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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: MARCH 31, 1998
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COMMISSION FILE NUMBER: 0-16334
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ALLIANCE IMAGING, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
1065 NORTH PACIFICENTER DRIVE
SUITE 200
ANAHEIM, CALIFORNIA 92806
--------------------------
(Address of principal executive office)
(714) 688-7100
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1998:
Common Stock, $.01 par value, 4,057,611
1
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ALLIANCE IMAGING, INC.
FORM 10-Q
March 31, 1998
Index
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<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements:
Condensed Consolidated Balance Sheets - 3
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations 4
Three months ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
Three months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
PART II - OTHER INFORMATION 15
SIGNATURES 19
</TABLE>
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997*
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 7,200,000 $ 10,798,000
Accounts receivable, net of allowance for doubtful accounts 22,236,000 12,628,000
Deferred income taxes 2,935,000 2,478,000
Prepaid expenses 2,646,000 1,285,000
Other receivables and other current assets 1,226,000 472,000
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Total current assets 36,243,000 27,661,000
Equipment, at cost 251,814,000 169,468,000
Less--Accumulated depreciation (102,711,000) (57,255,000)
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149,103,000 112,213,000
Goodwill 114,695,000 36,149,000
Deferred financing costs 14,636,000 13,641,000
Deposits and other assets 8,955,000 3,991,000
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Total assets $323,632,000 $193,655,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,776,000 $ 6,677,000
Accrued compensation and related expenses 5,499,000 5,982,000
Other accrued liabilities 18,886,000 8,021,000
Current portion of long-term debt 9,312,000 6,351,000
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Total current liabilities 37,473,000 27,031,000
Long-term debt, net of current portion 339,886,000 227,874,000
Other liabilities 6,175,000 86,000
Deferred income taxes 9,931,000 6,865,000
Redeemable preferred stock 14,997,000 14,487,000
Common stock 41,000 41,000
Additional paid-in deficit (59,725,000) (59,738,000)
Accumulated deficit (25,146,000) (22,991,000)
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Total liabilities and stockholders' equity $323,632,000 $193,655,000
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</TABLE>
* Derived from audited financial statements
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1998 1997
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<S> <C> <C>
Revenues $ 31,241,000 $ 19,106,000
Costs and expenses:
Operating expenses, excluding depreciation 15,235,000 8,681,000
Depreciation expense 4,971,000 3,485,000
Selling, general and administrative expenses 3,036,000 1,897,000
Transaction related costs 815,000 -
Amortization expense, primarily goodwill 810,000 571,000
Interest expense, net of interest income 6,707,000 1,933,000
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Total costs and expenses 31,574,000 16,567,000
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Income (loss) before income taxes and extraordinary gain (loss) (333,000) 2,539,000
Provision for income taxes - 835,000
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Income (loss) before extraordinary gain (loss) (333,000) 1,704,000
Extraordinary gain (loss), net of taxes (1,312,000) 1,332,000
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Net income (loss) (1,645,000) 3,036,000
Less: Preferred stock dividends and financing fee accretion 510,000 -
Add: Excess of carrying amount of preferred stock
repurchased over consideration paid - 1,906,000
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Income (loss) applicable to common stock $ (2,155,000) $ 4,942,000
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Earnings per common share:
Income (loss) before extraordinary gain (loss) $ (0.21) $ 0.33
Extraordinary gain (loss), net of taxes (0.32) 0.12
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Net income (loss) per common share $ (0.53) $ 0.45
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Earnings per common share - assuming dilution:
Income (loss) before extraordinary gain (loss) $ (0.21) $ 0.30
Extraordinary gain (loss), net of taxes (0.32) 0.11
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Net income (loss) per common share
- assuming dilution $ (0.53) $ 0.41
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (1,645,000) $ 3,036,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary (gain) loss 1,312,000 (1,332,000)
Depreciation and amortization 5,781,000 4,056,000
Amortization of deferred financing costs 216,000 14,000
Distributions in excess of (undistributed) equity
in income of investee (73,000) 58,000
Changes in operating assets and liabilities:
Accounts receivable, net (605,000) 193,000
Prepaid expenses 81,000 22,000
Other receivables 107,000 313,000
Other assets (208,000) (9,000)
Accounts payable, accrued compensation and
other accrued liabilities (1,560,000) 250,000
Other liabilities (68,000) 983,000
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Net cash provided by operating activities 3,338,000 7,584,000
INVESTING ACTIVITIES:
Equipment purchases (12,454,000) (8,440,000)
(Increase) decrease in deposits on equipment (3,550,000) 239,000
Purchase of common stock of Mobile Technology Inc.,
net of cash acquired (94,147,000) -
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Net cash used in investing activities (110,151,000) (8,201,000)
FINANCING ACTIVITIES:
Payment of preferred stock dividends - (265,000)
Repurchase of senior subordinated debentures - (2,286,000)
Repurchase of Series A preferred stock - (2,523,000)
Principal payments on long-term debt (3,483,000) (4,613,000)
Proceeds from long-term debt - 7,601,000
Proceeds from term loan facility 90,000,000 -
Proceeds from revolving loan facility 16,394,000 -
Proceeds from senior bridge loan - 5,128,000
Decrease in deferred financing costs 291,000 -
Proceeds from exercise of employee stock options 13,000 13,000
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Net cash provided by financing activities 103,215,000 3,055,000
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Net (decrease) increase in cash and short-term investments (3,598,000) 2,438,000
Cash and short-term investments, beginning of period 10,798,000 10,867,000
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Cash and short-term investments, end of period $ 7,200,000 $13,305,000
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</TABLE>
5
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,588,000 $ 2,050,000
Income taxes paid 32,000 70,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Preferred stock dividend accrued and financing fee accretion $ 510,000 $ -
Conversion of senior bridge loan into Series D 4% convertible
preferred stock - 18,000,000
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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Alliance Imaging, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Unaudited)
1. BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Alliance Imaging, Inc. ("the Company") in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the Company, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1998, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
The Company generated a loss before income taxes during the quarter and
no benefit for income taxes was recorded for the three month period ended
March 31, 1998.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130")
which establishes standards for reporting and displaying comprehensive income
and its components in the financial statements. For the three months ended
March 31, 1998 and 1997, the Company did not have any components of
comprehensive income as defined in SFAS 130.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1998 1997
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<S> <C> <C>
Numerator:
Income (loss) before extraordinary gain (loss) $ (333,000) $ 1,704,000
Preferred stock dividends and financing fee accretion (510,000) -
Excess of carrying amount of preferred stock
repurchased over consideration paid - 1,906,000
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Numerator for basic and diluted earnings per share
--income available to common stockholders before
extraordinary gain (loss) $ (843,000) $ 3,610,000
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Denominator:
Denominator for basic earnings per share
--weighted average shares 4,055,000 10,923,000
Effect of dilutive securities:
Convertible preferred stock - 200,000
Employee stock options and common stock warrants - 862,000
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Denominator for diluted earnings per share
--adjusted weighted-average shares 4,055,000 11,985,000
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Basic earnings (loss) per share before extraordinary gain (loss) $ (0.21) $ 0.33
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Diluted earnings (loss) per share before extraordinary gain (loss) $ (0.21) $ 0.30
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</TABLE>
7
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Alliance Imaging, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
March 31, 1998
(Unaudited)
2. ACQUISITIONS
On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI").
