and spread from the date of disbursement of the proceeds of the
Loan until payment in full of the Loan, so that the actual rate of interest
on account of the Loan is uniform throughout the term hereof. If under any
circumstances Lender shall ever receive an amount deemed interest by
applicable law, which would exceed the Maximum Amount, such amount that would
be excessive interest under applicable usury laws shall be deemed a payment
in reduction of the principal amount owing under the Senior Note and shall be
so applied to principal and not to the payment of interest, or if such
excessive interest exceeds the outstanding principal balance of the Loan,
such excessive interest shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf.
8.15 REVIVAL. To the extent Borrower makes a payment to
Lender, which payment or the proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, receiver or any other party having requisite
authority under the Bankruptcy Code or any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the obligation hereunder or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received.<PAGE>
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8.16 COUNTERPARTS. This Agreement, any of the other Loan
Documents (except for the Senior Note), and any subsequent modifications,
amendments, waivers, consents or supplements thereof, if any, may be executed
in any number of counterparts, each of which when executed and delivered
shall be deemed to be an original and all such counterparts together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date appearing on the first page of this Agreement.
"Lender" "Borrower"
GENERAL ELECTRIC COMPANY, a ALLIANCE IMAGING, INC., a Delaware
New York corporation acting through corporation
GE Medical Systems
By: By:
Title: Title:
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LIST OF SCHEDULES AND EXHIBITS
EXHIBITS
Exhibit A Senior Note
Exhibit B Series D Certificate of Designation
Exhibit C Series E Certificate of Designation
Exhibit D Funds Flow Memorandum
Exhibit E Form of Opinion of Counsel to Borrower
Exhibit F Form of Conversion Notice
Exhibit G Series D Preferred Stock Purchase Agreement
Exhibit H Eleventh Amendment to Note Purchase Agreement
SCHEDULES
Schedule 4 Borrower Disclosure Schedule
Schedule 4.1 Certificate and Bylaws; Jurisdictions
Schedule 4.3 Subsidiaries
Schedule 4.7(b) Accountant Letters
Schedule 4.10(b) Material Contracts
Schedule 4.14(e) Approvals
Schedule 4.18 Indebtedness
Schedule 4.19(b) Lease Agreements
Schedule 4.20(b) Employee Benefit Plans
Schedule 4.23(a) Environmental Permits
Schedule 4.25 Tax Returns
<PAGE>
Page 1
SENIOR BRIDGE NOTE
$18,000,000 New York, N.Y.
December 31, 1996
FOR VALUE RECEIVED, the undersigned, Alliance Imaging, Inc., a Delaware
corporation ("BORROWER"), promises to pay to the order of General Electric
Company, a New York corporation or its assigns ("LENDER"), in New York, New
York, or at such other place as may be designated in writing by the holder of
this Senior Bridge Note (together with all supplements, amendments or
modifications hereto or renewals hereof, the "NOTE"), on February 28, 1997 (the
"Maturity Date"), the principal sum of Eighteen Million Dollars
($18,000,000.00), with interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid principal hereof at the rate of 10% per
annum from December 31, 1996, payable on the Maturity Date, and thereafter to
pay interest (so computed) at the rate of 14% per annum on any overdue principal
and, to the extent permitted by applicable law, on any overdue interest, until
the same shall be paid. All sums owing hereunder are payable in lawful money of
the United States of America, in immediately available funds. The loan
evidenced hereby (the "LOAN") has been extended by Lender to Borrower pursuant
to the Bridge Loan Agreement between Borrower and Lender dated as of December
31, 1996 (the "LOAN AGREEMENT"). All of the terms, covenants and conditions of
the Loan Agreement and all other instruments evidencing the indebtedness
hereunder are hereby made a part of this Note and are deemed incorporated herein
in full. In particular, but without limitation of the foregoing, the Maturity
Date is subject to extension in the circumstances described in the Loan
Agreement.
Notwithstanding the previous paragraph, at any time after the occurrence and
during the continuation of a Default, interest shall accrue on this Note at the
rate of 14% per annum.
1. PRINCIPAL PAYMENTS. The principal amount of the indebtedness from time to
time evidenced hereby shall be payable in the amounts and on the dates
specified in the Loan Agreement and, if not sooner paid in full, the
outstanding principal balance of this Note, together with all accrued and
unpaid interest, shall be due and payable in full on the Maturity Date.
2. PREPAYMENT. Borrower shall not have the right to prepay the Loan.
3. LENDER'S OPTION TO ACCELERATE. If: (a) Borrower shall fail to pay when
due any sums payable hereunder; OR (b) a Default occurs, THEN Lender may,
at its sole option, declare all sums owing under this Note immediately due
and payable.
4. LENDER'S OPTION TO CONVERT. Lender may, at its sole option, convert
principal amounts owing under this Note to shares of the Borrower's Series
D 4% Cumulative Redeemable Convertible Preferred Stock, on the terms and as
set forth in the Loan Agreement.
<PAGE>
Page 2
5. ATTORNEYS' FEES. If any attorney is engaged by Lender to enforce or defend
any provision of this Note or the Loan Agreement, or as a consequence of
any Default, with or without the filing of any legal action or proceeding,
then Borrower shall pay to Lender immediately upon demand all attorneys'
fees and all costs incurred by Lender in connection therewith, together
with interest thereon from the date of such demand until paid at the rate
of interest applicable to the principal balance owing hereunder as if such
unpaid attorneys' fees and costs had been added to the principal.
6. NO WAIVER. No previous waiver and no failure or delay by Lender in acting
with respect to the terms of this Note or any Loan Document shall
constitute a waiver of any breach, default, or failure of condition under
this Note, such Loan Document or the obligations secured thereby. A waiver
of any term of this Note, any Loan Document or of any of the obligations
secured thereby must be made in writing and shall be limited to the express
written terms of such waiver. In the event of any inconsistencies between
the terms of this Note and the terms of any other document related to the
Loans, the terms of this Note shall prevail.
7. BORROWER WAIVERS. Except as otherwise provided in any agreement executed
in connection with this Note, Borrower waives: presentment; demand; notice
of dishonor; notice of default or delinquency; notice of acceleration;
notice of protest and nonpayment; notice of costs, expenses or losses and
interest thereon; notice of late charges; and diligence in taking any
action to collect any sums owing under this Note.
8. TIME OF THE ESSENCE. Time is of the essence with respect to every
provision hereof.
9. GOVERNING LAW. This Note is made and delivered in New York, New York, and
shall be governed by the laws of the State of New York.
"BORROWER"
ALLIANCE IMAGING, INC.,
a Delaware corporation
By:
-----------------------------
Its:
<PAGE>
ASSIGNMENT
THIS ASSIGNMENT (the "Assignment") is made this 31th day of December, 1996
by the holders listed on the signature page hereto (each a "Holder" and together
the "Holders"), with reference to the 7.50% Senior Subordinated Debentures due
2005 (the "Debentures") and the Series A 6.0% Cumulative Preferred Stock (the
"Preferred Stock"; collectively, the Debentures and the Preferred Stock are
referred to as the "Securities") of Alliance Imaging, Inc. (the "Company") held
by the Holders, and issued pursuant to an Amended and Restated Purchase
Agreement dated as of December 31, 1994, as amended by that certain First
Amendment to Amended and Restated Purchase Agreement dated as of December 31,
1994, as amended by that certain Second Amendment to Amended and Restated
Purchase Agreement dated as of April 15, 1996 (as so amended, the "Purchase
Agreement"), to the Company.
NOW, THEREFORE, in consideration of the payment hereinafter provided, the
undersigned does hereby agree as follows:
1. REPURCHASE OF SECURITIES. Each of the Holders, severally and not
jointly, does hereby sell and transfer to the Company all of its right, title
and interest in and to all of such Holder's (i) Debentures (including principal,
accrued and unpaid interest thereon through the date hereof and any and all
other obligations of the Company under such Debentures) and (ii) Preferred Stock
(including, with respect to each share of Preferred Stock, the face amount
thereon, accumulated and unpaid dividends through the date hereof and any and
all other obligations of the Company under such Preferred Stock). Said sales
and transfers (the "Repurchase Transaction") are being made in consideration of
the payment in cash to the Holder of the amount set forth opposite its
respective name on Schedule 1 hereto (the "Purchase Price"), which amount is
being paid by the Company to the respective Holder simultaneously with the
execution and delivery of this Assignment. In the case of each Holder, that
portion of the Purchase Price equal to the principal amount of the Debentures
and all accrued and unpaid interest thereon through the date hereof is being
paid in consideration of the Debentures and the other rights described in clause
(i) above, and the balance of the Purchase Price is being paid in consideration
of the Preferred Stock and the other rights described in clause (ii) above.
Payments are being made by wire transfer of immediately available federal funds
to accounts specified by the respective Holders prior to the date hereof, or by
bank cashiers check, as previously specified by such Holder. Each Holder,
severally and not jointly, is hereby delivering or causing to be delivered to
the Company all of such Holder's certificates representing such Holder's
Debentures and Preferred Stock, in each case duly endorsed for transfer or
accompanied by duly executed instruments of transfer separate from certificates.
<PAGE>
Upon the closing of the Repurchase Transaction, all of the Company's
obligations and indebtedness to each Holder under the Purchase Agreement, the
Debentures and the Preferred Stock, and the obligations of the Company's
subsidiaries under the Guaranty (as defined in the Purchase Agreement), shall be
deemed fully satisfied and repaid, and such instruments and agreements shall be
of no further force or effect.
2. REPRESENTATIONS AND WARRANTIES. Each Holder, severally and not
jointly, does hereby represent and warrant to the Company as follows:
2.1 DUE AUTHORIZATION, NO CONFLICT, ETC. The Holder has all
requisite power and authority to enter into this Assignment and to transfer the
Securities and to perform each other provision hereof. The execution, delivery
and performance of this Assignment has been duly and validly authorized by all
necessary corporate and other action on the part of the Holder. This Assignment
constitutes the legal, valid and binding obligation of the Holder, enforceable
against it in accordance with its terms. None of the execution, delivery and
performance of this Assignment conflicts with the charter documents of the
Holder or any law or regulation applicable to the Holder, and none of the
execution, delivery and performance of this Assignment requires the consent of
or notice to any governmental authority, other than any such consent or notice
that has been obtained or given.
2.2 SECURITIES. The Holder is the registered and beneficial owner of
the Securities in the aggregate outstanding principal or, as the case may be,
face amount as set forth opposite its name on Schedule 2 hereto. The Holder has
not heretofore sold or otherwise transferred any right, title or interest in or
to any of the Securities, and the Securities being sold and transferred to the
Company hereby are free and clear of any and all liens, claims, security
interests and encumbrances whatsoever. To the knowledge of the Holder, no
action or suit by any party is pending or threatened concerning ownership of or
compliance with the terms of the Securities. Upon payment of the purchase price
by the Company pursuant to this Assignment, the Company will be the legal and
beneficial owner of all of the Securities, free and clear of all liens, claims,
security interests and other encumbrances. The Holder acknowledges that the
Repurchase Transaction complies in all respects with the requirements of the
Purchase Agreement, the Debentures and the Preferred Stock, or any deviations
therefrom are hereby waived.
-2-
<PAGE>
3. COVENANTS OF THE COMPANY. The Company hereby covenants as follows:
3.1 BOARD REPRESENTATION. Following the closing of the Repurchase
Transaction, and so long as The Northwestern Mutual Life Insurance Company
("Northwestern") continues to own at least ten percent (10%) of the outstanding
common stock of the Company calculated on a fully diluted basis, at the request
of Northwestern, the Company will include one (1) designee of Northwestern in
its slate for election to the Company's Board of Directors (the "Board") at each
annual meeting of stockholders of the Company (subject only to the Board's
fiduciary obligations to the Company's stockholders under applicable law); and
3.2 STANDSTILL AGREEMENTS. Simultaneously with the closing of the
Repurchase Transaction the Company is entering into with each of the Holders an
Amended and Restated Standstill Agreement in substantially the form attached as
Exhibit 1 hereto, and the Company and Richard N. Zehner are entering into an
Amended and Restated Standstill Agreement in substantially the form attached
hereto as Exhibit 2.
4. GENERAL.
4.1 ENTIRE AGREEMENT. This Assignment and the certificates and other
instruments delivered in connection herewith constitute and evidence the entire
agreement among the parties hereto and supersede all prior agreements,
representations, warranties, statements and understandings, whether oral or
written, with respect to the subject matter hereof.
4.2 FURTHER ASSURANCES. Each Holder shall at any time and from time
to time following the date hereof promptly execute and deliver, or cause to be
executed and delivered by the Company all such further instruments and take all
such further action as may be reasonably necessary or appropriate to confirm,
carry out and evidence the provisions and intent of this Assignment.
4.3 GOVERNING LAW. This Assignment shall be governed by the laws of
the State of New York applicable to contracts executed and wholly performed
therein, without giving effect to the conflict of laws provisions thereof.
4.4 CAPTIONS. All section titles or captions contained in this
Assignment are for convenience only, shall not be deemed a part of this
Assignment and shall not affect the meaning or interpretation of this
Assignment.
4.5 SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the Company, each Holder, and their respective
successors and assigns.
4.6 NUMBER AND GENDER. Throughout this Assignment, as the
-3-
<PAGE>
context may require, (a) the masculine gender includes the feminine and the
neuter gender includes the masculine and the feminine, and (b) the singular
tense and number includes the plural, and the plural tense and number
includes the singular.
4.7 LEGAL FEES. In any suit or proceeding arising out of this
Assignment or to interpret or enforce any provision of this Assignment, the
prevailing party shall be entitled to all out-of-pocket expenses and reasonable
legal fees incurred by such party in connection with such suit or proceeding.
-4-
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed by the parties hereto
as of the day and year first written above.
ALLIANCE IMAGING, INC.