The purchase price consisted of $58,300,000 for all of the equity interests
in MTI, plus direct acquisition costs presently estimated at $2,000,000. In
connection with the acquisition, the Company also refinanced $37,400,000 of
MTI's outstanding debt and paid MTI direct transaction costs of $3,500,000.
To finance these expenditures, the Company increased its existing term loan
facility by $20,000,000 to provide total availability of $70,000,000,
established a new $50,000,000 term loan facility and borrowed an aggregate of
$90,000,000 thereunder, for which the Company incurred debt issuance costs
presently estimated at $2,800,000. The Company also borrowed $5,400,000
under its revolving loan facility and used $8,500,000 of cash on hand at MTI
to complete the financing requirements. The acquisition has been accounted
for as a purchase and, accordingly, the results of operations of MTI have
been included in the Company's consolidated financial statements from the
date of acquisition. The goodwill recorded as a result of this acquisition
was approximately $79,000,000, which is being amortized on a straight-line
basis over 20 years. The allocation of the MTI purchase price is tentative
pending completion of fair value determinations for the net assets acquired.
The allocation may change with the completion of these determinations.
Also on March 12, 1998, the Company announced it had signed a definitive
agreement to acquire the medical diagnostic imaging assets of American Shared
Hospital Services ("American Shared") for approximately $13,600,000 in cash
and assumption of approximately $26,100,000 of debt in a transaction that is
expected to be consummated by July 15, 1998. The proposed transaction is
subject to certain conditions including receipt of regulatory approvals and
approval by the shareholders of American Shared.
On March 31, 1998, the Company announced it had signed a definitive
agreement with U.S. Diagnostic, Inc., to acquire its subsidiary, Medical
Diagnostics, Inc. ("MDI"), a provider of diagnostic imaging services. The
transaction is valued at approximately $35,500,000 (including assumption of
approximately $5,700,000 of indebtedness) and the Company intends to finance
the cash portion of the transaction with bank financing. The transaction is
subject to customary conditions and necessary regulatory approvals and is
expected to close in May 1998.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW
The Company is a leading nationwide provider of diagnostic imaging
services and the largest operator of state-of-the-art mobile diagnostic
imaging systems and related outsourced radiology services in the United
States. The Company primarily provides magnetic resonance imaging ("MRI")
systems and services to hospitals and other health care providers on a
mobile, shared user basis. The Company also provides dedicated, full-time
MRI systems and services as well as full-service management of imaging
operations for selected hospitals. The Company's services enable small to
mid-size hospitals to gain access to advanced diagnostic imaging technology
and related value-added services without making a substantial investment in
equipment and personnel. The Company operates a fleet of 193 MRI systems and
services 787 customers in 43 states as of March 31, 1998.
The Company's revenues are principally a function of the number of
systems in service, scan volumes and fees per scan. The Company generates
substantially all of its revenues under exclusive one to eight-year contracts
with hospitals and health care providers. The Company's contracts typically
offer tiered pricing with lower fees per scan on incremental scans, allowing
customers to benefit from increased scan volumes and the Company to benefit
from the operating leverage associated with increased scan volumes. The
Company expects modest continuing downward pressure on pricing levels as a
result of cost containment measures in the health care industry. However, in
many cases higher scan volumes justify lower prices on incremental scans.
The principal components of the Company's operating costs include
salaries paid to technologists and drivers, annual system maintenance costs,
insurance and transportation costs. Because a majority of these expenses are
fixed, increased revenues as a result of higher scan volumes significantly
improve the Company's profitability while lower scan volumes result in lower
profitability.
Since the beginning of 1995, the Company has substantially increased
revenues by adding new customers and increasing scan volumes at existing
customer sites. During the same period, the growth rate of the Company's
earnings before interest, taxes, depreciation and amortization ("EBITDA")
(excluding expenses associated with the Recapitalization Merger (as
hereinafter defined)), has exceeded the growth rate of revenues as a result
of spreading costs (which are primarily fixed) over a larger revenue base and
implementing cost reduction and containment measures.
The Company has historically focused on maximizing cash flow and return
on invested capital nationwide, deploying new and upgraded systems in high
volume markets and redeploying older, less advanced systems with lower
carrying values in lower volume markets. The Company's ongoing equipment
trade-in and upgrade program has substantially improved the marketability and
productivity of its MRI systems. Because the Company owns substantially all
of its MRI systems, it periodically evaluates its older, less marketable MRI
systems to determine if it is more beneficial to continue to use such systems
in lower volume markets which are
9
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profitable but produce less revenue, or to trade in such equipment in
connection with new system purchases. The Company currently maintains one of
the most advanced fleets in the industry.
The Company also provides computed tomography ("CT") services and other
imaging services. Revenues from CT services and other imaging services
accounted for approximately 7% of the Company's revenues for the three months
ended March 31, 1998.
On November 21, 1997, the Company acquired Medical Consultants Imaging
Co. ("MCIC"), a Cleveland, Ohio based provider of mobile MRI services, CT
services and other outsourced health care services. The acquisition also
included MCIC's one-half interest in a limited liability company in Michigan.
The purchase price consisted of $12,323,000 cash plus the assumption of
approximately $5,517,000 in financing arrangements. MCIC operates 14 mobile
MRI systems and several other diagnostic imaging systems, primarily in Ohio,
Michigan, Indiana and Pennsylvania.
On December 18, 1997, after obtaining the approval of stockholders, the
Company completed a series of transactions contemplated by an Agreement and
Plan of Merger between Newport Investment LLC (the "Investor") and the
Company (the "Recapitalization Merger") whereby the Company: obtained
proceeds from debt financing aggregating $215,000,000; issued 150,000 shares
of non-voting redeemable Series F preferred stock to the Investor for
proceeds of $15,000,000; issued 3,632,222 shares of its common stock in
exchange for all of the outstanding stock of Newport Acquisition Corporation,
a subsidiary of the Investor, and received net proceeds of $39,954,000 from
cash placed into Newport Acquisition Corporation by the Investor; and
converted all shares of its common stock held by existing stockholders in
excess of 411,358 shares that were retained by electing existing stockholders
into the right to receive $11 in cash.
As a result of these transactions, the Company experienced an
approximate 90% ownership change. The Investor, which was formed and is
wholly owned by certain affiliates of Apollo Management, L.P., ("Apollo")
obtained ownership of approximately 83.6% of the Company's outstanding common
stock, and the Company became highly leveraged.
On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI"),
which management believes is the second largest provider of mobile MRI
services in the United States, in a transaction accounted for as a purchase.
The Company has included the operations of MTI in its consolidated financial
statements from the date of acquisition. This acquisition added 68 MRI
systems operating in 31 states, 3 CT systems, 9 lithotripsy systems, and 3
brachytherapy systems to the Company's equipment fleet. The purchase price
consisted of $58,300,000 for all of the equity interests in MTI plus direct
acquisition costs presently estimated at $2,000,000. In connection with the
acquisition, the Company also refinanced $37,400,000 of MTI's outstanding
debt and paid MTI direct transaction costs of $3,500,000. To finance these
expenditures, the Company increased its existing term loan facility by
$20,000,000 to provide total availability of $70,000,000, established a new
$50,000,000 term loan facility and borrowed an aggregate of $90,000,000
thereunder, for which the Company incurred debt issuance costs presently
estimated at $2,800,000. The Company also borrowed $5,400,000 under its
revolving loan facility and used $8,500,000 of cash on hand at MTI to
complete the financing requirements. The goodwill recorded as a result of
this acquisition was approximately $79,000,000, which is being amortized on a
straight-line basis over 20 years. The allocation of the MTI purchase price
is tentative
10
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pending completion of fair value determinations for the net assets acquired.
The allocation may change with the completion of these determinations.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997 --
Revenues for the first three months of 1998 were $31,241,000, an increase of
$12,135,000, or 63.5%, over 1997. Revenue from MTI accounted for $3,969,000,
or 32.7% of the increase. The remaining increase reflects higher scan-based
MRI revenue, MRI revenue under fixed fee contracts and other revenue items
(including revenue for other modalities). MRI scan-based revenue increased
$5,556,000, as a result of a 39.0% increase in total scan volume partially
offset by a 5.5% decrease in the average revenue realized per MRI scan. The
average daily scan volume per MRI system increased 11.8% to 7.6 from 6.8 in
the first quarter of 1997. Management attributes the non-acquisition 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 continuing positive effect of marketing programs
implemented in early 1997. Management believes the decrease in average
revenue realized per scan is the result of many customers achieving discount
price levels in incremental scan volume; obtaining contracts with customers
that have high scan volumes which justify lower scan prices; and continuing
competitive pressure in the MRI service industry and cost containment efforts
by health care payors. Revenue under fixed fee contracts increased $297,000,
or 37.7% (excluding the MTI acquisition). Other revenue increased
$2,312,000, or 160.5% (excluding the MTI acquisition) mostly related to a
$1,273,000 increase in contract management service revenue as a result of the
Company commencing these service arrangements primarily in connection with
the Medical Consultants Imaging Co. ("MCIC") acquisition. The remainder of
the increase in other revenue was primarily due to an increase in CT, nuclear
medicine, and lithotripsy revenue.
The Company operated 193 MRI systems at March 31, 1998 compared to 87
MRI systems at March 31, 1997. The increase was primarily a result of the
MTI acquisition and to a lesser degree the MCIC acquisition.
Operating expenses, excluding depreciation, totaled $15,235,000 in the
first three months of 1998, an increase of $6,554,000, or 75.5%, ($2,411,000,
or 27.8%, as a result of the MTI acquisition) from the first quarter of 1997.
Payroll and related employee expenses increased $2,593,000, or 74.0%,
primarily as a result of an increase in operating staffing levels necessary
to support new units in operation and increased scans per unit. Preventative
maintenance and cryogen expense increased $691,000, or 29.0%, due to an
increase in the number of systems in service and the expiration of warranties
on an increased number of MRI systems. Equipment rental expense increased
$1,077,000, or 156.5%, resulting from a higher number of leased MRI systems
in operation and the Company's leasing of 25 new tractors after the first
quarter of 1997. Expenses associated with contract management services
increased $995,000 as a result of the Company commencing these service
arrangements primarily in connection with the MCIC acquisition.
Depreciation expense during the first quarter of 1998 totaled
$4,971,000, an increase of $1,486,000, or 42.6% from the 1997 level
principally due to a higher amount of depreciable assets associated with
equipment additions and upgrades and equipment acquired through
11
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acquisitions. Amortization expense during the first three months of 1998
increased $239,000, or 41.9%, over the 1997 period as a result of the
acquisitions made after the first quarter of 1997.
Selling, general and administrative expenses totaled $3,036,000 in the
first quarter of 1998, an increase of $1,139,000, or 60.0%, from the same
period in 1997, with MTI accounting for $324,000, or 28.4% of the increase.
Payroll and related expenses increased $676,000, or 54.9%, primarily as a
result of increased employee compensation related to increased sales
commissions and increased staffing levels necessary to support the Company's
increased level of operations.
The transaction related costs represent a special non-recurring bonus
paid in connection with the MTI acquisition.
Interest expense of $6,707,000 in the first quarter of 1998 was
$4,774,000, or 247.0%, higher than 1997, as a result of higher average
outstanding debt balances during 1998 as compared to 1997. This increase was
primarily related to debt incurred in connection with the Recapitalization
Merger and the MTI acquisition.
The Company generated a loss before income taxes for the first quarter
and no income tax benefit was recorded.
The Company's loss before extraordinary loss was $(333,000) in the first
quarter of 1998 compared to income before extraordinary gain of $1,704,000 in
the first quarter of 1997, a decrease of $2,037,000, primarily attributable
to increased interest, depreciation, and amortization costs and the one-time
bonus payments made in connection with the MTI acquisition. The Company
reported an extraordinary loss of $(1,312,000) on early extinguishment of
debt in the first quarter of 1998. The Company reported an extraordinary
gain, net of income taxes, in the first quarter of 1997 of $1,332,000, on
early extinguishment of debt. The earnings per common share calculations
reflect preferred dividend requirements and financing fee accretion of
$510,000 in the first quarter of 1998 and none in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3,338,000 and $7,584,000 from operating
activities during the first quarter of 1998 and 1997, respectively. Capital
expenditures, consisting primarily of new equipment purchases, totaled
$12,454,000 and $8,440,000 during the three months ended March 31, 1998 and
1997, respectively. Since January 1, 1998, the Company has purchased 8 new
MRI systems, including replacement systems. The Company expects to purchase
additional equipment under binding commitments in 1998 and finance such
purchases with the Company's revolving loan facility.
The Company's primary cash needs consist of capital expenditures and
debt service. The Company incurs capital expenditures for the purposes of
(i) providing routine upgrades of its MRI systems; (ii) replacing or making
major upgrades to older, less advanced systems with new state-of-the-art
systems; and (iii) purchasing new systems. The Company estimates that
routine annual upgrade expenditures average approximately $25,000 per system
or approximately $3,125,000 in the aggregate, based on the fleet size at
March 31, 1998. In addition to these
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routine expenditures, the Company expects capital expenditures to be
approximately $55,000,000 in 1998, which primarily reflects the anticipated
purchase of 32 new MRI systems, including replacement systems. The Company's
decision to purchase a new system is typically predicated on obtaining new or
extending existing customer contracts, which serve as the basis of demand for
the new system.