By:
--------------------------------------
Its:
--------------------------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:
--------------------------------------
Its:
--------------------------------------
THE TRAVELERS INDEMNITY COMPANY
By:
--------------------------------------
Its:
--------------------------------------
THE TRAVELERS INSURANCE COMPANY
By:
--------------------------------------
Its:
--------------------------------------
THE TRAVELERS LIFE AND ANNUITY COMPANY
By:
--------------------------------------
Its:
--------------------------------------
THE LINCOLN NATIONAL LIFE INSURANCE
-5-
<PAGE>
COMPANY
By: Lincoln National Investment Management Company
By:
--------------------------------------
Its:
--------------------------------------
BEDROCK ASSET TRUST I
By:
--------------------------------------
Its:
--------------------------------------
-6-
<PAGE>
SCHEDULE 1
PAYMENTS AT CLOSING TO EACH HOLDER
Holder Payment
------ -------
The Northwestern Mutual $ 8,460,943.12
Life Insurance Company
The Travelers Indemnity $ 2,220,376.59
Company
The Travelers Insurance $ 1,920,382.50
Company
The Travelers Life and $ 987,112.50
Annuity Company
The Lincoln National Life $ 2,563,935.29
Insurance Company
Bedrock Asset Trust I $ 1,794,750.00
-7-
<PAGE>
SCHEDULE 2
PRINCIPAL/FACE AMOUNTS OF DEBENTURES/PREFERRED STOCK
Holder Debentures Preferred
------ ---------- Stock
-----
The Northwestern Mutual $ 4,714,286.00 $ 3,219,838.26
Life Insurance Company
The Travelers Indemnity $ 1,237,143.00 $ 844,981.16
Company
The Travelers Insurance $ 1,070,000.00 $ 730,810.00
Company
The Travelers Life and $ 550,000.00 $ 375,650.00
Annuity Company
The Lincoln National $ 1,428,571.00 $ 975,720.58
Life Insurance Company
Bedrock Asset Trust I $ 1,000,000.00 $ 683,000.00
-8-
<PAGE>
Page 1
STOCK PURCHASE AGREEMENT
<PAGE>
Page 2
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS. 1
2. PURCHASE AND SALE OF SERIES D PREFERRED STOCK. 13
2.1 AUTHORIZATION 13
2.2 SALE AND ISSUANCE OF CERTAIN SHARES OF SERIES D PREFERRED STOCK 13
3. CLOSING; DELIVERIES; FORM OF CONSIDERATION. 14
3.1 THE CLOSING 14
3.2 DELIVERIES 14
3.3 FORM OF CONSIDERATION 14
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 14
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION 14
4.2 CAPITALIZATION. 15
4.3 SUBSIDIARIES 16
4.4 AUTHORIZATION. 17
4.5 GOVERNMENTAL AND OTHER CONSENTS; NO VIOLATION 17
4.6 LITIGATION 18
4.7 FINANCIAL STATEMENTS AND REPORTS. 18
4.8 PROPRIETARY INFORMATION 19
4.9 REGISTRATION RIGHTS 19
4.10 CONTRACTS. 19
4.11 ABSENCE OF CHANGES 20
4.12 INTELLECTUAL PROPERTY 21
4.13 COMPLIANCE WITH OTHER INSTRUMENTS 21
4.14 COMPLIANCE WITH LAW; APPROVALS 22
4.15 TITLE TO ASSETS 23
4.16 PLANT, PROPERTY, AND EQUIPMENT 23
4.17 ACCOUNTS AND NOTES RECEIVABLE 23
4.18 INDEBTEDNESS 24
4.19 REAL PROPERTY. 24
4.20 EMPLOYEE PLANS AND ARRANGEMENTS. 25
4.21 EMPLOYEES. 27
4.22 INSURANCE 27
4.23 ENVIRONMENTAL COMPLIANCE. 28
4.24 NO UNDISCLOSED LIABILITIES 28
4.25 TAXES. 29
4.26 NO RESEARCH GRANTS 30
4.27 CERTAIN REGULATORY MATTERS 31
4.28 TRANSACTIONS WITH AFFILIATES 31
4.29 REPORTS; SEC DOCUMENTS 31
4.30 DISCLOSURE 31
4.31 BROKERS 31
4.32 CERTAIN ADDITIONAL REGULATORY MATTERS 32
4.33 MEDICARE/MEDICAID PARTICIPATION 33
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR 34
5.1 ACCREDITED INVESTOR 34
5.2 INVESTMENT INTENT 34
5.3 CERTAIN SECURITIES LAW ISSUES 34
5.4 AUTHORIZATION 34
<PAGE>
Page 3
5.5 BROKERS 34
6. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING 34
6.1 REPRESENTATIONS AND WARRANTIES 35
6.2 PERFORMANCE 35
6.3 NO INJUNCTION 35
6.4 QUALIFICATIONS; LEGAL INVESTMENT 35
6.5 COMPLETION OF REVIEW OF THE COMPANY 35
6.6 CERTIFICATES OF DESIGNATION 35
6.7 CLOSING DOCUMENTS 36
6.9 OPINIONS OF COMPANY COUNSEL 36
6.10 MATERIAL ADVERSE CHANGES 36
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING 36
7.1 REPRESENTATIONS AND WARRANTIES 36
7.2 PERFORMANCE 37
7.3 NO INJUNCTION 37
7.4 QUALIFICATIONS; LEGAL INVESTMENT 37
8. COVENANTS. 37
8.1 BEST EFFORTS 37
8.2 CONVERSION STOCK 37
8.3 RESTRICTIVE AGREEMENTS PROHIBITED 38
8.4 COMPLIANCE WITH ELEVENTH AMENDMENT AND RESTATED NOTE 38
8.5 CERTAIN REGULATORY MATTERS 38
8.6 FINANCIAL STATEMENTS AND INFORMATION 39
8.7 MERGER 40
8.8 LIMITATIONS ON LIENS 42
8.9 INDEBTEDNESS 44
8.10 INVESTMENTS 45
8.11 CAPITAL EXPENDITURES 45
8.12 TRANSACTIONS WITH AFFILIATES 46
8.13 LIMITATION ON DISPOSITION OF ASSETS 46
8.14 LIMITATION RELATING TO SUBSIDIARIES 47
8.15 LIMITATIONS ON LEASES 47
8.16 BOARD OBSERVATION RIGHTS 48
8.17 NO DEFAULTS UNDER FUNDED DEBT DOCUMENTS 48
8.18 NO CHANGE IN BUSINESS 49
9. INDEMNIFICATION 49
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS 49
9.2 INDEMNIFICATION. 49
9.3 CLAIMS FOR INDEMNIFICATION 50
9.4 DEFENSE BY THE COMPANY 50
9.5 MATERIALITY 51
10. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS. 51
10.1 RESTRICTIONS ON TRANSFERABILITY 51
10.2 RESTRICTIVE LEGEND 51
10.3 REQUESTED REGISTRATION. 51
10.4 COMPANY REGISTRATION. 52
10.5 REGISTRATION ON FORM S-3 53
10.6 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS 54
10.7 EXPENSES OF REGISTRATION 54
10.8 SECURITIES INDEMNIFICATION 54
<PAGE>
Page 4
10.9 TRANSFER OF REGISTRATION RIGHTS 55
11. MISCELLANEOUS. 55
11.1 EXPENSES 55
11.2 PUBLICITY 55
11.3 SUCCESSORS AND ASSIGNS 55
11.4 GOVERNING LAW 55
11.5 COUNTERPARTS 56
11.6 TITLES AND SUBTITLES 56
11.7 NOTICES 56
11.8 AMENDMENTS AND WAIVERS 56
11.9 SEVERABILITY 56
11.10 ENTIRE AGREEMENT 56
<PAGE>
Page 5
SCHEDULES AND EXHIBITS
EXHIBITS
Exhibit A Eleventh Amendment to Note Purchase Agreement
Exhibit B Form of Restated Note
Exhibit C Series D Certificate of Designation
Exhibit D Series E Certificate of Designation
Exhibit E Form of Opinion of Corporate Counsel to Company
Exhibit F-1 Form of Opinion of Regulatory Counsel to Company
Exhibit F-2 Form of Opinion of Regulatory Counsel to Company
SCHEDULES
Schedule 4 Company Disclosure Schedule
Schedule 4.1 Certificate and Bylaws; Jurisdictions
Schedule 4.3 Subsidiaries
Schedule 4.7(b) Accountant Letters
Schedule 4.10(b) Material Contracts
Schedule 4.14(e) Approvals
Schedule 4.18 Indebtedness
Schedule 4.19(b) Lease Agreements
Schedule 4.20(b) Employee Benefit Plans
Schedule 4.23(a) Environmental Permits
Schedule 4.25 Tax Returns
<PAGE>
Page 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the
25th day of March, 1997, by and among Alliance Imaging, Inc., a Delaware
corporation (the "Company") and General Electric Company, a New York
Corporation acting through GE Medical Systems (the "Investor"). Certain of
the capitalized terms used in the Agreement are defined in Section 1 hereof.
R E C I T A L S
WHEREAS, the Investor desires to purchase certain securities of the
Company on the terms and conditions set forth herein;
WHEREAS, the Company desires to sell to the Investor such
securities on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals, the
terms and provisions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
The following terms have the following meanings when used in this
Agreement, unless the context expressly or by necessary implication otherwise
requires:
"Affiliate" shall mean, with respect to any Person, any other
Person which directly or indirectly controls or is controlled by or is under
common control with such Person, and, with respect to the Company only,
includes any other Person with whom the Company has any joint venture,
partnership, or other shared investment interest. As used in this
definition, "control" (including its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or
indirectly, of power to (i) direct or cause the direction of management or
policies of such Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) or (ii)
vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person.
"Aggregate Purchase Price" is defined in Section 2.2.
"Agreement" is defined in the preamble hereto.
"Applicable Law" means, with respect to any Person, any federal,
state or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental Law)
applicable to such Person or any of its Affiliates or Plan Affiliates or any
of their respective properties, assets, officers, directors, employees,
consultants or agents.
<PAGE>
Page 7
"Approvals" is defined in Section 4.14(d).
"Average Market Price" of a share of Common Stock at any date shall
mean the average of the daily closing prices per share of Common Stock for
twenty-five (25) consecutive trading days ending on the trading day
immediately preceding such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 25 day period).
The closing price for each trading day shall mean the closing sales price on
such trading day of a share of Common Stock on the principal national
securities exchange or automated quotation system on which the shares of
Common Stock are listed or admitted to trading.
"Benefit Arrangement" means any material benefit arrangement that
is not an Employee Benefit Plan, including (i) each employment, consulting or
change of control agreement, (ii) each arrangement providing for fringe
benefits, insurance coverage or workers' compensation benefits, (iii) each
bonus, incentive, or performance pay or deferred bonus, incentive, or
performance pay arrangement, (iv) each arrangement providing any termination
allowance, severance or similar benefits, (v) each equity compensation plan,
(vi) each deferred compensation plan and (vii) each compensation policy and
practice maintained by the Company covering the employees, former employees,
officers, former officers, directors and former directors of the Company, and
the beneficiaries of any of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit
Arrangement.
"Board of Directors" shall mean, as to any corporation. the Board
of Directors of such corporation or a committee of such corporation having
authority to exercise, when the Board of Directors is not in session, the
powers of the Board of Directors (subject to any designated limitations) in
the management of the business and affairs of such corporation.
"Bridge Loan Agreement" means the Bridge Loan Agreement between the
Company and the Investor dated as of December 31, 1996.
"Business Day" means each day other than a Saturday, Sunday or
other day on which commercial banks in San Francisco, California are
authorized or required by law to close. Unless specifically referenced in
this Agreement as a Business Day, all references to "days" shall be to
calendar days.
"Capital Expenditure Adjustment Amount" shall mean, for any Capital
Expenditure Period corresponding to a capital raising transaction described
in clause (i) following, the positive amount, if any, of (i) net cash
proceeds from issuances of Common Stock or other securities convertible into
Common Stock or other non-redeemable equity securities of the Company MINUS
(ii) cash expended during such Capital Expenditure Period by the Company or
its Majority-Owned Subsidiaries in connection with business acquisitions
(including without limitation acquisitions of substantially all of the assets
of a Person permitted under this Agreement); PROVIDED, HOWEVER, that any cash
expenditures constituting Capital Expenditures for such Capital
<PAGE>
Page 8
Expenditure Period that are already included in the calculation of the total
amount of Capital Expenditures for such Capital Expenditure Period for
purposes of determining compliance with Section 8.11 hereof (without
considering the Capital Expenditure Adjustment Amount) shall only be included
once in such total amount, regardless of whether such Capital Expenditures
arise in connection with a business acquisition. If the Company could
properly include a Capital Expenditure within the general limitation under
Section 8.11 hereof and/or under an available Capital Expenditure Adjustment
Amount, the Company shall be entitled in its discretion to select the
allocation of such Capital Expenditure. To the extent that amounts expended
are included under clause (ii) of the foregoing definition, such amounts
shall be deducted from the amount described in clause (i) on a chronological
basis (i.e., the first such amount deducted will be the first of such amounts
expended, and so on).
"Capital Expenditure Period" means, with respect to each capital
raising transaction described in clause (i) of the definition of Capital
Expenditure Adjustment Amount, the two-year period beginning with the date
that net proceeds with respect to such transaction are received by the
Company.
"Capital Expenditures" shall mean, for any period, expenditures
made by the Company or any of its Majority-Owned Subsidiaries to acquire or
construct fixed assets, plant and equipment (including additions,
improvements, upgrades and replacements, but excluding repairs) during such
period calculated in accordance with GAAP.
"Capital Lease" shall mean any lease by a Person of any property
(whether real, personal or mixed) which, in conformity with GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board), is accounted for as a capital lease on the
balance sheet of such Person.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a Capital Lease
and, for purposes of this Agreement, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board).
"Capital Stock" of any Person shall mean the beneficial ownership
interests in said Person, including, without limitation, the capital stock of
any Person that is a corporation and the partnership interests (general and
limited) in any Person that is a partnership.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company, including all amendments thereto, as in effect
on the date hereof.
"CHAMPUS" is defined in Section 4.32.
"Charter Documents" has the meaning set forth in Section 4.13.
<PAGE>
Page 9
"Closing" has the meaning set forth in Section 3.1
"Closing Date" has the meaning set forth in Section 3.1.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code and Part 6 of
Title I of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" shall mean First Security Bank of Utah, N.A., as
collateral agent under the Note Purchase Agreement, or any successor thereto,
with respect to the Company's Senior Secured Notes.
"Collateral Pool" shall mean the Eligible First Lien Equipment, the
Eligible Second Lien Equipment and the Cash Equivalent Collateral (all as
defined in the Note Purchase Agreement) pledged to the Collateral Agent, on
behalf of the holders of the Senior Secured Notes, pursuant to the Note
Purchase Agreement and the Security Documents (as defined in the Note
Purchase Agreement), and such additions thereto and substitutions therefor as
may be permitted or required pursuant to the Note Purchase Agreement.
"Common Stock" is defined in Section 4.2(a).
"Company Disclosure Schedule" has the meaning set forth in Article
4.
"Consolidated Rental Obligations" shall mean, with reference to any
period, the aggregate amount of all minimum or guaranteed net rentals for
which the Company and its Majority-Owned Subsidiaries are directly or
indirectly liable (as lessee or as guarantor or other surety) under all
leases in effect at any time during such period, including all amounts for
which any Person was so liable during such period accrued prior to the date
such Person became a Majority-Owned Subsidiary or was merged into or
consolidated with the Company or a Majority-Owned Subsidiary.
"Contract" means all contracts and agreements, contract rights,
executory commitments, license agreements, purchase and sales orders, written
or oral, relating to the operation of the business of the Company or any
Majority-Owned Subsidiary.
"Contractual Obligation" means, as applied to any Person, any
provision of any agreement or other instrument to which that Person is a
party or by which it or any of the properties owned or leased by it is bound
or otherwise subject.
"Conversion Stock" means the shares of Common Stock issuable upon
conversion of the shares of Series D Preferred Stock.
"Current Liabilities" shall mean, at any date, the liabilities of
the Company and its Majority-Owned Subsidiaries (including tax and other
proper accruals) that would
<PAGE>
Page 10
be classified as current liabilities in accordance with GAAP consistent with
those applied in the preparation of the financial statements referred to in
Section 4.7 hereof, but excluding the current portion of Funded Debt.
"Debt For Money Borrowed" shall mean, as to any Person, all
Indebtedness excluding Indebtedness referred to in clause (b) under the
definition of the term "Indebtedness."
"Default" has the meaning given in the Note Purchase Agreement.
"Eleventh Amendment" means the Eleventh Amendment to Note Purchase
Agreement dated as of the date hereof between the Company and the Investor,
in substantially the form attached as EXHIBIT A hereto.
"Eligible Holder" is defined in Section 8.6.
"Employee Benefit Plan" means any employee benefit plan, as defined
in Section 3(3) of ERISA, that is sponsored or contributed to by the Company
or any ERISA Affiliate covering employees or former employees of the Company,
or with respect to which the Company or any ERISA Affiliate is a party or is
otherwise bound.
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is regulated under Title IV
of ERISA or is subject to the funding requirements of Part III of Title I of
ERISA or Section 412 of the Code, other than a Multiemployer Plan.
"Employment Agreements" is defined in Section 4.20(a).
"Environmental Law" means all laws, ordinances and regulations
regulating or otherwise concerning the environment or relating to Hazardous
Materials, including, without limitation, the Clean Air Act, as amended, 42
U.S.C. Section 7401 ET SEQ.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 ET SEQ.; the Resource Conservation and
Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 ET SEQ.; the
Comprehensive Environment Response, Compensation and Liability Act of 1980,
as amended (including the Superfund Amendments and Reauthorization Act of
1986, "CERCLA"), 42 U.S.C. Section 9601 ET SEQ.; the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 2601 ET SEQ.; the Occupational Safety and
Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 ET SEQ.; the
Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 ET
SEQ.; the Safe Drinking Water Act, as amended, 42 U.S.C. Section 300f ET
SEQ.; and all comparable state and local laws, orders and regulations of
applicable jurisdictions.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" of the Company means any other Person that,
together with the Company as of the relevant measuring date under ERISA, was
or is required to
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be treated as a single employer under Section 414 of the Code.
"Event of Default" has the meaning given in the Note Purchase
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"Federal Health Care Program" is defined in Section 4.33.
"Financial Statements" is defined in Section 4.7.
"Fiscal Quarter" shall mean the quarters ending on the last days of
March, June, September and December each year, or such other fiscal quarters
as the Board of Directors of the Company may adopt in connection with a
change in the Company's fiscal year.
"Fiscal Year" shall mean the fiscal year of the Company, which
shall be the twelve (12) month period ending on December 31 in each year or
such other period as the Board of Directors of the Company may adopt.
"Funded Debt" shall mean as applied to any Person, all Indebtedness
of such Person, in a principal amount of at least $1,000,000 in each
instance, which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than
one year from, or is directly or indirectly renewable or extendible at the
option of the debtor to a date more than one year (including an option of the
debtor under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year) from the date
of the creation thereof; PROVIDED that "Funded Debt" shall include, as at any
date of determination, any portion of such Funded Debt outstanding on such
date which matures on demand or within one year from such date (whether by
sinking fund, other required prepayment or final payment at maturity) and
which is not directly or indirectly renewable, extendible or refundable, at
the option of the debtor to a date more than one year from such date;
PROVIDED, FURTHER, that "Funded Debt" shall include the Company's Senior
Notes due 2003 issued pursuant to that certain Note Purchase Agreement dated
as of April 14, 1989, as amended to and including the Closing Date; and
PROVIDED, FURTHER, that except with respect to Indebtedness pursuant to that
certain Note Purchase Agreement dated as of April 14, 1989, as amended to and
including the Closing Date, "Funded Debt" shall not include (i) Indebtedness
secured by equipment, trailers or modular buildings used in the business of
the Company or (ii) Indebtedness convertible into equity securities of the
Company on commercially reasonable terms.
"Funded Debt Default" means any date 30 days after the Company
shall have Knowledge that it is in default with respect to any Funded Debt,
unless during such 30 day period either (i) such default shall have been
waived by the lender with respect to such Funded Debt or (ii) the agreement
or agreements governing such Funded Debt shall have been amended to eliminate
such default, in either of cases (i) or (ii) without
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Page 12
any economic consideration (other than such consideration required by the
terms of the documentation with respect to such Funded Debt as in effect
prior to any amendment of such documentation described in clause (ii) above)
provided to the lender with respect to such Funded Debt by the Company.
"GAAP" is defined in Section 4.7.
"Governmental Authority" means any federal, territorial, state or
local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any
political or other subdivision, department or branch of any of the foregoing,
in all such cases whether domestic or foreign.
"Group Health Plan" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"Guaranty" is defined in Section 8.9(b).
"Hazardous Materials" means oil, flammable explosives, asbestos,
urea formaldehyde insulation, radioactive materials, hazardous wastes, toxic
or contaminated substances or similar materials, including, without
limitation, any substances which are "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" under any Environmental
Laws.
"Indebtedness" shall mean, as to any Person without duplication,
(a) all items which, in accordance with GAAP, would be included as a
liability on the balance sheet of such Person and its Majority-Owned
Subsidiaries (including any obligation of such Person to the issuer of any
letter of credit for reimbursement in respect of any drafts drawn under such
letter of credit), excluding obligations in respect of deferred taxes and
deferred employee compensation and benefits, and anything in the nature of
capital stock, surplus capital and retained earnings; (b) the amount
available for drawing under all letters of credit issued for the account of
such Person; (c) obligations (whether or not such Person has assumed or
become liable for the payment of such obligation) secured by Liens; (d)
Capital Lease Obligations of such Person; and (e) all guarantees of such
Person, PROVIDED, however, that the term Indebtedness shall not include trade
accounts payable (other than for borrowed money) arising in, and accrued
expenses incurred in, the ordinary course of business of such Person,
PROVIDED the same are not more than 45 days overdue or are being contested in
good faith.
"Intellectual Property Right" means all of the Company's or any
Majority-Owned Subsidiary's rights, title and interest in and to all: (a)
United States and foreign patents and patent applications; (b) copyrights in
computer programs and other works of authorship; (c) trade secrets and
proprietary or confidential business and technical information; (d)
proprietary "know-how," whether or not protectable by patent, copyright or
trade secret right; and (e) United States and foreign trademarks, service
marks, trade names and associated goodwill, and registrations or applications
for registration of an such marks or names.