As a result of the Recapitalization Merger, the Company issued
$185,000,000 of Notes (consisting of $140,000,000 Senior Subordinated Notes
due 2005, bearing interest at the rate of 9 5/8% per annum; and $45,000,000
Floating Interest Rate Subordinated Term Securities due 2005, bearing
interest at a rate per annum equal to LIBOR plus 4.19%) which are payable
semiannually, and require no principal repayments until maturity. The
Company also entered into a $125,000,000 Credit Agreement consisting of a
$50,000,000 Term Loan Facility ($50,000,000 of which was funded at March 31,
1998) and a $75,000,000 Revolving Loan Facility ($16,400,000 of which was
funded at March 31, 1998), and carried over approximately $12,700,000 of
other obligations. The Term Loan matures on the sixth anniversary of the
initial borrowing and requires annual principal repayments of one percent per
year during the first five years and the outstanding principal amount in the
sixth year. The Revolving Loan Facility matures on the fifth anniversary of
the initial borrowing and has mandatory commitment reductions of $37,500,000
on the fourth and fifth anniversaries of the initial borrowing. The Credit
Agreement contains restrictive covenants, which, among other things, limit
the incurrence of additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, liens and
encumbrances, and prepayments of other indebtedness. In addition, the Credit
Agreement requires loans to be prepaid with 100% of the net proceeds of
non-ordinary-course asset sales or other dispositions of property, issuances
of debt obligations and certain preferred stock and certain insurance
proceeds, 75% of annual excess cash flow and 50% of the net proceeds from
common equity and certain preferred stock issuances, in each case subject to
limited exceptions. Voluntary prepayments are permitted in whole or in part.
Also as part of the Recapitalization Merger, the Company issued
$15,000,000 of Series F Preferred Stock. The Series F Preferred Stock pays
dividends at the rate of 13.5% per annum, payable quarterly in arrears, with
such dividends payable in kind for the first five years from the issue date
and thereafter in cash. The Series F Preferred Stock is mandatorily
redeemable for its liquidation preference plus accrued and unpaid dividends
on the 10th anniversary of the issue date. The Series F Preferred Stock is
redeemable at the option of the Company prior to the 10th anniversary at
premiums (expressed as a percentage of the accreted face value) declining
over ten years from 13.5% to 0%. The Company does not currently intend to
redeem the Series F Preferred Stock prior to the mandatory redemption date.
On November 21, 1997, the Company acquired Medical Consultants Imaging
Co. ("MCIC"), a Cleveland, Ohio based provider of mobile MRI services, CT
services and other outsourced health care services. The acquisition also
included MCIC's one-half interest in a limited liability company in Michigan.
The purchase price consisted of $12,323,000 cash plus the assumption of
approximately $5,517,000 in financing arrangements. MCIC operates 14 mobile
MRI systems and several other diagnostic imaging systems, primarily in Ohio,
Michigan, Indiana and Pennsylvania.
13
<PAGE>
On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI"),
another nationwide provider of diagnostic imaging services. The Company
funded the MTI acquisition with $20,000,000 of existing Term Loan
availability under tranche A, $5,400,000 of revolver borrowings, a
$20,000,000 increase to the Term Loan Facility under tranche A, and a new
$50,000,000 Term Loan Facility under tranche B. The Credit Agreement was
amended to provide for the increased Term Facilities.
Also on March 12, 1998, the Company announced it had signed a definitive
agreement to acquire the medical diagnostic imaging assets of American Shared
Hospital Services ("American Shared") for approximately $13,600,000 in cash
and assumption of approximately $26,100,000 of debt in a transaction that is
expected to be consummated by July 15, 1998. The proposed transaction is
subject to certain conditions including receipt of regulatory approvals and
approval by the shareholders of American Shared.
On March 31, 1998, the Company announced it had signed a definitive
agreement with U.S. Diagnostic, Inc., to acquire its subsidiary, Medical
Diagnostics, Inc. ("MDI"), a provider of diagnostic imaging services. The
transaction is valued at approximately $35,500,000 (including assumption of
approximately $5,700,000 of indebtedness) and the Company intends to finance
the cash portion of the transaction with bank financing. The transaction is
subject to customary conditions and necessary regulatory approvals and is
expected to close in May 1998.
The Company believes that subsequent to the Recapitalization Merger and
acquisitions previously mentioned and the incurrence of indebtedness related
thereto, based on current levels of operations and anticipated growth, its
cash from operations, together with other available sources of liquidity,
including borrowings available under the Revolving Loan Facility, will be
sufficient over the next several years to fund anticipated capital
expenditures and make required payments of principal and interest on its
debt, including payments due on the Notes and obligations under the Credit
Agreement. In addition, the Company continually evaluates potential
acquisitions and expects to fund any such acquisitions from its available
sources of liquidity, including borrowings under the Revolving Loan Facility.
The Company's expansion and acquisition strategy may require substantial
capital, and no assurance can be given that the Company will be able to raise
any necessary additional funds through bank financing or the issuance of
equity or debt securities on terms acceptable to the Company, if at all.
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, particularly in the preceding
section entitled "Liquidity and Capital Resources" and elsewhere in this
quarterly report on Form 10-Q, are forward-looking statements. Statements in
this quarterly report on Form 10-Q which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including such things as results of operations and financial
condition, the consummation of acquisitions and financing transactions and
the effect of such transactions on the Company's business and the Company's
plans and objectives for future operations and expansion are examples of
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, including those identified as "Risk Factors" in the
Company's Registration Statements on Forms S-2 (No. 333-33817) and S-4 (No.
333-33787). The foregoing should not be construed as an exhaustive list of
all factors which could
14
<PAGE>
cause actual results to differ materially from those expressed in
forward-looking statements made by the Company. Actual results may
materially differ from anticipated results described in these statements.
YEAR 2000
The Company recently purchased new software for approximately $296,000
which is year 2000 compatible. As a result, the Company does not believe its
systems will be adversely affected. However, there is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Note Description
----------- ---- -----------
<S> <C> <C>
2.1 (6) Agreement and Plan of Merger dated as of July 23, 1997
between the Company and Newport Investment, LLC (the
"Recapitalization Merger Agreement").
2.2 (7) Amendment No. 1 dated as of August 13, 1997 to the
Recapitalization Merger Agreement.
2.3 (7) Amendment No. 2 dated as of October 13, 1997 to the
Recapitalization Merger Agreement.
2.4 (7) Amendment No. 3 dated as of November 10, 1997 to the
Recapitalization Merger Agreement.
2.5 (7) Guaranty Letter dated July 22, 1997, from AIF III to
the Company.
3.1 (9) Form of Amended and Restated Certificate of
Incorporation of the Company.
3.2 (9) By Laws of the Company, as amended.
4.1 (9) Form of Indenture for the 9 5/8% Senior Subordinated
Notes due 2005 and the Senior Subordinated Floating
Rate Notes due 2005 (including the Forms of Notes as
Exhibits A and B thereto) between the Company and IBJ
Schroder Bank & Trust Company, as trustee.
4.2 (9) Form of Guarantee of the Notes.
15
<PAGE>
10.1 (6) Stockholder Agreement dated as of July 23, 1997 among
Newport Investment, LLC and the stockholders of the
Company party thereto.
10.2 (4) Amended and Restated 1991 Stock Option Plan of the
Company, including forms of agreement used thereunder.
10.3 (12) Alliance Imaging, Inc. 1997 Stock Option Plan including
form of option agreement used thereunder.
10.4 (1) Form of Indemnification Agreement between the Company
and its directors and/or officers.
10.5 (2) Employment Agreement dated as of September 9, 1993
between the Company and Terry A. Andrues.
10.6 (2) Employment Agreement dated as of September 9, 1993
between the Company and Jay A. Mericle.
10.7 (5) Amended and Restated Employment Agreement dated as of
May 15, 1997 between the Company and Terrence M. White.
10.8 (2) Employment Agreement dated as of June 6, 1994 between
the Company and Neil M. Cullinan.
10.9 (2) Employment Agreement dated as of June 6, 1994 between
the Company and Cheryl A. Ford.
10.10 (3) Employment Agreement dated as of July 7, 1995 between
the Company and Michael W. Grismer.
10.11 (9) Employment Agreement dated as of July 23, 1997 between
the Company and Richard N. Zehner.
10.12 (9) Employment Agreement dated as of July 23, 1997 between
the Company and Vincent S. Pino.
10.13 (9) Agreement Not to Compete dated as of July 23, 1997
among Newport Investment, LLC, the Company, Richard N.
Zehner and Vincent S. Pino.
10.14 (12) Employment Agreement dated as of January 19, 1998
between the Company and Kenneth S. Ord.
10.15 (12) Agreement Not to Compete dated as of January 19, 1998
between the Company and Kenneth S. Ord.
16
<PAGE>
10.16 (5) Amended and Restated Long-Term Executive Incentive Plan
dated as of July 22, 1997.
10.17 (11) Form of Amended and Restated Credit Agreement dated
March 12, 1998.
10.18 (8) Acquisition Agreement dated as of October 17, 1997
among Medical Consultants Imaging Corp., Bondcat Corp.,
Chip-Cat Corp., Medical Consultants Scanning Systems,
Inc., Alliance Imaging of Ohio, Inc., Alliance Imaging
of Michigan, Inc., and Alliance Imaging, Inc.
10.19 (10) Agreement and Plan of Merger dated as of January 13,
1998 relating to the acquisition of Mobile Technology Inc.
10.20 (12) Securities Purchase Agreement dated as of March 12,
1998 relating to the acquisition of American Shared
Hospital Services and CuraCare, Inc.
10.21 (12) Stock Purchase Agreement dated as of March 30, 1998
among the Company, US Diagnostic, Inc., and Medical
Diagnostics, Inc.
10.22 (11) Amendment to Employment Agreement dated as of July 23,
1997 between the Company and Richard N. Zehner.
10.23 (11) Amendment to Employment Agreement dated as of July 23,
1997 between the Company and Vincent S. Pino.
27.1 (12) Financial Data Schedule.
</TABLE>
- ---------------------------
(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 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.
(3) 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
<PAGE>
(4) 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.
(5) Incorporated by reference to indicated exhibits filed in response to Item
6, "Exhibits" of the Company's Quarterly report on Form, 10-Q for the
quarter ended June 30, 1997.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 5, "Exhibits" of the Company's Form 8-K Current Report
dated August 1, 1997.
(7) Incorporated by reference to the indicated exhibits filed in response to
Item 21, "Exhibits" of the Company's Registration Statement on Form S-4,
No. 333-33787, initially filed on August 15, 1997.
(8) Incorporated by reference to the indicated exhibits filed in response to
Item 6, "Exhibits" of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(9) Incorporated by reference to exhibits filed with the Company Registration
Statement on Form S-2, No. 333-33817.
(10) Incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated January 13, 1998.
(11) 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, 1997.
(12) Filed herewith.
(b) REPORTS ON FORM 8-K IN THE FIRST QUARTER OF 1998:
On January 14, 1998, the Registrant filed a report on Form 8-K announcing
that it had signed a definitive Agreement and Plan of Merger (the "Merger
Agreement") to acquire all of the outstanding common stock of Mobile
Technology Inc. for approximately $100 million (including the assumption of
indebtedness).
On March 23, 1998, the Registrant filed a report on Form 8-K announcing
that it had signed a definitive agreement to acquire the medical diagnostic
imaging assets of American Shared Hospital Services for approximately
$13,600,000 in cash and assumption of approximately $26,100,000 of debt.
The transaction is subject to certain conditions including the receipt of
regulatory approvals and approval by the shareholders of American Shared
Hospital Services.
On March 27, 1998, the Registrant filed a report on Form 8-K announcing
that on March 12, 1998 a wholly-owned subsidiary of the Registrant had
consummated the transactions contemplated by the Merger Agreement pursuant
to which the Registrant acquired all of the outstanding common stock of
Mobile Technology Inc.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE IMAGING, INC.
May 14, 1998 By: /s/ Richard N. Zehner
-------------------------------------
Richard N. Zehner
Chairman 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 May 14, 1998.
Signature Title
--------- -----
/s/ Richard N. Zehner Chairman of the Board of Directors,
-------------------------------------- Chief Executive Officer
Richard N. Zehner (Principal Executive Officer)
/s/ Kenneth S. Ord Senior Vice President, Chief
-------------------------------------- Financial Officer
Kenneth S. Ord (Principal Financial Officer)
19
<PAGE>
ALLIANCE IMAGING INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the ALLIANCE IMAGING INC. 1997 STOCK OPTION PLAN (the
"PLAN") is (i) to further the growth and success of Alliance Imaging, Inc., a
Delaware corporation (the "COMPANY"), by permitting employees of the Company to
acquire shares (the "SHARES") of Common Stock, $.01 par value (the "COMMON
STOCK"), of the Company, thereby increasing such employees' personal interest
in such growth and success and (ii) to provide a means of rewarding outstanding
contribution by such persons to the Company. Options granted under this Plan
(the "OPTIONS") may be either "incentive stock options" under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"), or
non-qualified stock options.
2. DEFINITIONS.
As used in this Plan, the following capitalized terms shall have the
meanings set forth below:
"AFFILIATE" means, with respect to any Person, any other Person that
is controlled by, controlling or under common control with, such Person.