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Page 13
"Interest Rate Protection Agreement" shall mean an interest rate
swap, cap or collar agreement or similar arrangement between any Person and a
financial institution providing for the transfer or mitigation of interest
risks either generally or under specific contingencies.
"Internal Rate of Return" means, as of the final date of any Fiscal
Quarter after December 31, 1999, the annual internal rate of return deemed
realized by the holders of the Series D Preferred Stock, computed in
accordance with customary financial practices (compounded annually):
(a) assuming:
(i) a deemed initial investment per share of Series D
Preferred Stock as of the Closing Date equal to the Conversion Price (as
defined and computed in accordance with the Series D Certificate of
Designation) as of the date of determination;
(ii) a deemed value for each share of Series D Preferred Stock
as of any date after December 31, 1999 of an amount equal to the then Average
Market Price of a share of Common Stock; and
(b) taking into account all Regular Dividends (as defined in the
Series D Certificate of Designation) actually received with respect to each
such share through and including the date of determination.
"Investments" when used with reference to any investment of the
Company or any of its Majority-Owned Subsidiaries shall mean any investment
so classified under GAAP, and, whether or not so classified, includes,
without duplication, (a) any direct or indirect Loan or advance made by it to
any other Person, (b) any direct or indirect guarantee of the obligations of
any other Person, (c) any capital contribution to any other Person, and (d)
any ownership or similar interest in any other Person; and the amount of any
Investment shall be the original principal or capital amount thereof (PLUS
any subsequent principal or capital amount), including amounts written off in
respect of such principal or capital amounts, MINUS all returns of principal
or capital thereof (whether in cash or other assets, including assets
transferred by virtue of any merger, consolidation or liquidation).
"IRR Trigger Date" shall mean the first day of the first Fiscal
Quarter after the date, if any, after December 31, 1999 on which the Internal
Rate of Return shall exceed 25% per annum; provided, that no IRR Trigger Date
shall occur unless at such time the shares of Common Stock are listed or
trading on a national securities exchange or automated quotation system.
"Knowledge" or "knowledge," with respect to any Person, means the
actual knowledge of such Person, after reasonable inquiry. For purposes
hereof, a Person shall be deemed to have actual knowledge of the contents of
all books and records with respect to which such Person has reasonable
access. Without limiting the generality of the foregoing, with respect to
any Person that is a corporation, partnership
<PAGE>
Page 14
or other business entity, actual knowledge shall be deemed to include the
actual knowledge of all principal employees of any such Person (which, for
purposes of the Company, shall include without limitation Richard N. Zehner,
Vincent S. Pino, Terrence M. White, Jay A. Mericle, Terry A. Andrues, Neil M.
Culinan, Ph.D., Cheryl A. Ford, and Michael W. Grismer) as well as the Chief
Executive Officer, President, Chief Financial Officer and all Vice Presidents
in the case of corporate Persons, and general partners in the case of general
or limited partnerships, as the case may be.
"Lease Agreements" is defined in Section 4.19(b).
"Leased Real Property" means all real property leased, occupied,
operated or controlled by the Company or any Majority-Owned Subsidiary or
otherwise related to or used in the business of the Company or any
Majority-Owned Subsidiary.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether
known or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and
whether or not the same is required to be accrued on the financial statements
of such Person.
"Lien" means any lien, mortgage, pledge, security interest, charge,
or encumbrance of any kind (including any conditional sale or other title
retention agreement or any lease in the nature thereof) and any agreement to
give or refrain from giving any lien, mortgage, pledge, security interest,
charge, or other encumbrance of any kind. For purposes of this Agreement,
the Company or any of its Subsidiaries shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Loan" means the Senior Loan.
"Loan Documents" means, collectively, the Bridge Loan Agreement and
the Senior Note, as amended, supplemented, replaced or modified.
"Long-Term Lease" shall mean any lease which is not a Capital Lease
of any property (whether real, personal or mixed) other than any such lease
having a term (including all renewal terms, whether or not exercised) of less
than 12 months from the date of inception of such lease.
"Material Adverse Effect" means, with respect to any Person or
designated group of Persons, a change in, or effect on, or group of such
changes in or effects on, the operations, financial condition or results of
operations, prospects, assets or Liabilities of the Person or group of
Persons, as the case may be, taken as a whole, that results in a material
adverse effect on, or a material adverse change in, the operations, financial
condition, results of operations, prospects, assets or Liabilities of the
Person or group of Persons, as the case may be, taken as a whole, excluding
adverse changes in the general economy.
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Page 15
"Majority-Owned Subsidiary" means any Subsidiary of which at least
a majority of the outstanding shares, partnership interests or other equity
interests therein is at the time directly or indirectly owned or controlled
by the Company or any other Subsidiary which is a consolidated subsidiary of
the Company under GAAP, or one or more of the Majority-Owned Subsidiaries or
by the Company and one or more of the Majority-Owned Subsidiaries.
"Material Contracts" is defined in Section 4.10(b).
"Multiemployer Plan" means any multiemployer plan as defined in
either Section 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means any Employee Benefit Plan sponsored
by more than one employer, within the meaning of Sections 4063 of 4064 of
ERISA or Code Section 413(c).
"Net Worth" shall mean, as at any date of determination thereof,
the sum of the following for any Person and its consolidated subsidiaries
determined (without duplication) in accordance with GAAP: (a) the amount of
capital stock, plus (b) the amount of surplus and retained earnings (or, in
the case of a surplus or retained earnings deficit, minus the amount of such
deficit).
"Note Purchase Agreement" is defined in Section 8.4.
"Permitted Encumbrances" means: (i) Liens for taxes, assessments or
charges for claims that are not yet due and payable or being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with GAAP; (ii) statutory Liens of carriers, warehousemen, mechanics,
materialmen, bankers and other Liens imposed by law and created in the
ordinary course of business for amounts that are not material, and that are
not yet due and payable or that are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP; (iii)
Liens incurred and deposits made in the ordinary course of business to secure
the performance (including by way of surety bonds or appeal bonds) of
tenders, bids, leases, contracts, statutory obligations or similar
obligations or arising as a result of progress payments under contracts, in
each case in the ordinary course of business and not relating to the
repayment of debt; (iv) easements, rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges,
encumbrances; (v) building restrictions, zoning laws and other statutes,
laws, rules, regulations, ordinances and restrictions; (vi) leases or
subleases approved by, or deemed approved by Investor; (vii) any attachment
or judgment Lien, not otherwise constituting a Default under the Note
Purchase Agreement, in existence less than thirty (30) days after the entry
thereof or with respect to which (A) execution has been stayed, (B) payment
is covered in full by insurance to which Investor has been made the loss
payable party, or (C) Company is in good faith prosecuting an appeal or other
appropriate proceedings for review and has set aside on its books and granted
to
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Investor a priority perfected security interest in such reserves as may be
required by GAAP with respect to such judgment or award; (viii) Liens with
respect to purchase money security interests (including refinancings thereof)
granted in the ordinary course of the Company's business, consistent with
past practice; and (ix) rights of Persons under leases of equipment to such
Person in the ordinary course of business.
"Person" or "person," means any natural person, firm, corporation,
partnership, limited liability company, association, trust, Governmental
Authority or other entity.
"Plan Affiliate" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement,
any Person sponsoring, maintaining or contributing to such plan or
arrangement.
"Preferred Stock" means, collectively, the Series D Preferred Stock
and the Series E Preferred Stock.
"Proceeding" means any action, suit, hearing, arbitration, audit,
investigation or similar proceeding.
"Prohibited Transaction" means a transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA.
"Purchased Stock" has the meaning set forth in Section 2.2.
"Registrable Securities" means (i) the Conversion Stock and the
Series E Conversion Stock; and (ii) any Common Stock of the Company issued or
issuable in respect of the Securities or other securities issued or issuable
pursuant to the conversion of the Securities upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event.
Securities shall cease to constitute "Registrable Securities" at such time
that they are sold or transferred in a transaction wherein the transferee
does not acquire "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act. Securities shall cease to constitute
"Registrable Securities" at such time that they are sold or transferred in a
transaction wherein the transferee does not acquire "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act.
"Refinancing Agreements" means the Assignment and Amended &
Restated Standstill Agreement between the Company, on the one hand, and The
Northwestern Mutual Life Insurance Company, The Travelers Insurance Company,
The Travelers Indemnity Company, The Travelers Life and Annuity Company, The
Lincoln National Life Insurance Company and Bedrock Asset Trust I, on the
other hand, dated as of December 31, 1996.
"Restated Note" shall mean the 7.50% Restated Convertible Senior
Note Due 2003, payable to Investor by the Company, in the form attached
hereto as EXHIBIT
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Page 17
B.
"SEC" is defined in Section 4.29.
"SEC Documents" is defined in Section 4.29.
"Secured Obligations" shall mean, as at any date of determination,
the aggregate principal amount of the term loans and the revolving credit
loans outstanding under the Working Capital Facility.
"Securities" shall mean, collectively, the Series D Preferred
Stock, the Conversion Stock, the Series E Preferred Stock, and the Series E
Conversion Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"Senior Note" means the note evidencing the Senior Loan.
"Senior Note Accrued Interest" is defined in Section 3.3.
"Senior Loan" means the loan extended to the Company by the
Investor in its capacity as lender under the Bridge Loan Agreement.
"Senior Secured Notes" is defined in Section 8.6(d).
"Series C Preferred Stock" is defined in Section 4.2.
"Series D Certificate of Designation" shall mean the Amended
Certificate of Designation, Preferences and Rights of Series D 4% Cumulative
Redeemable Convertible Preferred Stock in the form set forth as EXHIBIT C
hereto.
"Series D Preferred Stock" shall mean the Series D 4% Cumulative
Redeemable Convertible Preferred Stock, with the rights, preferences and
privileges set forth in the Series D Certificate of Designation.
"Series E Certificate of Designation" shall mean the Amended
Certificate of Designation, Preferences and Rights of Series E 4% Cumulative
Redeemable Convertible Preferred Stock in the form set forth as EXHIBIT D
hereto.
"Series E Conversion Stock" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Investor in respect
of the Series E Preferred Stock.
"Series E Preferred Stock" shall mean the Series E 4% Cumulative
Redeemable Convertible Preferred Stock, with the rights, preferences and
privileges set forth in the Series E Certificate of Designation.
"Seventh Amendment Effective Date" shall mean December 31, 1994.
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"State Health Care Program" is defined in Section 4.33.
"Subordinated Debentures" means the Company's 7.50% Senior
Subordinated Debentures due 2005.
"Subsidiary" is defined in Section 4.3.
"Subsidiary Total Debt" shall mean the aggregate amount of
Indebtedness, without duplication, of the Majority-Owned Subsidiaries of the
Company excluding Indebtedness with respect to each guaranty of the Senior
Secured Notes.
"Voting Stock" shall mean, with respect to any corporation, any
shares of Capital Stock of such Corporation having general voting power under
ordinary circumstances to vote for members of the Board of Directors of such
corporation (irrespective of whether at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency).
"Tax" or "Taxes" means any tax or other similar Liability imposed
or collected by any Governmental Authority, including all federal, state,
county, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, occupation, property, excise, value added,
withholding and other taxes, duties or assessments (including the recapture
of any tax items such as investment tax credits), together with any related
interest, penalties and additions and shall include any transferee or
secondary Liability for a Tax and any Liability arising as a result of being
(or ceasing to be) a member of any affiliated, consolidated, combined, or
unitary group or being included (or required to be included) in any Tax
Return relating thereto.
"Tax Agreement" means any sharing, allocation, indemnity or other
agreement or arrangement (written or unwritten) relating to Taxes (other than
this Agreement).
"Tax Return" means any return, report, information return or other
documents (including any related or supporting schedules, statements or
information) filed or required to be filed with any Tax authority or
Governmental Authority in connection with the determination, assessment or
collection of any Taxes of any Person or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
"Working Capital Facility" shall have the meaning specified in
Section 9.06 of the Note Purchase Agreement.
2. PURCHASE AND SALE OF SERIES D PREFERRED STOCK.
2.1 AUTHORIZATION. The Company has authorized the sale and
issuance of up to Eighteen Thousand (18,000) shares of its Series D Preferred
Stock, having the rights, privileges, preferences and restrictions as stated
in the Series D Certificate of Designation set forth as EXHIBIT C to this
Agreement.
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2.2 SALE AND ISSUANCE OF CERTAIN SHARES OF SERIES D PREFERRED
STOCK. Subject to the terms and conditions set forth in this Agreement, the
Investor shall purchase at the Closing (as defined below), and the Company
shall sell and issue to the Investor at the Closing, Eighteen Thousand
(18,000) shares of Series D Preferred Stock (the "Purchased Stock") for a
purchase price of One Thousand Dollars ($1,000.00) per share, or an aggregate
purchase price of Eighteen Million Dollars ($18,000,000) (the "Aggregate
Purchase Price.")
3. CLOSING; DELIVERIES; FORM OF CONSIDERATION.
3.1 THE CLOSING. Subject to the satisfaction or waiver of
the conditions set forth in this Agreement, the closing (the "Closing") of
the purchase and sale of the Series D Preferred Stock shall take place at the
offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles,
California 90071 on a date to which the Company and the Investor may agree
(the "Closing Date").
3.2 DELIVERIES. At the Closing, the Company shall deliver to
the Investor certificates representing the numbers of shares of Purchased
Stock under this Agreement in exchange for delivery to the Company from the
Investor of the consideration specified in Section 2.2 of this Agreement.
3.3 FORM OF CONSIDERATION. The Company hereby acknowledges
and agrees that there is outstanding pursuant to the Senior Note a principal
balance of $18,000,000, plus accrued interest as provided for in the Bridge
Loan Agreement and Senior Note (such accrued interest, the "Senior Note
Accrued Interest"), with such principal balance and Senior Note Accrued
Interest as of the date hereof due and owing to the Investor from the
Company. The Investor shall deliver the Aggregate Purchase Price hereunder
in the form of an exchange of the principal balance due under the Senior Note
for the Purchased Shares. At the Closing, the Company shall pay to the
Investor all Senior Note Accrued Interest in cash.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth on the Company Disclosure Schedule attached hereto as Schedule 4 (the
"Company Disclosure Schedule"), the Company represents and warrants to the
Investor as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties
and assets and to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify, either
alone or together with all other such failures, would have a Material Adverse
Effect on the Company. Schedule 4.1 includes true and complete copies of the
Company's Certificate of Incorporation and Bylaws
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Page 20
currently in effect and a list of all states or other jurisdictions in which
the Company is qualified to do business. All of the terms and provisions of
the Certificate of Incorporation and Bylaws are legal, valid and enforceable.
(b) Each Subsidiary is a corporation or other business
entity duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has all requisite power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted. Each Subsidiary
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify, either along or together
with all other such failures, would have a Material Adverse Effect on such
Subsidiary. Schedule 4.1 contains a list of all states or other
jurisdictions in which each Subsidiary is qualified to do business. All of
the terms and provisions of the organizational documents of each Subsidiary
are legal, valid and enforceable.
4.2 CAPITALIZATION.
(a) The authorized capital of the Company consists of:
(i) Twenty-Five Million (25,000,000) shares of common stock ("Common Stock"),
10,927,471 shares of which will be issued and outstanding immediately after
the Closing Date; (ii) One Million (1,000,000) shares of Preferred Stock, of
which (A) Four Thousand (4,000) shares of Series C Convertible Preferred
Stock ("Series C Preferred Stock") are designated and authorized as of the
Closing Date, 3,876 shares of which will be issued and outstanding
immediately after the Closing Date; (B) Eighteen Thousand (18,000) shares of
Series D Preferred Stock are designated and authorized as of the Closing
Date, all of which will be issued and outstanding immediately after the
Closing Date; and (C) Nine Thousand (9,000) shares of Series E Preferred
Stock are designated and authorized as of the Closing Date, none of which
will be issued and outstanding immediately after the Closing Date. The
outstanding shares of Common Stock and Series C Preferred Stock are fully
paid, non-assessable, free and clear of all encumbrances and have been issued
in compliance with all state and federal securities laws. None of such shares
is subject to any preemptive rights.
(b) The rights, preferences, privileges and restrictions
of the Series D Preferred Stock are as stated in the Series D Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series E Preferred Stock are as stated in the Series E Certificate of
Designation. The shares of Purchased Stock and all other Securities will be
issued in compliance with applicable state and federal securities laws. The
shares of Purchased Stock and all other Securities have been duly authorized.
The shares of Purchased Stock will be validly issued and delivered, fully
paid and non-assessable, and free from restrictions on transfer except as set
forth in this Agreement and pursuant to applicable securities laws as of the
Closing Date. All of the Securities (other than the Purchased Stock), when
and if issued in accordance with this Agreement, the Restated Note, the Note
Purchase Agreement, the Series D Certificate of Designation, and the Series E
Certificate of Designation, as the case may be, will be validly issued and
delivered, fully paid and non-assessable, and free from restrictions on
transfer except as set forth in this Agreement, the Restated Note, the
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Note Purchase Agreement, the Series D Certificate of Designation, or the
Series E Certificate of Designation, as the case may be, and pursuant to
applicable securities laws.
(c) Except for (i) the Conversion Stock relating to the
Series D Preferred Stock, (ii) the issuance of Series E Preferred Stock and
the issuance of Series E Conversion Stock, (iii) the issuance, sale or grant
of rights to purchase (including options and warrants) aggregating up to
990,983 shares of Common Stock to key employees and directors of the Company
outstanding on the date hereof, (iv) warrants relating to an aggregate of
328,900 shares of Common Stock outstanding on the date hereof and (v) for
77,520 shares of Common Stock currently issuable upon conversion of the
Company's outstanding Series C Preferred Stock, the Company has not become
subject to, any commitment or obligation, either absolute or conditional, to
issue, deliver or sell, or cause to be issued, delivered or sold, under
offers, stock option agreements, stock bonus agreements, stock purchase
plans, incentive compensation plans, warrants, options, calls, conversion
rights or otherwise, any shares of the capital stock or other securities of
the Company including securities or obligations convertible into or
exchangeable for any shares of capital stock, other equity securities or
ownership interests, upon payment of any consideration or otherwise. Except
as provided in this Agreement, the Company is not a party or subject to any
agreement or understanding, and, to the Company's Knowledge, there is no
agreement or understanding between any Persons and/or entities, that affects
or relates to the voting or giving of written consents with respect to any of
the Company's voting securities.
4.3 SUBSIDIARIES.
(a) SCHEDULE 4.3 sets forth a correct and complete list of:
(i) the name, number of shares, partnership interests or other equity
interests held, and percentage ownership by the Company in each corporation,
partnership, joint venture or other entity in which the Company has, directly
or indirectly, any equity interest in the capital stock thereof, any
partnership interest, or any other equity interest therein (individually a
"Subsidiary" and collectively "Subsidiaries".) Except as specifically set
forth in SCHEDULE 4.3, the Company owns of record and beneficially all of the
outstanding capital stock of each of the Subsidiaries free and clear of all
Liens. Each of the Subsidiaries is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, is
entitled to own, lease or operate the properties and assets it now owns,
leases or operates, and is qualified to do business, is in good standing and
has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing,
or group of the foregoing, would have a Material Adverse Effect on such
Subsidiary. The shares of capital stock of each Subsidiary shown in SCHEDULE
4.3 to be issued and outstanding have been validly authorized and issued and
are validly outstanding, fully paid and non-assessable. No Subsidiary holds
shares of its capital stock in its treasury, and there are not outstanding
(i) any options, warrants or other rights with respect to the capital stock
of any of the Subsidiaries, (ii) any securities convertible into or
exchangeable for shares of such stock or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options,
warrants or other securities of
<PAGE>
Page 22
any of them. The Company has provided or made available to the Investor
copies of the certificates of incorporation, articles of incorporation,
partnership agreements, limited liability company operating agreements, joint
venture agreements, or other governing documents with respect to each
Subsidiary.
(b) The Company's wholly-owned Subsidiary, EPIC/Alliance of
Texas, Inc., a Texas corporation, has purchased all partnership units
previously owned by any other Person in EPIC/Alliance of North Texas, Ltd., a
Texas limited partnership, and is currently the sole owner of all units of
such partnership. EPIC/Alliance of North Texas, Ltd., has been terminated by
operation of law in accordance with Texas law. Neither the Company nor any
Subsidiary is a party to any partnership or joint venture other than the
Georgia Magnetic Imaging Center Limited Partnership.
4.4 AUTHORIZATION.
(a) The Company has all corporate and other requisite
authority to execute, deliver and carry out and perform its obligations under
the terms of this Agreement and the other agreements referred to herein, and
all of the transactions contemplated hereunder and thereunder, including the
sale and issuance of the Securities. The execution and delivery of this
Agreement and the other agreements referred to herein, and the consummation
of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary action on the part of the Company and, except as
set forth herein, no other approval is required for the performance by the
Company of its obligations hereunder, or thereunder. This Agreement and the
other agreements referred to herein have been, and at Closing will be, duly
executed and delivered by the Company.
(b) This Agreement and the other agreements referred to
herein, when executed and delivered by the Company, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
the rights and remedies of creditors, and general principles of equity
regardless of whether applied in a proceeding in equity or at law.
(c) The Board of Directors of the Company, at a meeting
duly called and held or by a unanimous written consent, has in light of and
subject to the terms and conditions set forth herein, (i) determined that
this Agreement, the other agreements referred to herein, and the transactions
contemplated hereby and thereby, taken together, are in the best interest of
the Company and its shareholders and (ii) approved this Agreement, the other
agreements referred to herein, and the transactions contemplated hereby and
thereby. All required notices to, and approvals and consents of, the
Company's shareholders for this Agreement and the other agreements referred
to herein, and the consummation of the transactions contemplated hereby and
thereby, have been validly given and obtained.
4.5 GOVERNMENTAL AND OTHER CONSENTS; NO VIOLATION. No consent,
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Page 23
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any
other Person is required on the part of the Company in connection with the
Company's valid execution, delivery or performance of this Agreement or the
other agreements referred to herein or the offer, sale or issuance of the
Securities, except as may be required under applicable state "blue sky" laws.
The execution, delivery and performance by the Company of this Agreement,
the issuance of the Purchased Stock and the other Securities, and the
consummation of the other transactions contemplated hereby, do not and will
not (a) violate any provision of the Company's Certificate of Incorporation
or Bylaws as currently in effect, (b) conflict with, result in a breach of,
or constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or, except for consents that have been obtained
and are in full force and effect, require the approval or consent of any
Person pursuant to, any Contractual Obligation of the Company, or (c) result
in the creation or imposition of any Lien upon any asset of the Company.
4.6 LITIGATION. There is no action, suit, claim,
arbitration, litigation, legal, administrative or other proceeding, or
investigation (by any Governmental Authority or otherwise) pending against or
affecting the Company, any Subsidiary or the assets, products or business of
any of them or, to the Knowledge of the Company, any basis therefor or threat
thereof, other than disputes and claims arising in the ordinary course of the
Company's business that could not in the aggregate have a Material Adverse
Effect on the Company and its Subsidiaries. Neither the Company nor any
Subsidiary is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or other Governmental Authority.
There is no action, suit, claim, arbitration, litigation, legal,
administrative or other proceeding, or investigation by the Company or any
Subsidiary currently pending or that the Company or any Subsidiary currently
intends to initiate. There are no judicial or administrative actions,
proceedings or investigations pending or, to the Company's Knowledge,
threatened, against the Company, any Subsidiary or any of their respective
businesses, assets or products that seek to enjoin, question the validity of,
or rescind the transactions contemplated by this Agreement or any of the
other agreements referred to herein or otherwise prevent the Company from
complying with the terms and provisions of this Agreement or any of such
other agreements.
4.7 FINANCIAL STATEMENTS AND REPORTS.
(a) The financial statements contained in the SEC
Reports (collectively, the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods indicated and with each other
(except that the Financial Statements may not contain all footnotes required
by GAAP) and fairly present the consolidated financial condition of the
Company and the Subsidiaries and the consolidated results of operations as of
such dates and for such periods indicated. Since September 30, 1996, there
has not been any material adverse change to the financial condition of the
Company or any Subsidiary as set forth in the Financial Statements. There
are no Liabilities required by GAAP to be disclosed in the Financial
Statements that are not disclosed in the Financial Statements. Except as
reflected in
<PAGE>
Page 24
the Financial Statements, neither the Company nor any Subsidiary is a
guarantor or indemnitor of any indebtedness of any other Person. The Company
maintains a standard system of accounting established and administered in
accordance with GAAP. The Company's accounting policies relating to revenue
recognition, reserves, capitalization expense, depreciation and amortization
are administered in accordance with GAAP. The general ledger, accounts
receivable, accounts payable, bank reconciliations and payroll records of the
Company have been maintained in the ordinary course and contain a correct and
complete record of the matters typically contained in records of such nature.
(b) SCHEDULE 4.7(b) lists all management letters and all
other letters (other than audit letters included in the SEC Documents)
delivered to the Company by the Company's independent auditing firm(s)
relating to the results of operations, financial statements or internal
controls of the Company or any Subsidiary insofar as the same may pertain to
the business or assets of the Company and any Subsidiary during any period
from and after January 1, 1994.
(c) Since January 1, 1994, there has been no material
disagreement (within the meaning of Item 304(a)(1)(iv) of Regulation S-K
under the Securities Act of 1933, as amended (the "Securities Act")) between
the Company and its independent auditing firm(s) concerning any aspect of the
manner in which the Company has reported upon the financial condition and
results of operations of the business or assets of the Company since such
date, that has not been resolved to the satisfaction of the relevant
independent auditing firm.
4.8 PROPRIETARY INFORMATION. To the Company's Knowledge
(which for purposes hereof shall not include the knowledge of the applicable
officer, director or employee), none of the officers, directors or employees
of the Company or any of its Subsidiaries is in violation of any agreement
regarding proprietary information and inventions. To the Company's Knowledge
(which for purposes hereof shall not include the knowledge of the applicable
officer or employee), none of the officers or employees of the Company or any
of its Subsidiaries is in violation of any prior employment contract or
proprietary information agreement with any Person.
4.9 REGISTRATION RIGHTS. Neither the Company nor any
Subsidiary is a party to any agreement or commitment that obligates the
Company to register under the Securities Act any of its presently outstanding
securities or any of its securities that may hereafter be issued, except as
contemplated hereby.
4.10 CONTRACTS.
(a) "Current Customer" means any Person from whom the
Company or any Subsidiary has recognized revenue since January 1, 1995
through the date hereof or to whom the Company or any Subsidiary has any
obligation to complete work or honor any contractual warranty or has any
obligation or Liabilities. Since January 1, 1996 no Current Customers of the
business have canceled or terminated their Contracts, or notified the Company
or any Subsidiary in writing or, to
<PAGE>
Page 25
the Knowledge of the Company or any Subsidiary, orally, of their specific
intent to cancel or terminate their contract, except any such cancellations,
terminations or notifications that in the aggregate could not have a Material
Adverse Effect (taking into account revenue generated from replacement
customers) on the Company and its Subsidiaries.
(b) SCHEDULE 4.10(b) contains a correct and complete
list of all agreements, contracts, indebtedness, liabilities and other
obligations to which the Company or any Subsidiary is a party or by which it
is bound that are material to the conduct and operations of its business and
properties, which provide for payments to or by the Company or any Subsidiary
in excess of $500,000 annually or $2,000,000 in the aggregate, which obligate
the Company or any Subsidiary to share, license or develop any product or
technology, or which involve transactions or proposed transactions between
the Company and any Subsidiary on the one hand, and the officers, directors,
Affiliates or any Affiliate of the Company or any Subsidiary, on the other
hand (collectively, the "MATERIAL CONTRACTS"), excluding any such Material
Contracts that are contracts with Current Customers.
(c) The Company and the Subsidiaries have in all
material respects performed, and are now performing in all material respects,
the obligations under, and are not in default (or to the Company's Knowledge,
would by the lapse of time and/or the giving of notice or otherwise be in
default) in respect of, any of the Material Contracts. To the Company's
Knowledge, each of the Material Contracts is in full force and effect and is
a valid and enforceable obligation against the Company or a Subsidiary, as
applicable, and the other party thereto, in accordance with its terms.
4.11 ABSENCE OF CHANGES. Since January 1, 1996, except as
reflected in the Financial Statements or the SEC Documents, neither the
Company nor any Subsidiary has (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for money
borrowed other than in the ordinary course or any other Liabilities other
than in the ordinary course; (iii) made any loans or advances to any Person
(other than advances for business or travel expenses) or guaranteed the
obligations of any Person; (iv) sold, exchanged or otherwise disposed of any
of its assets or rights, other than the sale, exchange or other disposition
of its equipment and services in the ordinary course of business consistent
with past practice; (v) incurred any change in the assets, Liabilities,
financial condition, operating results, prospects or business of the Company
from that reflected in the Financial Statements, except changes in the
ordinary course of business consistent with past practice that have not been,
in the aggregate, materially adverse; (vi) suffered any damage, destruction
or loss, whether or not covered by insurance, materially and adversely
affecting the assets, properties, financial condition, operating results,
prospects or business of the Company (as such business is presently conducted
and as it is proposed to be conducted); (vii) waived a valuable right or a
debt owed to it, except in the ordinary course of business consistent with
past practice; (viii) satisfied or discharged any Lien, claim or encumbrance
or payment of any obligation, except in the ordinary course of business
consistent with past practice and that is not material to the assets,
properties, financial
<PAGE>
Page 26
condition, operating results, prospects or business of the Company or any
Subsidiary (as such business is presently conducted and as it is proposed to
be conducted); (ix) agreed to or made any material change or amendment to any
Material Contract, except in the ordinary course of business consistent with
past practice; (x) made any material change in any compensation arrangement
or agreement with any employee; (xi) permitted or allowed any of its assets
to be subjected to any material Lien, other than Liens on equipment in the
ordinary course of business consistent with past practice; (xii) written up
the value of any inventory, notes or accounts receivable, or other assets;
(xiii) licensed, sold transferred, pledged, modified, disclosed, disposed of
or permitted to lapse any right to the use of any Intellectual Property
Right; (xiv) made any change in any method of accounting or accounting
practice or any change in depreciation or amortization policies or rates
previously adopted; (xv) paid, lent or advanced any amount to, or sold,
transferred or leased any assets to, or entered into any agreement or
arrangement with, any of its Affiliates, except for directors' fees, and
employment compensation to officers; (xvi) made capital expenditures or
commitments therefor, other than such capital expenditures or commitments
made in the ordinary course consistent with past practice and not exceeding,
in the aggregate, Thirty Million Dollars ($30,000,000) for the period from
September 30, 1996 through the Closing Date; and (xvii) to the Company's
Knowledge, incurred or suffered any other event or condition of any character
that could reasonably be expected to result in a Material Adverse Effect to
the Company or any Subsidiary.
4.12 INTELLECTUAL PROPERTY. The Company and each of the
Subsidiaries owns or possesses adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, technology, software,
trade secrets, know-how and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of their
respective businesses will conflict with, and have not received any notice of
any claim of conflict with, any such rights of others.
4.13 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company
nor any Subsidiary is in violation or default of any provisions of its
Charter or Bylaws (the "CHARTER DOCUMENTS"), or of any provision of
Applicable Law. Neither the Company nor any Subsidiary is in violation or
default of any instrument, judgment, order, writ, decree or oral or written
contract or other agreement to which it is a party or by which it is bound,
except with respect to any such defaults which could not have a Material
Adverse Effect on the Company or the relevant Subsidiary, as the case may be.
The execution, delivery and performance of this Agreement and the other
agreements referred to in this Agreement, and the consummation of the
transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with any provision of the Charter Documents or
Applicable Law, or any instrument, judgment, order, writ, decree, contract or
other agreement, and will not be an event that results in the creation of any
Lien upon any assets of the Company or any Subsidiary or constitute a default
under or give rise to any right of termination, cancellation or acceleration
of, or to a loss of any benefit to which the Company or any Subsidiary is
entitled, under any contract or any license, franchise, permit or similar
authorization relating to the Company or any Subsidiary or by which its
business or assets may be
<PAGE>
Page 27
bound.
4.14 COMPLIANCE WITH LAW; APPROVALS.
(a) The operations of the Company and its Affiliates
have been and will continue to be conducted in accordance with all Applicable
Laws, including, without limitation, all such laws, regulations, orders and
requirements promulgated by any Governmental Authority or relating to
consumer protection, equal opportunity, health care industry regulation,
third party reimbursement (including Medicare and Medicaid), environmental
protection, fire, zoning and building and occupational safety matters, except
for violations that individually or in the aggregate would not and, insofar
as may reasonably be foreseen, in the future will not, have a Material
Adverse Effect on the Company or any Subsidiary.
(b) Neither the Company nor any Affiliate has received
notice of any violation (or of any investigation, inspection, audit, or other
proceeding by any Governmental Authority involving allegations of any
violation ) of any Applicable Law, or is in material default with respect to
any Applicable Law, and to the best Knowledge of the Company and all
Affiliates, no investigation, inspection, audit, or other proceeding by any
Governmental Authority involving allegations of violation of any Applicable
Law is threatened or contemplated.
(c) Neither the Company nor any Affiliate has any
Knowledge of any proposed change in any Applicable Law that would materially
adversely affect the transactions contemplated by this Agreement or all or
any material part of the assets or business of the Company or any Affiliate.
(d) Each of the Company and its Affiliates has, and all
professional employees or agents of each of the Company and its Affiliates
have, all licenses, franchises, permits, authorizations, including
certificates of need, or approvals from all Governmental Authorities
("Approvals") required for the conduct of the business of each of the Company
and its Affiliates and the occupancy and operation, for its present uses, of
the real and personal property which each of the Company and its Affiliates
owns or leases, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on any of
the Company or any Affiliate, and neither the Company nor any Affiliate or
the professional employees or agents of either is in violation of any such
Approval or any terms or conditions thereof, except for such violations as
would not, individually or in the aggregate, have a Material Adverse Effect
on any of the Company or any Affiliate. Each of the Company and its
Affiliates has all Approvals required for the conduct of the business of each
of the Company and its Affiliates and the occupancy and operation, for its
present uses, of the real and personal property which each of the Company and
its Affiliates owns or leases, and neither the Company nor any Affiliate is
in violation of any such Approval or the terms or conditions thereof.
(e) SCHEDULE 4.14(e) sets forth a true and complete list
of all Approvals issued or granted to each of the Company and any Affiliate
(excluding any
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Page 28
licenses granted to any natural person); such list contains a summary
description of each such item and, where applicable, specifies the date
issued, granted or applied for, the expiration date and the current status
thereof.
(f) All such Approvals are in full force and effect,
have been issued to and fully paid for by the holder thereof and, to the
Knowledge of each of the Company and its Affiliates, no suspension or
cancellation thereof has been threatened.
(g) No such Approvals will in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
4.15 TITLE TO ASSETS. The Company and the Subsidiaries have
good and valid title to or a valid leasehold interest in all of the material
tangible assets owned or leased by them, or otherwise used in or pertaining
to the business of the Company and the Subsidiaries as presently conducted,
including all material tangible assets reflected in the Company's most recent
balance sheet included in the Financial Statements and all material tangible
assets purchased or otherwise acquired by the Company or any Subsidiary since
the date of such balance sheet (except for properties and assets sold since
such date in the ordinary course consistent with past practice). None of
such material tangible assets is subject to any material Lien except for
Permitted Encumbrances.
4.16 PLANT, PROPERTY, AND EQUIPMENT. To the Company's
Knowledge, the Leased Real Property, and other plant, property, equipment,
leasehold improvements and other material tangible assets of the business,
conform in all material respects with Applicable Law; are structurally sound
with no material defects; are in good operating condition and repair
(ordinary wear and tear excepted); and are adequate in all material respects
for the purposes for which they are being used.