Notwithstanding anything to the contrary contained herein, with respect to the
Company, the term "Affiliate" shall include Newport Investment LLC and each of
its members and each Person in which Newport Investment LLC or such members
hold or have the right to acquire, collectively, more than 25% of the voting
Equity Interest.
"BOARD" has the meaning set forth in Section 3(a).
"CAPITAL STOCK" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including all common
stock and preferred stock.
"CAUSE" shall have the meaning defined in an employment or similar
agreement between the Company and the Optionee, or, if there is no employment
or similar agreement between the Company and the Optionee that defines what
constitutes a termination for cause for purposes of such agreement, what
constitutes "cause" shall be determined by the Committee in good faith.
"CHANGE-IN-CONTROL" means the occurrence of one or more of the
following:
(a) a sale to any Person other than an Affiliate of the Company
of all or substantially all of the assets of the Company;
<PAGE>
(b) a sale by the Company of shares (whether by merger or
otherwise), if any such sale is made to a Person other than any of its
Affiliates, which Person, after giving effect to such sale, will own more than
50% of the outstanding Capital Stock of the Company;
(c) a sale by the stockholders of the Company of Shares, if any
such sale is made to a Person other than an Affiliate of the Company, which
Person, after giving effect to such sale, will own more than 50% of the
outstanding Shares;
"CODE" has the meaning set forth in Section 1.
"COMMITTEE" has the meaning set forth in Section 3(a).
"COMMON STOCK" has the meaning set forth in Section 1.
"COMPANY" has the meaning set forth in Section 1.
"DRAG-ALONG NOTICE" has the meaning set forth in Section 12(a).
"DRAG-ALONG GRANTEES" has the meaning set forth in Section 12(a).
"EBITDA" means, for any period of determination thereof, Net Income
of the Company and its subsidiaries plus, without duplication, (a) Interest
Expense, (b) income tax expense, refunds or credits for such periods, and (c)
depreciation and amortization expense of the Company and its subsidiaries, all
determined in accordance with GAAP.
"EFFECTIVE DATE" means December 18, 1997.
"EQUITY INTEREST" means (a) with respect to a corporation, any and
all Capital Stock or warrants, options or other rights to acquire Capital Stock
(but excluding any debt security which is convertible into, or exchangeable
for, Capital Stock) and (b) with respect to a partnership, limited liability
company or similar Person, any and all units, interests, rights to purchase,
warrants, options or other equivalents of, or other ownership interests in, any
such Person.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPIRATION DATE" has the meaning set forth in Section 9.
"FAIR MARKET VALUE" means:
(a) if the Shares are publicly traded and reported on a closing
price basis, the closing price on the principal national securities exchange,
market or system on which the Shares are traded on the trading day immediately
preceding the date of determination or, if no trades were made on such day, on
the next preceding day on which trades were made, otherwise, the average of the
bid and asked prices for the Shares on the trading day immediately preceding
the date of determination in the over-the-counter market as reported by Nasdaq
or, if not reported by Nasdaq, by an established quotation service for
over-the-counter securities;
2
<PAGE>
(b) or if there is no public trading market for the Shares, the
fair value of such Shares on the date of any determination as reasonably
determined in good faith by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation, recent sale
and offer prices of Shares in private transactions negotiated at arms' length.
Notwithstanding anything contained in this Plan to the contrary, all
determinations pursuant to this Section shall be made without regard to any
restriction other than a restriction which, by its terms, will never lapse.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied, and statements and interpretations (if
applicable) issued by the Financial Accounting Standards Board, or any
successor body, as in effect from time to time, unless otherwise stated.
"GOOD REASON" shall have the meaning defined in an employment or
similar agreement between the Company and the Optionee, or, if there is no
employment or similar agreement between the Company and the Optionee that
defines what constitutes a termination for good reason for purposes of such
agreement, what constitutes "good reason" shall be determined by the Committee
in good faith.
"INDEBTEDNESS" means indebtedness for borrowed money, reimbursement
obligations with respect to letters of credit and similar instruments,
obligations incurred, issued or assumed as the deferred purchase price of
property or services (other than accounts payable incurred in the ordinary
course of business consistent with past practice), obligations of others
secured by (or, for which the holder of such indebtedness has an existing
right, contingent or otherwise, to be secured) any lien on property or assets
of the Company or any subsidiary, capital lease obligations, and obligations in
respect of guarantees of any of the foregoing or any "keep well" or other
agreement to maintain any financial statement condition of another person, in
each case, whether or not matured, liquidated, fixed, contingent, or disputed.
"INTEREST EXPENSE" means, for any period, all interest (including
capitalized interest) and all amortization of debt discount and expense on any
particular Indebtedness (including, without limitation payment-in-kind, zero
coupon and other like securities and the interest component of capital lease
obligations applicable to such period) of the Company and its subsidiaries
determined on a consolidated basis in accordance with GAAP.
"INVESTMENT" in any Person, means any loan or advance to such Person,
any purchase or other acquisition of any Equity Interest or other ownership or
profit interest, warrants, rights, options, obligations or other securities of
such Person, any capital contribution to such Person or any other investment in
such Person, including any arrangement pursuant to which an investing Person
incurs Indebtedness of the types referred to in the definition of
"Indebtedness" in respect of such Person.
"NET DEBT" means (a) all amounts owing by the Company in respect of
outstanding Indebtedness (including principal, interest, fees, expenses and
prepayment
3
<PAGE>
penalties), less (b) cash of the Company, all determined on a
consolidated basis in accordance with GAAP.
"NET INCOME" means, for any period, the gross revenues of the Company
and its consolidated subsidiaries for such period less all expenses and other
proper charges, in each case determined in accordance with GAAP, but (a)
excluding in any event any gains or losses on the sale or other disposition of
Investments or fixed or capital assets or from any transaction classified as
extraordinary under GAAP, any taxes on such excluded gains and any tax
deductions or credits on account of any such excluded losses and (b) in the
sole discretion of the Board or the Committee, adjusted for non-recurring or
non-operating gains or losses and other non-recurring or non-operating gains or
losses which affect Net Income;
"NOTICE" has the meaning set forth in Section 14(b).
"OPTION" has the meaning set forth in Section 1.
"OPTION AGREEMENT" has the meaning set forth in Section 4(c).
"OPTION PRICE" has the meaning set forth in Section 5(a).
"OPTIONED SHARES" has the meaning set forth in Section 14(b).
"OPTIONEES" has the meaning set forth in Section 4(a).