4.17 ACCOUNTS AND NOTES RECEIVABLE. Except to the extent of
applicable reserves for doubtful accounts and contract reserves shown on the
Company's most recent balance sheet included in the Financial Statements, all
of the accounts, notes and other receivables owed to the Company or any
Subsidiary as of the date hereof or thereafter acquired or arising prior to
the Closing Date, constitute, and as of the Closing Date will constitute,
valid and enforceable claims (subject, as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting creditors' rights, and, with respect to the remedy of specific
performance, equitable doctrines applicable thereto) arising from bona fide
transactions on the part of the Company and the Subsidiaries and, to the
Company's Knowledge, bona fide transactions for parties other than the
Company and the Subsidiary in the ordinary course, and there are no claims,
refusals to pay or other rights of set-off against any thereof (other than
ordinary course disputes that could not in the aggregate have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole). None
of such accounts is pledged to any third party. The reserve for doubtful
accounts shown on the Company's most recent balance sheet included in the
Financial Statements is in accordance with GAAP.
<PAGE>
Page 29
4.18 INDEBTEDNESS. SCHEDULE 4.18 sets forth a true and
complete list of all indebtedness of the Company or any Subsidiary for
borrowed money as of March 1, 1997.
4.19 REAL PROPERTY.
(a) NO OWNED REAL PROPERTY. Neither the Company nor any
Subsidiary has or has ever had any fee or other direct or indirect ownership
interest in any real property.
(b) LEASED REAL PROPERTY AGREEMENTS. SCHEDULE 4.19(B)
sets forth a true and complete list of all Leased Real Property and a list of
all of the agreements (as amended) to which the Company or any Subsidiary is
a party relating thereto (the "Lease Agreements"). To the Company's
Knowledge, all the Lease Agreements are in full force and effect and are
valid and enforceable against the other parties thereto in accordance with
their terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto). Neither the Company nor any
Subsidiary is in default under any of the Lease Agreements. To the Company's
Knowledge, no other Person party to the Lease Agreements is in default under
any of the Lease Agreements. There are no other agreements that concern any
right, title or interest in or to the Leased Real Property or grant to a
third party the right to occupy the premises used in the business, other than
Permitted Encumbrances. The Closing will not affect the rights to the
continued use and possession of the Leased Real Property on the terms and
conditions specified in the Lease Agreements for the purposes for which such
property is now used in the business.
(c) LEASES OF REAL PROPERTY TO OTHERS. To the Company's
Knowledge, no Leased Real Property is subject to any lease or other right of
use of possession by any Person other than the Company or a Subsidiary.
(d) LEGAL PROCEEDINGS AFFECTING PROPERTY. To the
Company's Knowledge, there is not: (i) any planned public improvement that
will result in any charge being levied or assessed against any Leased Real
Property or that would create any encumbrance upon such property, (ii) any
condemnation proceeding with respect to any Leased Real Property, (iii) any
proposal by a tax authority to change materially the assessed value or
assessment rates of any Leased Real Property, or (iv) any other claim, suit,
proceeding, order or demand of any Governmental Authority or any Persons that
could have a material adverse impact on the value, right to develop, use or
condition of any Leased Real Property.
(e) DISPUTES. There is no currently pending material
claim, dispute or controversy with respect to any of the Lease Agreements.
To the Company's Knowledge, no Person has raised any material claim, dispute
or controversy with respect to any of the Lease Agreements since January 1,
1995.
<PAGE>
Page 30
4.20 EMPLOYEE PLANS AND ARRANGEMENTS.
(a) There are no employment, consulting, change of
control, severance pay, continuation pay, termination pay, loans, guarantees
or indemnification agreements or other similar agreements of any nature
whatsoever (collectively, "Employment Agreements") between the Company, on
the one hand, and any current or former shareholder, officer, director,
employee or Affiliate of the Company or any consultant or agent of the
Company, on the other hand, that, as a direct result of the transactions
contemplated by this Agreement, (i) will require any payment by the Company
or any consent or waiver from any shareholder, officer, director, employee or
Affiliate of the Company or any consultant or agent of the Company, or (ii)
will result in any change in the nature of any rights of any shareholder,
officer, director, employee or Affiliate of the Company or any consultant or
agent of the Company under any such Employment Agreement or other similar
agreement (including, without limitation, any accelerated payments, deemed
satisfaction of goals or conditions, new or increased benefits, or additional
or accelerated vesting).
(b) SCHEDULE 4.20(B) sets forth all Employee Benefit
Plans and Benefit Arrangements of the Company and each Subsidiary that are
currently in effect.
(c) Neither the Company nor any of its ERISA Affiliates
sponsors or has sponsored, maintained, contributed to, or incurred an
obligation to contribute to, any Employee Pension Benefit Plan (whether or
not terminated).
(d) Neither the Company nor any of its ERISA Affiliates
sponsors or has sponsored, maintained, contributed to, or incurred an
obligation to contribute to any Multiemployer Plan or Multiple Employer Plan
(whether or not terminated).
(e) No agreement, commitment or obligation exists to
increase benefits under any Benefit Plan or to adopt any new Benefit Plan.
Further, no individual will accrue or receive additional benefits, service or
accelerated rights to payments of benefits under any Benefit Plan, including
the right to receive any parachute payment, as defined in Section 280G of the
Code, or become entitled to severance, termination allowance or similar
payments as a result of the transactions contemplated by this Agreement, and
the Company is not a party to any agreement or arrangement that could result
in the payment of any such benefits or payments.
(f) No Employee Benefit Plan has participated in,
engaged in or been a party to any Prohibited Transaction, and neither the
Company nor any of its ERISA Affiliates has had asserted against it any claim
for any excise tax or penalty imposed under ERISA or the Code with respect to
any Employee Benefit Plan nor, to the knowledge of the Company, is there a
basis for any such claim. No officer, director or employee of the Company or
any ERISA Affiliate has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA
<PAGE>
Page 31
with respect to any Employee Benefit Plan, with respect to which breach the
Company is or could be directly or indirectly liable.
(g) Other than routine uncontested claims for benefits,
there is no claim pending involving any Benefit Plan by any Person against
such plan or the Company or any ERISA Affiliate, nor, to the knowledge of the
Company, is any such claim threatened. There is no pending or to the
knowledge of the Company, threatened, Proceeding involving any Employee
Benefit Plan before the Internal Revenue Service, the United States
Department of Labor or any other Governmental Authority.
(h) There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any
Employee Benefit Plan.
(i) Each Benefit Plan has been maintained in all
material respects, by its terms and in operation, in accordance with both its
plan documents and with ERISA, the Code and all other Applicable Laws. The
Company and its ERISA Affiliates have made full and timely payment of all
amounts required to be contributed under the terms of each Benefit Plan and
Applicable Law or required to be paid as expenses or benefits under such
Benefit Plan, and has made adequate provision for reserves to satisfy
contributions and payments not yet made because they are not yet due under
the terms of the Benefit Plan or Applicable Law. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code is and has
always been so qualified, and either has received a favorable determination
letter with respect to such qualified status from the IRS or has filed a
request for such a determination letter with the IRS within the remedial
amendment period such that such determination of qualified status will apply
from and after the effective date of any such Employee Benefit Plan.
(j) With respect to any Group Health Plans maintained by
the Company or its ERISA Affiliates, whether or not for the benefit of the
Company's employees, the Company and its ERISA Affiliates have complied in
all material respects with the provisions of COBRA. The Company is not
obligated to provide health care benefits of any kind to its retired or
former employees or their dependents pursuant to any agreement or
understanding.
(k) Except pursuant to the provisions of COBRA, neither
the Company nor any ERISA Affiliate maintains any Employee Benefit Plan that
provides benefits described in Section 3(1) of ERISA to any former employees
or retirees, or the beneficiaries of any of them, of the Company or its ERISA
Affiliates.
(l) The Company has made available to the Investor a
copy of (i) the three (3) most recently filed Federal Form 5500 series and
accountant's opinion, if applicable, for each Employee Benefit Plan other
than Multiemployer Plans. All information provided by the Company, as
applicable, to any individual in connection with the preparation of any such
opinion or report was true, correct and complete in all
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respects.
(m) Each Benefit Plan can be amended or terminated
at any time without approval from any Person, without advance notice, and
without any liability other than for benefits accrued prior to such amendment or
termination.
(n) In connection with any Employee Pension Benefit
Plan currently maintained by the Company or any ERISA Affiliate, (i) there have
been no accumulated funding deficiencies (within the meaning of Code Section
412), whether or not waived, (ii) there have been no reportable events
(within the meaning of ERISA Section 4043(b)), and (iii) no circumstances
exist that would warrant a termination of any such plan by the Pension
Benefit Guaranty Corporation pursuant to ERISA Section 4042. No Employee
Pension Benefit Plan has been terminated within the last five years in other
than a standard termination under Section 4041(b) of ERISA and all
liabilities under such plans have been adequately and properly discharged.
4.21 EMPLOYEES.
(a) Neither the Company nor any Subsidiary has or
has ever had any employees represented by collective bargaining agents.
(b) The Company and each Subsidiary has complied in
all material respects with all Applicable Laws respecting employment and
employment practices, terms and conditions of employment, and wages and
hours. Neither the Company nor any Subsidiary has or could reasonably be
expected to have any material Liability to any former employee or individual
who provided services to the Company in a capacity other than as an employee
in circumstances where such Liability arises or would arise under the express
terms of a Benefit Plan. No charges of employment or labor law violations
exist or, to the Company's Knowledge, are threatened, before any Governmental
Authority concerning any current, prospective or former employees or
independent contractors of the Company or any Subsidiary, and no valid basis
exists for any such charge.
(c) There is no strike, labor dispute, work
slowdown or work stoppage actually pending or, to the Knowledge of the
Company, threatened, against the Company or any of its Subsidiaries or, to
the Knowledge of the Company, any of its key subcontractors or suppliers. No
collective bargaining representation petition is pending or, to the Knowledge
of the Company, threatened against the Company or any Subsidiary.
4.22 INSURANCE. Each of the Company and each Subsidiary
has in full force and effect and will maintain (i) insurance on its assets
and activities of a type customarily insured, covering property damage and
loss of income by fire or other casualty, in amounts customary for companies
similarly situated as the Company or the Subsidiary, as the case may be, and
(ii) insurance protection against all Liabilities, claims and risks against
which, and in such amounts as, are customary for companies similarly situated
as the Company to insure.
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4.23 ENVIRONMENTAL COMPLIANCE.
(a) The Company and each Subsidiary has obtained
all approvals, authorizations, certificates, consents, licenses, orders and
permits or other similar authorizations of any Governmental Authority, or
from any other Person, that are required under any Environmental Law and
relate to its business, its assets or its products. SCHEDULE 4.23(A) sets
forth (i) all permits, licenses and other authorizations issued under any
Environmental Law to the Company or any Subsidiary relating to its business,
its assets or its products and (ii) a description and good faith estimate by
the Company of the costs of all capital expenditures that may be necessary to
maintain or continue to be qualified for each such permit, license or other
authorization.
(b) The Company and each Subsidiary is in
compliance in all material respects with all terms and conditions of all
approvals, authorizations, certificates, consents, licenses, orders and
permits or other similar authorizations of any Governmental Authority (and
all other Persons) required under all Environmental Laws and used in its
business or that relate to its assets, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under
all Environmental Laws.
(c) There is no pending or, to the Company's
Knowledge, threatened, proceeding, citation or notice of violation under any
Environmental Law relating to the Company or any Subsidiary, or any of the
equipment, business or assets of the Company or any Subsidiary.
(d) There are no past or present events,
conditions, circumstances, activities, practices, incidents, actions,
omissions or plans that may interfere with or prevent continued compliance by
the Company or any Subsidiary with any Environmental Law, or that may give
rise to any Liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (1) under any
Environmental Law, (2) based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or
the emission, discharge, release or threatened release of any Hazardous
Material, or (3) resulting from exposure to workplace hazards.
(e) Neither the Company nor any Subsidiary is
required to make any capital or other expenditures to comply with any
Environmental Law nor is there any reasonable basis on which any Governmental
Authority could take any action that would require any such capital
expenditures.
4.24 NO UNDISCLOSED LIABILITIES. There are no
Liabilities of the Company or any Subsidiary required to be reflected on a
balance sheet prepared in accordance with GAAP except: (a) Liabilities
accrued or reserved on the Financial Statements; and (b) Liabilities incurred
in the ordinary course of business since the most recent Financial Statement
that are not individually or in the aggregate material to the
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Company or any Subsidiary.
4.25 TAXES.
(a) All Company Tax Returns have been properly and
timely filed and all such Tax Returns are correct and complete in all
material respects. Each affiliated group with which any of the Company and
its Subsidiaries files a consolidated or combined Tax Return has filed all
such Tax Returns that it was required to file for each taxable period during
which any of the Company and its Subsidiaries was a member of the group. All
such consolidated and combined Tax Returns were correct and complete in all
material respects.
(b) All Taxes due and payable by the Company and/or
its Subsidiaries (whether or not shown on any Tax Return) have been timely
paid in full. All income Taxes owed by any affiliated group with which any
of the Company and its Subsidiaries files a consolidated or combined Tax
Return (whether or not shown on any Tax Return) have been paid for each
taxable period during which any of the Company and the Subsidiaries was a
member of the group.
(c) There is no (nor is there any pending request
for an) agreement, waiver or consent providing for an extension of time with
respect to the assessment or collection of, or statute of limitations
regarding, any Taxes or the filing of any Tax Returns that is currently in
effect and no power of attorney granted by or with respect to the Company or
any Subsidiary with respect to any Tax matter is currently in force.
(d) There is no pending audit, examination or
investigation with respect to any Company Tax Returns, nor is there pending
any notice of the initiation thereof; there is no action, suit, proceeding
(administrative or court), claim, demand, deficiency or additional assessment
pending or, to the Knowledge of Company, threatened with respect to any
Company Tax Returns.
(e) The Company and its Subsidiaries have withheld
all Taxes required to have been withheld and paid by them on their behalf in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party, and such withheld
Taxes have either been duly paid to the proper Governmental Authority or set
aside in accounts for such purpose.
(f) None of the Company and its Subsidiaries (A)
has been a member of any affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of which is the
Company) and (B) has any liability for the Taxes of any Person as defined in
Section 7701(a)(1) of the Code (other than the Company and its Subsidiaries)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local,
or foreign tax), as a transferee or successor, by contract, or otherwise.
(g) The charges, accruals and reserves for Taxes
(including deferred Taxes) currently reflected on the Financial Statements in
accordance
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with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Company and its Subsidiaries in respect of taxable periods that end on or
before the Closing Date and for any taxable periods that begin before the
Closing Date and end thereafter to the extent such Taxes are attributable to
the portion of such period ending on the Closing Date (determined under the
closing of the books method of allocation).
(h) Neither the Company nor any Subsidiary has
agreed, requested, or been requested to make, or is required to make, any
adjustment to taxable income for any taxable period after the Closing under
Section 481(a) or 263A of the Code or any comparable provision of state or
foreign tax laws by reasons of a change in accounting method or otherwise.
(i) There are no encumbrances (other than Permitted
Encumbrances) on any asset or property of the Company or any Subsidiary
arising out of, connected with, or related to any Tax imposed on the Company,
its Subsidiaries, or any of their businesses or properties.
(j) The Company is not a party to, is not bound by,
and has no obligation (or potential obligation) under any Tax Agreement.
(k) Neither the Company nor any Subsidiary is a
party to any agreement with an Affiliate relating to a foreign sales
corporation or "FSC" within the meaning of Section 922 of the Code; or a
domestic international sales corporation or "DISC" within the meaning of
Section 992 of the Code.
(l) All Tax years (or periods) with respect to the
Federal income Tax Liabilities of the Company, and its assets or operations
are closed.
(m) Other than the elections made in the Tax
Returns provided to or made available to the Investor, no agreement, consent,
or election for foreign, Federal, state or local tax purposes that would
affect or be binding on the Company or any Subsidiary after the Closing has
been filed or entered into by the Company or any Subsidiary. No consent has
been filed with respect to the Company or any Subsidiary under Section 341(f)
of the Code.
(n) SCHEDULE 4.25 lists all federal, state, local,
and foreign Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit, other than (i) Tax Returns
relating to closed years, and (ii) Tax Returns that have been audited, where
such audit did not result in any material change in any tax due from Company
or any Subsidiary to any Governmental Authority. Correct and complete copies
of all federal Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company or any of its
Subsidiaries since January 1, 1995 have been delivered or made available to
Investor.
4.26 NO RESEARCH GRANTS. Neither the Company nor any of
its Subsidiaries since inception has provided any research, educational or
study grants or other financial support of any kind to any hospital,
physician, or health care provider.
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4.27 CERTAIN REGULATORY MATTERS. Neither the Company nor
any of its Subsidiaries since inception has received notice that the Company
or any Subsidiary has been, or to the Company's knowledge has been, the
subject of any investigative proceeding before any federal or state
regulatory authority or the agent of any such authority, including without
limitation federal and state health authorities.
4.28 TRANSACTIONS WITH AFFILIATES. Except for regular
salary payments and fringe benefits under an individual's compensation
package with the Company or any Subsidiary, none of the officers, employees,
directors or other Affiliates of the Company or any Subsidiary or members of
their families is a party to any agreements, understandings, indebtedness or
proposed transactions with the Company or any Subsidiary or is directly
interested in any Contract with the Company or any Subsidiary. Neither the
Company nor any Subsidiary has guaranteed or assumed any obligations of their
respective officers, directors, employees or other Affiliates, or members of
any of their families. To the Company's Knowledge, none of such Persons has
any direct or indirect ownership interest in any firm or entity with which
the Company or any Subsidiary is affiliated or with which the Company or any
Subsidiary has a business relationship, or any entity that competes with the
Company or any Subsidiary, other than publicly traded companies that may
compete with the Company or any Subsidiary.
4.29 REPORTS; SEC DOCUMENTS. All material reports,
documents and notices required to be filed, maintained or furnished with or
to any Governmental Authority by the Company or any Subsidiary have been so
filed, maintained or furnished. All such reports, documents and notices were
complete and correct in all material respects on the date filed (or were
corrected in or superseded by a subsequent filing such that no Liabilities
exist with respect to the original filing, maintenance or furnishing
thereof). The Company has heretofore furnished to or made available to the
Investor complete copies of all registration statements, reports and proxy
statements, including amendments thereto, filed with the Securities and
Exchange Commission (the "SEC") since January 1, 1995 and prior to the date
of this Agreement (collectively, the "SEC Documents"). None of the SEC
Documents contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained therein not
misleading.
4.30 DISCLOSURE. Neither this Agreement nor the other
agreements referred to in this Agreement nor any other statements or
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they are made, not misleading.
4.31 BROKERS. Neither the Company nor any Subsidiary has
dealt with, or incurred liability for a fee to, any finder, broker,
investment banker or financial advisor in connection with any of the
transactions contemplated by this Agreement or the negotiations looking
toward the consummation of such transactions.
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4.32 CERTAIN ADDITIONAL REGULATORY MATTERS. Neither the
Company nor any Affiliate, nor the officers, directors, employees or agents
of any of the Company or any Affiliate, and none of the Persons who provide
professional services under agreements with any of the Company or any
Affiliate as agents of such entities have engaged in any activities which are
prohibited, or are cause for civil penalties or mandatory or permissive
exclusion from Medicare or Medicaid, under Sections 1320a-7, 1320a-7a,
1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute
("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which the Company or any of its
Affiliates seeks accreditation or by generally recognized professional
standards of care or conduct, including but not limited to the following
activities:
(a) knowingly and willfully making or causing to be
made a false statement or representation of a material fact in any
application for any benefit or payment;
(b) knowingly and willfully making or causing to be
made any false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) presenting or causing to be presented a claim
for reimbursement under CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program that is (i) for an item or
service that the Person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service and the
Person presenting knows or should know that the claim is false or fraudulent;
(d) knowingly and willfully offering, paying,
soliciting or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in kind (i)
in return for referring, or to induce the referral of, an individual to a
Person for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by CHAMPUS,
Medicare or Medicaid, or any other State Health Care Program or any Federal
Health Care Program, or (iii) in return for, or to induce, the purchase,
lease, or order, or the arranging for or recommending of the purchase, lease,
or order, of any good, facility, service, or item for which payment may be
made in whole or in party by CHAMPUS, Medicare or Medicaid or any other State
Health Care Program or any Federal Health Care Program; or
(e) knowingly and willfully making or causing to be
made or inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading)
or a material fact with respect to (i) the conditions or operations of a
facility in order that the facility may qualify for CHAMPUS,
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Medicare, Medicaid or any other State Health Care Program certification or
any Federal Health Care Program certification, or (ii) information required
to be provided under Section 1124(A) of the Social Security Act ("SSA") (42
U.S.C. Section 1320a-3).
4.33 MEDICARE/MEDICAID PARTICIPATION. Neither the
Company nor any other Person who after the Closing will have a direct or
indirect ownership interest (as those terms are defined in 42 C.F.R. Section
1001.1001(a)(2)) in the Company or any Affiliate of 5% or more (other than
Investor), or who will have an ownership or control interest (as defined in
SSA Section 1124(a)(3), or any regulations promulgated thereunder) in the
Company or any Affiliate (other than Investor), or who will 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 Company or any Affiliate and (ii) to the best
Knowledge of the Company and any Affiliate, no Person or entity with any
relationship with such entity (including without limitation a parent company
or shareholder of, or partner in an Affiliate) who after the Closing will
have an indirect ownership interest (as that term is defined in 42 C.F.R.
Section 1001.1001(a)(2)) in the Company or any Affiliate of 5% or more (other
than Investor): (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:
(a) 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;
(b) criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
health care item or service;
(c) criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or local
governmental agency;
(d) federal or state laws relating to the
interference with or obstruction of any investigation into any criminal
offense described in (a) through (c) above; or
(e) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
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5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor represents and warrants to the Company as follows:
5.1 ACCREDITED INVESTOR. The Investor is an "accredited
investor" as defined by the SEC's Rule 501 under the Securities Act.
5.2 INVESTMENT INTENT. The Investor is acquiring the
Purchased Stock , and will acquire the other Securities, as applicable, for
its own account or one of its affiliates, and not with a present view to, or
for sale in connection with any, distribution thereof, provided that the
disposition of the Investor's property shall at all times be and remain
within its control.
5.3 CERTAIN SECURITIES LAW ISSUES. The Investor
understands that the shares of Purchased Stock and the other Securities are
or will be "restricted securities" under the federal securities laws inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only
in certain limited circumstances.
5.4 AUTHORIZATION. All corporate action on the part of
the Investor necessary for the authorization, execution, delivery and
performance by the Investor of this Agreement and the other agreements
referred to in this Agreement, the purchase of the shares of Purchased Stock,
and the performance of all of the Investor's obligations hereunder and
thereunder have been taken or will be taken prior to the Closing. This
Agreement, when executed and delivered by the Investor, will constitute a
valid and binding obligation of the Investor, enforceable against the
Investor in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
the rights and remedies of creditors, and general principles of equity
regardless of whether applied in a proceeding in equity or at law. This
Agreement and the other agreements referred to herein have been, and at
Closing will be, duly executed and delivered by the Investor.
5.5 BROKERS. The Investor has not dealt with, or
incurred Liability for a fee to, any finder, broker, investment banker or
financial advisor in connection with any of the transactions contemplated by
this Agreement or the negotiations looking toward the consummation of such
transactions.
6. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The
obligations of the Investor to purchase and pay for the shares of Purchased
Stock and the other obligations of the Investor under this Agreement are
subject to the fulfillment at or prior to the Closing of the following
conditions, any of which may be waived in writing in whole or in part by the
Investor:
6.1 REPRESENTATIONS AND WARRANTIES. On the date of the
Closing, the representations and warranties of the Company contained in
Section 4 shall be true and correct in all respects with the same force and
effect as though such
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representations and warranties had been made at and as of the time of
Closing, except to the extent that any changes therein are specifically
contemplated by this Agreement.
6.2 PERFORMANCE. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it at or
prior to the Closing.
6.3 NO INJUNCTION. There shall not be in effect any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits consummation of the transactions contemplated
hereby.
6.4 QUALIFICATIONS; LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any Governmental Authority
or any other Person that are required in connection with the lawful sale and
issuance of the shares of the Purchased Stock and the consummation of the
transactions contemplated by this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the shares of the Purchased Stock or the proposed
issuance of the Conversion Stock relating thereto shall have been issued and
no proceedings for such purpose shall be pending or, to the knowledge of the
Company and the Investor, threatened by the SEC, the California Commissioner
of Corporations or any commissioner of corporations or similar officer of any
state having jurisdiction over this transaction. At the time of the Closing,
the sale and issuance of the shares of Purchased Stock and the Conversion
Stock relating thereto shall be legally permitted by all laws and regulations
to which the Company and the Investor are subject.
6.5 COMPLETION OF REVIEW OF THE COMPANY. The Investor
shall have completed and been satisfied in its sole discretion with its
review of the business, operations, properties, assets, liabilities,
prospects and condition, financial and otherwise, of the Company and the
Subsidiaries.
6.6 CERTIFICATES OF DESIGNATION. The Company shall have
adopted and duly filed with the Secretary of State of Delaware the Series D
Certificate of Designation in the form set forth in EXHIBIT C to this
Agreement. The Company shall adopt and duly file with the Secretary of State
of Delaware the Series E Certificate of Designation in the form set forth in
EXHIBIT D to this Agreement.
6.7 CLOSING DOCUMENTS. The Company shall have delivered
to the Investor, unless waived in writing by the Investor:
(a) copies (certified by the Secretary of the
Company) of the resolutions duly adopted by the Board of Directors of the
Company, authorizing the execution, delivery and performance of this
Agreement and the other agreements contemplated hereby;
(b) a copy (certified by the Secretary of the State of
Delaware) of the Certificate of Incorporation as amended through the date of the
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Closing and a copy (certified by the Secretary of the Company) of the
Company's Bylaws as amended through the date of the Closing; and
(c) an executed copy of the Restated Note;
(d) an executed copy of the Eleventh Amendment;
(e) such other documents relating to the
transactions contemplated by this Agreement as the Investor or the Investor's
counsel may reasonably request.
6.9 OPINIONS OF COMPANY CORPORATE AND REGULATORY
COUNSEL. The Investor shall have received the opinion of Irell & Manella
LLP, corporate counsel to the Company, in the form set forth as EXHIBIT E
hereto. The Investor shall have received the opinions of Reed, Smith Shaw &
McClay and Anderson, Walker & Reichert, regulatory counsel to the Company, in
the forms set forth respectively as EXHIBIT F-1 and EXHIBIT F-2 hereto.
6.10 MATERIAL ADVERSE CHANGES. Since the date of the
Bridge Loan Agreement, there shall not have been any material adverse change
in the Company or any Subsidiary, and no event (including a breach of any
agreement to which the Company or any Subsidiary is a party) shall have
occurred, that may, in the sole judgment of the Investor, result in such a
material adverse change.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company under this Agreement are subject to the
fulfillment at or prior to the Closing of the following conditions, any of
which may be waived in writing in whole or in part by the Company:
7.1 REPRESENTATIONS AND WARRANTIES. On the date of the
Closing, the representations and warranties of the Investor contained in
Section 5 shall be true and correct in all respects with the same force and
effect as though such representations and warranties had been made at and as
of the time of Closing, except to the extent that any changes therein are
specifically contemplated by this Agreement.
7.2 PERFORMANCE. The Investor shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by such Investor
on or before the Closing, including payment to the Company of the Purchase
Price set forth in Section 2.2(a) of this Agreement.
7.3 NO INJUNCTION. There shall not be in effect any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits consummation of the transactions contemplated
hereby.
7.4 QUALIFICATIONS; LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any Governmental Authority
that are required in connection with the lawful sale and issuance of the
shares of Purchased Stock and
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consummation of the transactions contemplated by this Agreement and the other
agreements referred to herein shall have been duly obtained and shall be
effective on and as of the Closing. No stop order or other order enjoining
the sale of the shares of Purchased Stock or the proposed issuance of the
Conversion Stock relating thereto shall have been issued and no proceedings
for such purpose shall be pending or, to the knowledge of the Company or the
Investor, threatened by the SEC, the California Commissioner of Corporations
or any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale and
issuance of the shares of the Purchased Stock and the Conversion Stock
relating thereto shall be legally permitted by all laws and regulations to
which the Company and the Investor are subject.
8. COVENANTS.
8.1 BEST EFFORTS. Subject to the terms and conditions
herein rpovided, the parties agree to use their best commercially reasonable
efforts to cause all actions, and to do, or cause to be done, all things
necessary, proper or advisable under Applicable Law to consummate and make
effective the transactions contemplated by this Agreement.
8.2 CONVERSION STOCK. The Company shall at all times keep
available out of its authorized but unissued shares of Common Stock, for the
purpose of effecting the conversion of the shares of Series D Preferred Stock
and the shares of Series E Preferred Stock, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of the
shares of Series D Preferred Stock and Series E Preferred Stock from time to
time outstanding. If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of the then
outstanding shares of Series D Preferred Stock and Series E Preferred Stock, the
Company shall forthwith take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
8.3 RESTRICTIVE AGREEMENTS PROHIBITED. The Company
shall not become a party to any agreement which by its terms violates the
terms of this Agreement, the Restated Note, the Note Purchase Agreement (as
defined below), the terms of the Series D Preferred Stock as set forth in the
Series D Certificate of Designation, or the terms of the Series E Preferred
Stock as set forth in the Series E Certificate of Designation.
8.4 COMPLIANCE WITH ELEVENTH AMENDMENT AND RESTATED
NOTE. The Company will comply in all respects with the terms of the Note
Purchase Agreement dated as of April 14, 1989, as amended to the date hereof
(including without limitation as amended by the Eleventh Amendment) (the
"Note Purchase Agreement") and the Restated Note. Without limiting the
foregoing, upon a request by Investor to convert all or a portion of the
principal amount of indebtedness owing to the Investor under the Restated
Note to Series E Preferred Stock (under the terms and conditions set forth in
the Eleventh Amendment, the Restated Note, and the Series E Certificate of
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Designation), the Company promptly will issue the applicable amount of such
Series E Preferred Stock to the Investor.
8.5 CERTAIN REGULATORY MATTERS.
(a) The operations of the Company and its
Affiliates will be conducted in accordance with all Applicable Laws,
including, without limitation, all such laws, regulations, orders and
requirements promulgated by any Governmental Authority or relating to
consumer protection, equal opportunity, health care industry regulation,
third party reimbursement (including Medicare and Medicaid), environmental
protection, fire, zoning and building and occupational safety matters, except
for violations that individually or in the aggregate would not and, insofar
as may reasonably be foreseen, in the future will not, have a Material
Adverse Effect on the Company or any Subsidiary.
(b) Without limiting the generality of the
foregoing, the operations of the Company and its Affiliates will be conducted
in accordance with all laws, regulations, orders and requirements relating to
health care industry regulation and third party reimbursement (including
Medicare and Medicaid).
(c) Without limiting the generality of the
foregoing, the Company and all Affiliates shall comply in all material
respects with all directives, orders, instructions, bulletins and other
announcements received from third party payors and their agents (including
without limitation Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, and including without
limitation preparation and submission of claims for reimbursement. Nothing
in this Section 8.5 shall be construed as or is intended to create any third
party beneficiaries.
(d) The Company shall provide written notice to the
Investor within ten (10) Business Days after acquiring any partnership
interest, limited liability company interest, or other equity interest in any
Subsidiary not listed on Schedule 4.3 hereto. Such notice shall contain a
description of the Subsidiary and the equity interest acquired by the Company
in such Subsidiary. Nothing in this Section 8.5(d) shall be construed to
derogate from any other obligations of the Company set forth in this
Agreement, including without limitation the restrictions on Investments set
forth in Section 8.10 hereof.
8.6 FINANCIAL STATEMENTS AND INFORMATION. The Company
will furnish to the Investor and to any of its Affiliates, so long as the
Investor or such Affiliates shall hold any Securities, and to each other
institutional holder of any Securities so long as such Securities remain
Registrable Securities (such a holder in any such case being hereinafter
called an "Eligible Holder"):
(a) Quarterly Financial Statements. As soon as
available and in any event within 45 days after the end of each of the first
three fiscal quarterly periods of each Fiscal Year of the Company, the
Company's quarterly report on Form 10-Q as filed with the Securities and
Exchange Commission.
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(b) Annual Financial Statements. As soon as
available and in any event within 120 days after the end of each Fiscal Year
of the Company, the Company's Annual Report on Form 10-K and related Annual
Report to Shareholders as filed with the Securities and Exchange Commission.
(c) SEC Reports; Mailings to Shareholders. Promptly
after sending or making available or filing of the same, copies of all
registration statements, proxy statements, financial statements and reports
on forms 10-K, 10-Q and 8-K (or any comparable successor form), if any, which
the Company or any of its Subsidiaries shall file with the Securities and
Exchange Commission or any national securities exchange. In addition, (i) at
the same time that the Company makes a mailing to its shareholders generally
and (ii) promptly after the Company issues a press release, the Company shall
provide a copy of the same to each Eligible Holder.
(d) Notice of Default or Claimed Default. Promptly
upon (and in any event within five (5) Business Days of) any officer of the
Company obtaining knowledge of any condition or event which constitutes an
Event of Default or Default under the Company's Senior Notes due 2003 (the
"Senior Secured Notes"), or that the holder of any such Senior Secured Note
has given any written notice or taken any other action with respect to a
claimed condition or event which constitutes such an Event of Default or
Default, or that any Person has given any written notice to the Company or
any of its Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 12.01(e) of
the Note Purchase Agreement, an officers' certificate describing the same and
the period of existence thereof and what action the Company has taken, is
taking and proposes to take with respect thereto.
(e) Merger. At least five (5) Business Days prior
to any merger or consolidation by the Company or any Subsidiary, notice of
such merger or consolidation, together with an officers' certificate to the
effect that such merger or consolidation will be done in compliance with the
provisions of Section 8.7 hereof.
(f) Bankruptcy. Promptly upon receiving notice of
any Person's seeking to obtain or threatening to seek to obtain a decree or
order for relief with respect to the Company or any of its Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect, a written notice thereof specifying
what action the Company or such Subsidiary is taking or proposes to take with
respect thereto.
(g) Additional Information. With reasonable
promptness, such other information, including financial statements and
computations, relating to the performance of the provisions of this Agreement
or the affairs of the Company or any of its subsidiaries as the Investor or
any such Eligible Holder may from time to time reasonably request.
The Company will furnish to each Eligible Holder, at
the time it furnishes each set of financial statements pursuant to paragraph
(a) or (b) above, an
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officers' certificate to the effect that no Event of Default under the Note
Purchase Agreement has occurred and is continuing (or, if any such Event of
Default has occurred and is continuing, describing the same in reasonable
detail, the period of existence thereof and describing the action that the
Company has taken and proposes to take with respect thereto).
The Company will keep at its principal executive
office a true copy of this Agreement (as at the time in effect), and cause
the same to be available for inspection at said office during normal business
hours by the Investor, any Eligible Holder, or any prospective purchaser of
any of the Securities.
8.7 MERGER. The Company covenants and agrees that so
long as, and at any time that, (i) any shares of Preferred Stock are held by
the Investor or any Eligible Holder, and (ii) the IRR Trigger Date has not
occurred, the Company:
(a) will not consolidate with or merge into any
Person, or permit any other Person to merge into it, or sell, lease, transfer
or otherwise dispose of all or substantially all of its assets, unless, in
any such case, the following conditions shall be fulfilled:
(i) such successor Person (if not the Company) or the Person
purchasing or otherwise acquiring all or substantially all of
such assets shall be a corporation incorporated within the United
States of America;
(ii) the obligations of the Company under this Agreement shall be
expressly assumed by such successor corporation (if not the
Company) or the Person purchasing or otherwise acquiring all or
substantially all of such assets;
(iii) immediately after giving effect to such consolidation
or merger or sale or other disposition of assets (and the
assumption provided for in clause (ii) above), no Default or
Event of Default shall have occurred and be continuing with
respect to any Funded Debt;
(iv) immediately after giving effect to such consolidation or
merger or sale or other disposition of assets, such successor
corporation (whether or not the Company) or the Person purchasing
or otherwise acquiring all or substantially all of such assets
could incur additional Indebtedness in compliance with
Section 8.9 hereof; and
(v) the Net Worth of the surviving entity of such consolidation
or merger, or other successor to the Company pursuant hereto, or
the Person purchasing or otherwise acquiring all or substantially
all of such assets on a pro forma basis after giving effect to
such transaction is not less than the Net Worth of the Company
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immediately preceding the transaction.