"PER SHARE EQUITY VALUE" means, in respect of any Tranche B or
Tranche C Performance Measurement Date, (a) (i) the product of (x) EBITDA for
the calendar year ending on such Performance Measurement Date, multiplied by
(y) six, plus (ii) the aggregate Option Price of Vested Options, plus (iii) the
aggregate Option Price for all Tranche B Options and Tranche C Options which
will become vested as of the next succeeding Performance Measurement Date if
the applicable Per Share Equity Values are achieved, less (iv) the aggregate
principal amount of the outstanding consolidated Indebtedness (which shall
include, without limitation, if the Per Share Equity Value is being determined
following or in connection with a Change-in-Control, all prepayment penalties
which may be payable by the Company upon the repayment of its Indebtedness),
less (v) the aggregate face value (or, if the Per Share Equity Value is being
determined following or in connection with a Change-in-Control, the aggregate
redemption price) of all of the Company's outstanding shares of redeemable
Capital Stock, plus (vi) the aggregate amount of the consolidated cash on hand
of the Company and its Subsidiaries, divided by (b) the sum of (x) the number
of Shares outstanding as of the end of such calendar year and (y) the number of
Shares issuable upon the conversion of securities convertible into Shares or
upon the exercise of options or warrants exercisable for Shares, in each case
in this clause (b), which are both vested (or, in the case of Tranche B Options
and Tranche C Options, will become vested on or before the next succeeding
Performance Measurement Date if the applicable Per Share Equity Values are
achieved) and "in the money" (I.E., the exercise price or conversion price is
less than the Per Share Equity Value calculated without giving effect to such
convertible securities or options or warrants); PROVIDED, HOWEVER, that if a
Qualified Public Offering shall have been consummated prior to any such
calculation, "PER SHARE EQUITY VALUE" shall mean the average closing stock
price for the thirty trading days immediately preceding the date of any such
determination (with the five highest and five lowest closing stock prices
4
<PAGE>
disregarded), as reported by the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or, if the Shares are then traded on a
national securities exchange, on the principal national securities exchange on
which it is so traded; PROVIDED, FURTHER, HOWEVER, that all outstanding "in the
money" options shall be deemed to be vested solely for purposes of the
definition of "PER SHARE EQUITY VALUE" if Per Share Equity Value is being
determined following or in connection with a Change-in-Control or a Qualified
Public Offering.
"PERSON" is to be construed in the broadest sense and means and
includes any natural person, company, limited liability company, partnership,
joint venture, corporation, business trust, or unincorporated organization or
any national, federal, state, municipal, local, territorial, foreign or other
government or any department, commission, board, bureau, agency, regulatory
authority or instrumentality thereof, or any court, judicial, administrative or
arbitral body or public or private tribunal.
"PRO RATA PORTION" has the meaning set forth in Section 13(a).
"QUALIFIED PUBLIC OFFERING" means a public offering of Common Stock
of the Company in which the proceeds to the Company, net of all fees,
commissions, discounts and expenses, equals or exceeds $35 million.
"RECAPITALIZATION" has the meaning set forth in Section 15(a).
"RULE 16b-3" has the meaning set forth in Section 3(a).
"SEC" means the Securities and Exchange Commission.
"SHARES" has the meaning set forth in Section 1.
"SECURITIES ACT" has the meaning set forth in Section 16(b).
"TAG-ALONG GRANTORS" has the meaning set forth in Section 13(a).
"TRANCHE A OPTIONS" has the meaning set forth in Section 4(d).
"TRANCHE B MISSED PERFORMANCE MEASUREMENT DATE" has the meaning set
forth in Section 7(b).
"TRANCHE B OPTIONS" has the meaning set forth in Section 4(d).
"TRANCHE B PERFORMANCE MEASUREMENT DATE" has the meaning set forth in
Section 7(a).
"TRANCHE B PER SHARE TARGET VALUE" has the meaning set forth in
Section 7(a).
"TRANCHE B VESTING DATE" has the meaning set forth in Section 7(a).
"TRANCHE C MISSED PERFORMANCE MEASUREMENT DATE" has the meaning set
forth in Section 8(b).
5
<PAGE>
"TRANCHE C OPTIONS" has the meaning set forth in Section 4(d).
"TRANCHE C PERFORMANCE MEASUREMENT DATE" has the meaning set forth in
Section 8(a).
"TRANCHE C PER SHARE TARGET VALUE" has the meaning set forth in
Section 8(a).
"TRANCHE C VESTING DATE" has the meaning set forth in 8 (a).
"TRANSFER" means, with respect to any security (including any
Option), a sale, transfer, assignment, encumbrance, pledge or other disposition
of such security either voluntarily or involuntarily and with or without
consideration (including, without limitation, by way of foreclosure or other
acquisition by any lender with respect to any shares pledged to such lender by
an Optionee).
"VESTED OPTION" means an option which has vested in accordance with
this Agreement, or pursuant to an Option Agreement, as the case may be.
3. ADMINISTRATION OF THE PLAN
(a) STOCK OPTION COMMITTEE. This Plan shall be administered by a three-
person committee (the "COMMITTEE") comprised of three members of the Board of
Directors of the Company (the "BOARD"), appointed from time to time by the
Board. The Committee shall have the power and authority to grant Options under
this Plan; PROVIDED, HOWEVER, that, so long as the Company shall be required to
comply with Rule 16b-3 promulgated by the SEC under the Exchange Act
("RULE 16b-3") in order to permit officers and directors of the Company to be
exempt from the provisions of Section 16(b) of the Exchange Act with respect to
transactions effected pursuant to this Plan, each member of the Committee, at
the effective date of his or her appointment to the Committee and at all times
thereafter while serving on the Committee, shall be a "DISINTERESTED PERSON"
within the meaning of Rule 16b-3.
(b) PROCEDURES. The members of the Committee shall from time to time
select a Chairman from among the members of the Committee. The Committee shall
adopt such rules and regulations as it shall deem appropriate concerning the
holding of meetings and the administration of this Plan. A majority of the
entire Committee shall constitute a quorum and the actions of a majority of the
members of the Committee present at a meeting at which a quorum is present, or
actions approved in writing by all of the members of the Committee, shall be
the actions of the Committee.
(c) ADMINISTRATION. Except as may otherwise be expressly reserved to the
Board as provided herein, and, with respect to any Option, except as may
otherwise be provided in the Option Agreement evidencing such Option, the
Committee shall have all powers with respect to the administration of this
Plan, including the interpretation of the provisions of this Plan and any
Option Agreement, and all decisions of the Board or the Committee, as the case
may be, shall be conclusive and binding on all participants in this Plan.
6
<PAGE>
4. GRANT OF OPTIONS; SHARES SUBJECT TO THIS PLAN.
(a) POWER TO GRANT OPTIONS. Subject to the provisions of this Plan, the
Committee shall have the power and authority, in its sole discretion, to
determine:
(i) the persons (from among the class of persons eligible to
receive Options under this Plan) to whom Options shall be granted (the
"OPTIONEES");
(ii) the time or times at which Options shall be granted; and
(iii) the number of Shares subject to such Option.
Notwithstanding anything to the contrary contained herein, as of the Effective
Date, each Person listed in EXHIBIT A shall be granted Options which shall
represent the right to acquire, subject to Section 6, that number of Shares set
forth opposite such Person's name on EXHIBIT A.