(b) will not permit any Majority-Owned Subsidiary
to consolidate with or merge into any other Person (other than the Company),
or permit any other Person to merge into a Majority-Owned Subsidiary, unless
the following conditions shall be fulfilled:
(i) prior to and immediately after giving effect to such
consolidation or merger, no Default or Event of Default shall
have occurred and be continuing under the Note Purchase
Agreement;
(ii) immediately after giving effect to such consolidation
or merger, the surviving entity of such consolidation or merger
could incur additional funded Indebtedness in compliance with
Section 8.9 hereof;
(iii) if the surviving corporation is a Majority-Owned
Subsidiary, the Net Worth of the surviving entity of such
consolidation or merger, on a pro forma basis after giving effect
to such transaction, is not less than the Net Worth of the
Majority-Owned Subsidiary immediately preceding the transaction;
and
(iv) either the surviving entity is a Majority-Owned Subsidiary,
or, if the surviving entity is not a Majority-Owned Subsidiary,
such merger shall be treated as a sale of stock of such
Majority-Owned Subsidiary and each and every condition required to be
satisfied in connection with a sale by the Company of the capital
stock of a Majority-Owned Subsidiary as an entirety set out in
Section 8.13 hereof shall be satisfied.
8.8. LIMITATIONS ON LIENS. The Company covenants and
agrees that so long as, and at any time that, (i) any shares of Preferred
Stock are held by the Investor or any Eligible Holder, and (ii) the IRR
Trigger Date has not occurred, the Company will not, and will not permit any
Majority-Owned Subsidiary to, cause, or incur or suffer to be incurred, any
Lien on its or their property or assets (including any document or instrument
in respect of goods or accounts receivable) of the Company or any
Majority-Owned Subsidiary, whether now owned or held or hereafter acquired,
or any income or profits therefrom, except:
(a) Permitted Encumbrances;
(b) any Lien existing on property of a Person
immediately prior to its being consolidated with or merged into the Company
or a Majority-Owned Subsidiary or its becoming a Majority-Owned Subsidiary,
or any Lien existing on any property acquired by the Company or any
Subsidiary at the time such property is so acquired (whether or not the
Indebtedness secured thereby shall have been assumed) , PROVIDED, that (x) no
such Lien shall have been created or assumed in contemplation of such
consolidation or merger or such Person's becoming a Majority-Owned Subsidiary
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or such acquisition of property, and (y) each such Lien shall at all times be
confined solely to the item or items of property so acquired, and any
property that is an improvement thereto or an upgrade thereof or acquired for
specific use in connection therewith;
(c) Liens on accounts receivable of the Company and
any Majority-Owned Subsidiary and related leases or use contracts with
customers and proceeds of the foregoing required to be incurred in order to
secure Indebtedness permitted to be incurred under Section 8.9(a) hereof;
(d) Liens in favor of the Collateral Agent on any
assets in the Collateral Pool, and such substitutions therefor or
replacements thereof as contemplated in the Note Purchase Agreement;
(e) Subject to the limitations set forth in Section
8.9(d) hereof, any Lien created to secure any Indebtedness incurred or
assumed to pay all or any part of the purchase price of property acquired by
the Company or a Majority-Owned Subsidiary after December 31, 1994 (or
created to secure Indebtedness incurred to finance equipment pursuant to
Section 8.9(d) hereof); PROVIDED, that (i) any such Lien shall be confined
solely to the item or items of property so acquired or currently owned (the
"Financed Equipment") and any property that is an improvement to or upgrade
of or acquired for specific use in connection with such Financed Equipment;
PROVIDED, HOWEVER, that in the case of an MRI Unit or a CT Unit
(collectively, "Units") currently owned by the Company or a Majority-Owned
Subsidiary that is, at the time of acquisition of a newly-acquired Unit,
subject to a Lien in favor of the same secured party financing the purchase
price of the newly-acquired Unit, such Lien securing the Indebtedness
relating to the newly acquired Unit may extend to the currently-owned Unit
and such Lien securing the Indebtedness relating to the currently-owned Unit
may extend to the newly-acquired Unit; PROVIDED, FURTHER, that
notwithstanding the immediately preceding proviso no Lien under this Section
8.8(e) shall extend to any Unit as to which the purchase price is paid in
full and there is outstanding no Indebtedness incurred to finance such
purchase price, it being understood that the cross-collateralization
permitted by the immediately preceding proviso shall immediately cease and
terminate as to any Unit upon payment of the purchase price (or related
purchase money Indebtedness) of such Unit; and (ii) in the case of
newly-acquired Financed Equipment, any such Lien shall be created within six
(6) months after the acquisition thereof;
(f) Liens on property or assets of any
Majority-Owned Subsidiary to secure Debt For Money Borrowed of a
Majority-Owned Subsidiary to the Company or to another Majority-Owned
Subsidiary in existence on the Seventh Amendment Effective Date;
(g) Liens securing Indebtedness of the Company and
its Majority-Owned Subsidiaries existing on the Seventh Amendment Effective
Date;
(h) Additional Liens on property of the Company or any
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Majority-Owned Subsidiary to secure Indebtedness permitted by Section 8.9(f)
hereof;
(i) Subject to the limitations set forth in Section
8.9(d) hereof, any Lien created to secure any Indebtedness incurred or
assumed after the Seventh Amendment Effective Date to pay all or any part of
the purchase price of an improvement to or upgrade of a Unit owned by the
Company or a Majority-Owned Subsidiary, PROVIDED that (i) any such Lien shall
be confined solely to the improved or upgraded Unit subject to such Lien;
PROVIDED, HOWEVER, that in the case of a Unit owned by the Company or a
Majority-Owned Subsidiary that is, at the time of acquisition of an
improvement or upgrade to a Unit, already subject to a Lien in favor of the
same secured party financing the purchase price of such improvement or
upgrade, such Lien securing the Indebtedness relating to the newly-improved
or upgraded Unit may extend to the Unit already owned and such Lien securing
the Indebtedness relating to the Unit already owned may extend to the
newly-improved Unit; PROVIDED, FURTHER, that notwithstanding the immediately
preceding proviso no such Lien shall extend to any Unit as to which (A) the
purchase price thereof (and of any improvement thereto or upgrade thereof) is
paid in full and (B) there is outstanding no Indebtedness incurred to finance
such purchase price, it being understood that the cross-collateralization
permitted by the immediately preceding proviso shall immediately cease and
terminate upon payment of the purchase price (or related purchase money
Indebtedness) of each Unit and any improvement to or upgrade thereof, and
(ii) any such Lien shall be created within six months after the completion or
installation of such improvement or upgrade;
(j) Any Lien created to secure Indebtedness incurred
to finance equipment pursuant to the terms of Section 8.9(d) hereof; and
(k) Any extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of (a)
through (j) above, so long as the outstanding principal amount of the
Indebtedness secured by such Lien at the time of such extension, renewal or
replacement is not increased, nor the periodic debt service payment
(principal and interest) payable with respect thereto increased, and the
renewed or extended-Lien does not cover any property which is not covered by
the existing Lien renewed or extended thereby.
8.9. INDEBTEDNESS. The Company covenants and agrees that
so long as, and at any time that, (i) any shares of Preferred Stock are held
by the Investor or any Eligible Holder, and (ii) the IRR Trigger Date has not
occurred, the Company will not create, incur or assume or permit to exist,
and will not permit any Majority-Owned Subsidiary to create, incur or assume
or permit to exist or remain liable with respect to Indebtedness, other than
the following:
(a) The Company may become and remain liable with
respect to Indebtedness for working capital purposes under the Working
Capital Facility as provided for in Section 9.06 of the Note Purchase
Agreement or any renewal, extension or replacement thereof, provided that the
indebtedness thereunder does not at any time exceed 75% of the net accounts
receivable of the Company (determined in accordance with GAAP) and the terms
and conditions thereof are not, in the aggregate,
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materially more burdensome than under the preexisting Working Capital
Facility and reflect current market conditions;
(b) The Company may become and remain liable with
respect to Indebtedness evidenced by the Senior Secured Notes; and any
Majority-Owned Subsidiary may become and remain liable with respect to
Indebtedness evidenced by a guaranty thereof (each, a "Guaranty");
(c) The Company or any Majority-Owned Subsidiary,
as appropriate, may remain liable with respect to any Indebtedness in
existence on the Seventh Amendment Effective Date;
(d) Subject to the limitations on incurrence of
Capital Expenditures set forth in Section 8.11 hereof, the Company or any
Majority-Owned Subsidiary may become and remain liable with respect to
Indebtedness incurred to acquire equipment (including CT Scanners and MRI
Units and related additions, parts and improvements);
(e) Any Majority-Owned Subsidiary may become and
remain liable with respect for Debt for Money Borrowed of such Majority-Owned
Subsidiary owing to the Company or to a Majority-Owned Subsidiary consisting
of (i) Indebtedness arising out of an Investment by the Company or such
Majority-Owned Subsidiary as permitted by Section 8.10(a) through (c) or (ii)
intercompany operating advances incurred in the ordinary course of business;
(f) In addition to (a) through (e) above, the
Company or any Majority-Owned Subsidiary may incur and remain liable with
respect to other Indebtedness not to exceed an aggregate amount of $5,000,000
at any time outstanding; and
(g) Indebtedness which is a renewal, extension or
replacement of existing Indebtedness permitted under this Section 8.9;
provided that the principal amount of the Indebtedness is less than or equal
to the principal amount outstanding immediately prior to such renewal,
extension or replacement and that the periodic debt payment with respect
thereto is less than or equal to the periodic debt payment currently payable
with respect to such Indebtedness.
8.10 INVESTMENTS. The Company covenants and agrees that
so long as, and at any time that, (i) any shares of Preferred Stock are held
by the Investor or any Eligible Holder, and (ii) the IRR Trigger Date has not
occurred, the Company will not, and will not permit any of its Majority-Owned
Subsidiaries to, make any Investments other than the following: (a) capital
contributions and funded loans to any Majority-Owned Subsidiary, and any
partnership or other joint venture (including a corporate joint venture);
PROVIDED that the aggregate outstanding amount of all Investments made
pursuant to this clause (a) does not exceed $5,000,000 at any time; (b) loans
and advances to employees in the ordinary course of business for a proper
corporate purpose not to exceed $250,000 in the aggregate at any time
outstanding
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(excluding notes received from option holders in payment of the exercise
price of stock options issued pursuant to a stock option plan of the Company
approved by the Company's Board of Directors); (c) Investments with respect
to hedging the Company's exposure to foreign currency fluctuations to the
extent that the Company has sales denominated in such foreign currency; (d)
Investments in Interest Rate Protection Agreements; (e) short-term operating
advances described in Section 8.9(f)(ii), to the extent such advances
constitute Investments; and (f) Investments where the consideration paid by
the Company consists of equity securities of the Company, to the extent that
consideration was or is paid in that form. For purposes of computing the
amount subject to the $5,000,000 limitation in clause (a) above, (I) there
shall be excluded Investments where the consideration paid by the Company
consists of equity securities of the Company, to the extent that
consideration was or is paid in that form, and (II) there shall be included
Investments made only from and after the Effective Date of the Tenth Amendment
to the Note Purchase Agreement, and not Investments made prior thereto.
8.11 CAPITAL EXPENDITURES. The Company covenants and
agrees that so long as, and at any time that, (i) any shares of Preferred
Stock are held by the Investor or any Eligible Holder, and (ii) the IRR
Trigger Date has not occurred, the Company will not, and will not permit any
of its Majority-Owned Subsidiaries to, make Capital Expenditures, unless,
after including such Capital Expenditures in the aggregate amount of Capital
Expenditures incurred by the Company and its Majority-Owned Subsidiaries
during the current Fiscal Year, the aggregate Capital Expenditures for such
Fiscal Year do not exceed an amount equal to $30,000,000 plus the Capital
Expenditure Adjustment Amount; PROVIDED, HOWEVER, that the Company or any of
its Majority-Owned Subsidiaries may dispose of equipment and within 180 days
purchase replacement equipment with only the net incremental amount being
deemed to be a Capital Expenditure; PROVIDED, FURTHER, that to the extent the
Company receives credit against the purchase price of newly-acquired
equipment as a result of a trade-in of currently-owned equipment, the amount
of such credit shall not be included in determining the amount of Capital
Expenditures permitted to be incurred hereunder; and PROVIDED, FURTHER, that
if the amount of permitted Capital Expenditures for any Fiscal Year is not
fully utilized, then the unutilized portion (up to 50% of the permitted
amount for such Fiscal Year) may be carried forward and made in the following
Fiscal Year, in addition to the amount otherwise permitted for such following
Fiscal Year.
For purposes of this Section 8.11 the incurrence of
a Capital Expenditure shall be deemed to have occurred when the Company (or
any of its Majority-Owned Subsidiaries) enters into a binding commitment to
purchase the applicable equipment as evidenced by a written agreement or
accepted purchase order between the Company and the manufacturer or seller of
such equipment.
8.12 TRANSACTIONS WITH AFFILIATES. The Company covenants
and agrees that so long as, and at any time that, any shares of Preferred
Stock are held by the Investor or any Eligible Holder, the Company will not,
and will not permit any of its Majority-Owned Subsidiaries to, directly or
indirectly, engage in any transaction with any Affiliate of the Company,
including, without limitation, the purchase, sale or exchange of
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assets or the rendering of any service, except in the ordinary course of
business and pursuant to the reasonable requirements of the Company's or such
Majority-Owned Subsidiary's business and upon fair and reasonable terms that
are no less favorable to the company or such Majority-Owned Subsidiary, as
the case may be, than those which might be obtained in an arm's-length
transaction at the time from Persons which are not such an Affiliate.
8.13 LIMITATION ON DISPOSITION OF ASSETS. The Company
covenants and agrees that so long as, and at any time that, (i) any shares of
Preferred Stock are held by the Investor or any Eligible Holder, and (ii) the
IRR Trigger Date has not occurred, other than as permitted and subject to the
limitations set forth in Section 8.7 through 8.10 hereof, the Company will
not, and will not permit any of its Majority-Owned Subsidiaries to, directly
or indirectly, sell, lease, transfer or otherwise dispose of (other than in
the ordinary course of business) any of its properties unless (i) after
giving effect to any such sale, lease, transfer or other disposition by the
Company or any Majority-Owned Subsidiary, the aggregate net book value of the
properties involved in such dispositions during any Fiscal Year of the
Company does not exceed $2,000,000 and in the aggregate at any time after the
Effective Date of the Tenth Amendment does not exceed $4,000,000 and (ii)
prior to and after giving effect to any such sale, lease, transfer or other
disposition by the Company or any Majority-Owned Subsidiary, no Default or
Event of Default has occurred or is continuing; PROVIDED that the foregoing
restrictions do not apply to a transfer of properties by a Majority-Owned
Subsidiary to the Company.
Notwithstanding the foregoing, the Company or a Majority-Owned
Subsidiary may make any such disposition and the properties involved in any
such disposition shall be excluded from the foregoing computation set forth
in (i) above if within one hundred eighty (180) days after such disposition
the Company or a Majority-Owned Subsidiary reinvests the proceeds in assets
substantially similar to those which are disposed of, or applies the net
proceeds (after deducting direct costs and expenses incurred as a result of
such disposition and discharging any underlying debt which is secured by such
property) to the prepayment or redemption of the Secured Obligations or the
Senior Secured Notes or other Indebtedness of the Company, or retains the
proceeds in cash or cash-equivalent investments; PROVIDED, FURTHER, that the
aggregate net book value of properties disposed of under this Section 8.13
the net proceeds of which are so applied shall not exceed the greater of
$10,000,000 or fifteen percent (15%) of the net book value of the then
existing MRI Units.
8.14 LIMITATION RELATING TO SUBSIDIARIES. The Company
covenants and agrees that so long as, and at any time that, any shares of
Preferred Stock are held by the Investor or any Eligible Holder, the Company
will not and will not permit any Majority-Owned Subsidiary to:
(a) transfer any stock of any Majority-Owned
Subsidiary, or permit any Majority-Owned Subsidiary to issue or transfer its
stock or transfer the stock of any other Subsidiary, if as a result thereof,
the Company would own, directly or
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indirectly, less than 95% of the Capital Stock or Voting Stock of any
Majority-Owned Subsidiary, provided that no transfer of any such stock shall
be permitted unless such transfer is made for fair value, as determined in
good faith by the Board of Directors of the Company; or
(b) permit any Majority-Owned Subsidiary to enter
into an agreement restricting it from paying dividends to the Company.
Notwithstanding the provisions of clause (a) above, all of the
shares of Capital Stock of all classes of any Majority-Owned Subsidiary owned
by the Company and/or its Majority-Owned Subsidiaries may be sold for fair
market value as an entirety if the following conditions are met:
(i) the Majority-Owned Subsidiary whose stock is so sold
does not own any shares of capital stock of any other
Majority-Owned Subsidiary not being simultaneously sold;
(ii) after giving effect to the sale, any Indebtedness of
the Company or any remaining Majority-Owned Subsidiary owing to
the Majority-Owned Subsidiary whose stock is so sold could then
be incurred by the Company or such remaining Majority-Owned
Subsidiary, as the case may be, under the terms and conditions of
this Agreement;
(iii) such sale would be permissible under Section 8.13
hereunder; and
(iv) prior to and immediately after giving effect to such
sale, no Default or Event of Default shall have occurred and be
continuing under this Agreement or the Senior Secured Notes.
8.15.LIMITATIONS ON LEASES. Except as set forth in the
next sentence, the Company covenants and agrees that so long as, and at any
time that, (i) any shares of Preferred Stock are held by the Investor or any
Eligible Holder and (ii) the IRR Trigger Date has not occurred, the Company
will not, and will not permit any Majority-Owned Subsidiary to, enter into
any Long-Term Lease, unless, after including in Consolidated Rental
Obligations the amount of all minimum or guaranteed net rentals the Company
or such Majority-Owned Subsidiary is directly or indirectly liable for (as
lessee or as a guarantor or other surety) under such Long-Term Lease which
will accrue during the 12-month period following the date upon which the
Company or its Subsidiary enters into such Long-Term Lease, the Consolidated
Rental Obligations for such 12-month period will not exceed the applicable
amount set forth below based upon the Fiscal Year in which such Long-Term
Lease is proposed to be entered into:
1996 $2,700,000
1997 $2,500,000
1998 $2,200,000
1999 $1,750,000
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2000 $1,500,000
Notwithstanding the foregoing, there shall be
excluded from the calculation of Consolidated Rental Obligations pursuant to
the preceding sentence any and all variable lease payments (i.e., payments
made pursuant to a Long-Term Lease or otherwise that are based solely upon
usage or other operating criteria rather than being fixed in amount and as to
which there are no minimum and no guaranteed periodic payment obligations).
Notwithstanding the foregoing, for the purposes of this Section 8.15, there
shall be excluded from the coverage of "Long-Term Leases" and "Consolidated
Rental Obligations" any lease or other contract or commitment, and payments
required thereunder, with respect to MRI, CT or other medical equipment and
related trailers or buildings and related improvements.
8.16.BOARD OBSERVATION RIGHTS. The Company covenants
and agrees that so long as, and at any time that, any shares of Preferred
Stock are held by the Investor, the Investor shall be entitled to appoint one
observer (who may be, but shall not be required to be, an employee of
Investor) to attend each meeting of the Board of Directors of the Company,
and shall be entitled to a copy of all written materials (including Board
meeting agendas and background materials) distributed to each member of the
Board of Directors of the Company as and when so distributed, subject in each
case to reasonable safeguards with respect to (i) the protection of the
Company's highly confidential information (such safeguards to be deemed
satisfied by the execution of a confidentiality agreement in form and
substance reasonably satisfactory to the parties) and (ii) conflict of
interest situations with respect to the business of the Medical Systems
Division of the Investor.
8.17.NO FUNDED DEBT DEFAULTS. The Company shall not
commit or suffer to exist any Funded Debt Default; provided, however, that
the Company shall not be deemed to have breached this covenant with respect
to any particular Funded Debt Default if the Investor shall have exercised
its right under the Series D Certificate of Designation or the Series E
Certificate of Designation to decline to accept (or shall have been deemed to
have declined to accept) the Special Dividend Event Repurchase Offer (as
defined in the Series D Certificate of Designation or the Series E
Certificate of Designation, as the case may be) related to such Funded Debt
Default.
8.18.NO CHANGE IN BUSINESS. The Company shall not
substantially and materially engage in any business other than the business
of providing diagnostic and therapeutic medical equipment and related
services to the healthcare industry.
9. INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. The warranties, representations and covenants of the Company
contained in or made pursuant to this Agreement shall forever survive the
execution and delivery of this Agreement and the Closing and shall in no way
be affected by any investigation of the subject matter thereof made by or on
behalf of the Investor or the Company; provided, however, that the warranties
and representations contained in Sections 4.8, 4.9, 4.10,
<PAGE>
Page 54
4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21 and 4.22 shall
survive for a period of two (2) years after the Closing Date. As of the
Closing Date, upon consummation of the transactions contemplated by this
Agreement, the representations, warranties and covenants contained in the
Bridge Loan Agreement shall be deemed to be superseded by the provisions of
this Agreement and shall be of no further force and effect.
9.2 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless
the Investor and its Affiliates, partners, directors, officers, employees,
agents and attorneys, in respect of any losses, expenses or Liabilities
(including any legal and other out-of-pocket expenses for investigating,
settling or defending any actions or threatened actions) (collectively,
"Damages") incurred, directly or indirectly, by any of the foregoing in
connection with any misrepresentation, breach or alleged breach of any
representation, warranty, covenant or agreement made by the Company in this
Agreement, the other agreements referred to in this Agreement (except the
Bridge Loan Agreement), or in any certificate, instrument, schedule or
document given by the Company to the Investor in connection herewith or
therewith.
(b) Whenever a representation or warranty contained
herein is qualified as to materiality, the Company shall have the burden to
prove by a preponderance of the evidence that the effect of any occurrence,
event, condition or other factor that makes any representation or warranty
untrue is not material or was not expected to be material at the time the
representation or warranty is made.
(c) No Person shall be entitled to indemnification
pursuant to this Section 9 for any Damages incurred unless the aggregate
amount for which indemnification is sought is in excess of $50,000, based on
all Damages from the first dollar and without regard to any materiality
qualifier (the "Threshold"), whether represented by one or more claims. If
the amount of claims for Damages exceeds the Threshold, then the Person
entitled to indemnification pursuant to this Section 9 shall be entitled to
indemnification for all Damages, including without limitation the first
$50,000 of such Damages incurred.
9.3 CLAIMS FOR INDEMNIFICATION. Whenever any claim
shall arise for indemnification, the indemnified party shall notify the
Company of the claim in writing and, when known, the facts constituting the
basis for such claim and the amount or an estimate of the amount of the
Liability arising from such claim. The indemnified party shall not settle or
compromise any claim by a third party that is entitled to indemnification
hereunder without the prior written consent of the Company unless (i) suit
shall have been instituted against the indemnified party and (ii) the Company
shall not have taken control of such suit within fifteen (15) Business Days
after notification thereof as provided in Section 9.4.
9.4 DEFENSE BY THE COMPANY. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out of any
claim or legal
<PAGE>
Page 55
proceeding by a Person other than the Investor, the Company or their
respective Affiliates, partners, directors, officers, employees, agents or
attorneys, the Company at its sole cost and expense, may, upon written notice
to the Investor, assume the defense of any such claim or legal proceeding
without prejudice to the right of the Company thereafter to contest its
obligation to indemnify such Person in respect of the claims asserted
therein. If the Company assumes the defense of any such claim or legal
proceeding, the Company shall select counsel to conduct the defense of such
claims or legal proceedings at its sole cost and expense and shall take all
steps necessary in the defense or settlement thereof. The Company shall not
consent to a settlement of, or the entry of any judgment arising from, any
such claims or legal proceeding, without the prior written consent of the
indemnified party, unless the Company admits in writing its Liability to hold
the indemnified party harmless from and against any loss, damages, expenses
and Liabilities arising out of such settlement and concurrently with such
settlement the Company pays into court the full amount of all losses,
damages, expenses and Liabilities to be paid by the Company in connection
with such settlement. The indemnified party shall be entitled to participate
in (but not control) the defense of any such action, with its own counsel and
at its own expense. If the Company does not assume the defense of any such
claim or litigation resulting therefrom in accordance with the terms hereof,
the indemnified party may defend against such claim or litigation in such
manner as it may deem appropriate, including settling such claim or
litigation, after giving notice of the same to the Company, on such terms as
the indemnified party may deem appropriate. The Company shall be entitled to
participate in the defense of any action by the indemnified party, which
participation shall be limited to contributing information to the defense and
being advised of its status. In any action by the indemnified party seeking
indemnification from the Company in accordance with the provisions of this
paragraph, the Company shall not be entitled to question the manner in which
the indemnified party defended such claim or litigation or the amount of or
nature of any such settlement, except to the extent that the indemnified
party has breached the provisions of this Section 9.
9.5 MATERIALITY. The parties agree that for all
purposes of this Agreement, unless specifically stated to the contrary, the
dollar amounts set forth in various provisions hereof, other than the
purchase price hereunder shall not affect or determine the meaning of the
term "material" or have any bearing thereon.
10. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE
WITH SECURITIES ACT; REGISTRATION RIGHTS.
10.1 RESTRICTIONS ON TRANSFERABILITY. The Securities
shall not be sold, assigned, transferred or pledged except upon satisfaction
of the conditions specified in this Section 10, which conditions are intended
to ensure compliance with the provisions of the Securities Act. The Investor
will cause any proposed purchaser, assignee, transferee, or pledgee of the
shares of Securities to agree to take and hold such securities subject to the
provisions and conditions of this Section 10.
10.2 RESTRICTIVE LEGEND. Each certificate representing
the Registrable Securities, shall be stamped or otherwise imprinted with a
legend in the
<PAGE>
Page 56
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
10.3 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company
shall receive from the Investor a written request that the Company effect a
registration under the Securities Act with respect to not less than 3,000,000
shares of Registrable Securities, the Company will, as soon as practicable,
use its best efforts to effect such registration (including, without
limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities
as are specified in such request; PROVIDED, HOWEVER, that the Company shall
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 10.3 in any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process or become subject to taxation in effecting such
registration, qualification or compliance unless the Company is already subject
to service or taxation in such jurisdiction. The Company shall be obligated
to effect only three such registrations pursuant to this Section 10.3.
(b) UNDERWRITING. In the event that a registration
pursuant to this Section 10.3 is for a registered public offering involving
an underwriting, the Investor shall so advise the Company as a part of its
request made pursuant to Section 10.3(a). In such event, the right of the
Investor to registration pursuant to this Section 10.3 shall be conditioned
upon the Investor's participation in the underwriting arrangements required
by this Section 10.3(b), and the inclusion of the Investor's Registrable
Securities in the underwriting to the extent requested shall be limited as
provided herein. The Company and the Investor shall enter into an
underwriting agreement in customary form with managing underwriter(s)
selected for such underwriting by the Investor, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section
10.3, if the managing underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the
<PAGE>
Page 57
number of shares to be underwritten, then the Company shall so advise the
Investor and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be so limited. If the
Investor disapproves of the terms of the underwriting, the Investor may elect
to withdraw therefrom by written notice to the Company.
(c) DEFERRAL BY COMPANY. Notwithstanding the
foregoing, the Company shall not be obligated to effect a registration
pursuant to this Section 10.3 if the Company shall furnish to the Investor a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for the Company to comply
with such request, and it is therefore essential to defer the filing of the
registration statement relating thereto. Any such deferral shall be for a
period of not more than 90 days after receipt of the Investor's request for
registration pursuant to Section 10.3(a); PROVIDED, HOWEVER, that the Company
may not exercise this deferral right more than once in any 12-month period;
PROVIDED, FURTHER, that any requested registration deferred by the Company
pursuant to the provisions of this Section 10.3(c) shall thereafter not be
deemed to be a requested registration for purposes of the limitation to three
requested registrations pursuant to Section 10.3(a), until such deferral
expires and the Company effects the related registration.
10.4 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from
time to time the Company shall determine to register any of its securities,
whether or not for its own account, the Company will promptly give to the
Investor written notice thereof, and include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such
written notice from the Company, by the Investor.
(b) UNDERWRITING. If the registration of which the
Company gives notice under this Section 10.4 is for a registered public
offering involving an underwriting, the Company shall so advise the Investor
as a part of the written notice given pursuant to Section 10.4(a). In such
event the right of the Investor to registration pursuant to this Section 10.4
shall be conditioned upon the Investor's participation in such underwriting
and the inclusion of the Investor's Registrable Securities in the
underwriting to the extent provided herein. The Investor and the Company
shall enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 10.4, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration, and the Company
shall include in such registration: (i) first, 100% of the securities the
Company proposes to sell for its own account, and (ii) second, such number of
Registrable Securities which the Investor has requested to be included in
such registration and such number of securities which other holders have
requested to be included in such registration which,
<PAGE>
Page 58
in the opinion of such managing underwriter, can be sold without having an
adverse effect on the marketing of the securities referred to above, such
number of Registrable Securities and securities of other holders described in
this clause (ii) to be included on a pro rata basis among the Investor and
all other holders. To facilitate the allocation of shares in accordance with
the above provisions, the Company may round the number of shares allocated to
the Investor or other holders to the nearest 100 shares. If the Investor
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the managing underwriter.
(c) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by
it under this Section 10.4 prior to the effectiveness of such registration
whether or not the Investor has elected to include securities in such
registration.
10.5 REGISTRATION ON FORM S-3. If the Investor requests
that the Company file a registration statement on Form S-3 (or any successor
form to Form S-3) for a non-underwritten public offering of the Registrable
Securities, the reasonably anticipated aggregate price to the public of
which, net of discounts and commissions, would exceed $12,000,000 and the
Company is then entitled to use Form S-3 under applicable SEC rules to
register the Registrable Securities for such an offering, the Company shall
use its best efforts to cause such Registrable Securities to be registered
for the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as the Investor may reasonably request;
provided, however, that the Company shall not be required to effect more than
one registration pursuant to this Section 10.5 in any twelve (12) month
period or in excess of three (3) registrations under this Section 10.5;
PROVIDED, HOWEVER, that the Company shall not be obligated to take any action
to effect any such registration, qualification or compliance pursuant to this
Section 10.5 in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process or become subject
to taxation in effecting such registration, qualification or compliance
unless the Company is already subject to service or taxation in such
jurisdiction. The substantive provisions of Section 10.3(b) shall be
applicable to each registration initiated under this Section 10.5.
10.6 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From
and after the Closing Date, the Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights with respect to such securities unless (i) such new
registration rights are on a pari passu basis with those rights of the
Investor hereunder, or (ii) such new registration rights are subordinate to
the registration rights granted to the Investor hereunder.
10.7 EXPENSES OF REGISTRATION. All expenses (other than
underwriting discounts and commissions relating to Registrable Securities and
fees and disbursements of counsel for the Investor), including without
limitation all registration, filing, and qualification fees, printing and
accounting fees and legal fees and expenses of counsel to the Company
incurred in connection with any registration pursuant to Section 10.3, 10.4
or 10.5 shall be borne by the Company.
<PAGE>
Page 59
10.8 SECURITIES INDEMNIFICATION. The Company will
indemnify the Investor, each of its officers, directors and partners, and
each Person controlling such Investor within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Section 10, and each
underwriter, if any, and each Person who controls any underwriter within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or
compliance, and the Company will reimburse the Investor, each of its officers
and directors, and each Person controlling the Investor, each such
underwriter and each Person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by the Investor,
controlling Person or underwriter and stated to be specifically for use
therein. The procedures governing the securities indemnification obligations
of the Company under this Section 10.8 shall be as set forth in Section 9.
The indemnification obligations of the Company under this Section 10.8 shall
be in addition to the indemnification obligations of the Company under
Section 9.
10.9 TRANSFER OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to Investor under Sections
10.3, 10.4, and 10.5 may be assigned to a transferee or assignee reasonably
acceptable to the Company in connection with any transfer or assignment of
Registrable Securities by the Investor provided that such transfer may
otherwise be effected in accordance with applicable securities laws.
11. MISCELLANEOUS.
11.1 EXPENSES. At Closing, the Company shall promptly pay
the Investor all of the Investor's reasonable out-of-pocket expenses incurred in
connection with this transaction, including legal fees and expenses, accounting
fees and expenses and due diligence expenses, provided that the Company's
maximum responsibility therefor shall be Ninety Thousand Dollars ($90,000).
<PAGE>
Page 60
11.2 PUBLICITY. Neither the Company nor the Investor
shall release any information to any third party with respect to the terms of
this Agreement or the transactions contemplated hereby without the prior
written consent of the other party, other than as may be required by
applicable law or court order. The parties shall mutually agree upon a joint
initial announcement of the execution of this Agreement and the related
transactions. Each party agrees to consult the other party as to the form
and content of all subsequent public announcements relating to this Agreement
or the transactions contemplated hereby.
11.3 SUCCESSORS AND ASSIGNS. Except as otherwise
expressly provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of the Securities). The
Securities shall be freely transferable without the consent of the Company,
subject to applicable law. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
Liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
11.4 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of New York as applied to agreements
among New York residents entered into and to be performed entirely within
New York.
11.5 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.6 TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
11.7 NOTICES. All notices, demands, or other
communications under this Agreement shall be in writing and shall be
delivered via confirmed facsimile, overnight courier, by hand delivery or by
certified mail, return receipt requested, to the appropriate party at the
address set forth on the signature page of this Agreement (subject to change
from time to time by written notice to all other parties to this Agreement).
All communications shall be deemed served upon delivery of, or if mailed,
upon the first to occur of receipt or the expiration of three (3) days after
the deposit in the United States Postal Service mail, postage prepaid and
addressed to the address of Company or the Investor at the address specified
or, if transmitted via facsimile, upon electronic confirmation of receipt;
PROVIDED, HOWEVER, that non-receipt of any communication as the result of any
change of address or facsimile number of which the sending party was not
notified or as the result of a refusal to accept delivery shall be deemed
receipt of such communication.
11.8 AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
<PAGE>
Page 61
prospectively), only with the written consent of the Company and the
Investor.
11.9 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
or provisions shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision or provisions were so
excluded and shall be enforceable in accordance with its terms.
11.10 ENTIRE AGREEMENT. This Agreement, the
Schedules and Exhibits hereto, the other agreements referred to herein and
the other documents required to be delivered pursuant hereto constitute the
entire understanding and agreement between the parties with regard to the
specific subject matter hereof, and no party shall be liable or bound by any
representation, warranty, covenant or
<PAGE>
Page 62
agreement except as specifically set forth herein or therein. Any by this
previous agreement (whether written, oral or implied) among the parties
relative to the specific subject matter hereof is superseded Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
THE COMPANY:
ALLIANCE IMAGING, INC.,
a Delaware corporation
By: ___________________________
Address: 3111 North Tustin Avenue,
Suite 150
Orange, California 92865
THE INVESTOR:
GENERAL ELECTRIC COMPANY, a New York
corporation acting through GE Medical Systems
By: ______________________________
Address: GE Medical Systems
20825 Swenson Drive, Suite 100
Waukesha, WI 53186
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-22333) pertaining to the 1991 Amended and Restated Stock
Option Plan and the Long Term Executive Incentive Plan of our report dated
February 21, 1997, except for Note 4, as to which the date is March 26, 1997,
with respect to the consolidated financial statements and schedule of Alliance
Imaging, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
/s/ ERNST & YOUNG LLP
Orange County, California
March 28, 1997
37
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