(b) ELIGIBILITY. Options may be granted under this Plan at any time and
from time to time on or prior to the tenth anniversary of the Effective Date to
any person who is an employee of the Company or any of its Subsidiaries at the
time of grant. Notwithstanding anything contained in Section 4(a) to the
contrary, Options may not be granted to any Person in any one taxable year of
the Company in excess of 25% of the Options issued or issuable under this Plan.
Notwithstanding any other provision of this Plan to the contrary, the Committee
may, in its discretion, provide that, with respect to any Option, the terms of
the Option Agreement evidencing such Option shall control any conflicts between
provisions of this Plan and provisions of such Option Agreement.
(c) OPTION AGREEMENTS. Each Option shall be evidenced by a written
agreement (an "OPTION AGREEMENT"), in substantially the form of EXHIBIT B, with
such changes thereto as are consistent with this Plan as the Committee shall
deem appropriate. Each Option Agreement shall be executed by the Company and
the Optionee.
(d) TRANCHE A OPTIONS, TRANCHE B OPTIONS, AND TRANCHE C OPTIONS. One
half of the Options granted on the Effective Date to each Optionee shall vest
in accordance with Section 6(b) ("TRANCHE A OPTIONS"), one-quarter of the
options granted to each Optionee on the Effective Date shall vest in accordance
with Section 7 ("TRANCHE B OPTIONS"), and one-quarter of the options granted to
each Optionee on the Effective Date shall vest in accordance with Section 8
("TRANCHE C OPTIONS"). Options granted after the Effective Date shall vest as
determined by the Committee, in its sole and absolute discretion, and as set
forth in the applicable Option Agreement.
(e) DATE OF GRANT. Other than Options granted as of the Effective Date,
the date of grant of an Option under this Plan shall be the date as of which
the Committee approves the grant.
(f) NUMBER OF SHARES. Subject to any equitable adjustments for
Recapitalizations pursuant to Section 15 and subject to the vesting provisions
set forth herein, each Option shall be exercisable for one Share. Subject to
any equitable adjustments for Recapitalization pursuant to
7
<PAGE>
Section 15, the number of Shares subject at any one time to Options granted
under this Plan, and the number of Shares theretofore issued and delivered
pursuant to the exercise of Options granted under this Plan, shall be 454,545
Shares. If and to the extent that Options granted under this Plan terminate,
expire or are canceled without having been fully exercised, new Options may
be granted under this Plan with respect to the Shares covered by the
unexercised portion of such terminated, expired or canceled Options.
(g) CHARACTER OF SHARES. The Shares issuable upon exercise of Options
granted under this Plan shall be (i) authorized but unissued Shares, (ii)
Shares held in the Company's treasury or (iii) a combination of the foregoing.
(h) RESERVATION OF SHARES. The Company shall use commercially reasonable
efforts to ensure that the number of Shares reserved for issuance under this
Plan shall at all times be equal to the maximum number of shares which may be
purchased at such time pursuant to outstanding Options.
5. OPTION PRICE
(a) GENERAL. The exercise price (the "OPTION PRICE") for each Share
subject to an Option shall be determined by the Committee and set forth in the
Option Agreement, except that (i) the exercise price for Options granted on the
Effective Date shall be $11.00 per share (subject to equitable adjustment for
Recapitalizations affecting the Common Stock) and (ii) no incentive stock
option may be granted under the plan to an employee who owns, directly or
indirectly (within the meaning of Sections 422(b)(6) and 424(d) of the Code),
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its subsidiaries, unless (A) the
Option Price of the Shares of Common Stock subject to such incentive stock
option is fixed at not less than 110% of the Fair Market Value on the date of
grant of such shares and (B) such incentive stock option by its terms is not
exercisable after the expiration of five years from the date it is granted.
(b) REPRICING OF OPTIONS. Subsequent to the date of grant of any Option,
the Committee may (i) in its sole discretion, establish a new Option Price for
such Option so as to decrease the Option Price of such Option or (ii) with the
consent of the Optionee, establish a new Option Price for such Option so as to
increase the Option Price of such Option.
6. EXERCISABILITY AND VESTING OF TRANCHE A OPTIONS
(a) All Tranche A Options granted on the Effective Date shall be subject
to vesting as set forth in this Section 6, and all Options granted after the
Effective Date shall be subject to vesting as determined by the Committee and
set forth in the applicable Option Agreement.
(b) 25% of the Tranche A Options shall become Vested Options on each of
the first four anniversaries of December 31, 1997 if the Optionee is employed
by the Company on such anniversary date. If a Change-in-Control shall occur
and, prior to the end of the six month period immediately following the Change-
in-Control, the employment with the Company of an Optionee holding a Tranche A
Option is terminated by the Company other than for Cause, then
8
<PAGE>
all of the Tranche A Options held by such Optionee shall become Vested
Options immediately upon such termination.
(c) Notwithstanding anything to the contrary contained in this Plan, each
Tranche A Option shall cease vesting as of the time that an Optionee's
employment with the Company is terminated for any reason and no Tranche A
Option which is not a Vested Option as of such time shall become a Vested
Option thereafter. All decisions by the Committee with respect to any
calculations pursuant to this Section (absent manifest error) shall be final
and binding on all Optionees.
7. EXERCISABILITY AND VESTING OF TRANCHE B OPTIONS
(a) All of the Tranche B Options shall become Vested Options on the date
that is seven years and six months immediately following the date of grant
("TRANCHE B VESTING DATE") if the Optionee is employed by the Company on the
Tranche B Vesting Date. However, if the Per Share Equity Value as of a Tranche
B Performance Measurement Date indicated below (each a "TRANCHE B PERFORMANCE
MEASUREMENT DATE") equals or exceeds the corresponding Tranche B Per Share
Target Value indicated below (the "TRANCHE B PER SHARE TARGET VALUE") and the
Optionee is employed by the Company on such Tranche B Performance Measurement
Date, then 25% of the Tranche B Options shall vest on such Tranche B
Performance Measurement Date.
<TABLE>
<CAPTION>
TRANCHE B
PERFORMANCE TRANCHE B PER SHARE
MEASUREMENT DATE TARGET VALUE
------------------ -------------------
<S> <C>
December 31, 1998 $14.85
December 31, 1999 $20.05
December 31, 2000 $27.06
December 31, 2001 $36.54
</TABLE>
(b) If the Tranche B Per Share Target Value is not achieved for any
year, the Committee, upon consultation with management, will have the
discretion to cause all or part of the applicable Tranche B Options to become
Vested Options.
(c) If both (i) the Per Share Equity Value as of any Tranche B
Performance Measurement Date equals at least 80% of the Tranche B Per Share
Target Value established for such Tranche B Performance Measurement Date (the
"TRANCHE B MISSED PERFORMANCE MEASUREMENT DATE"), but is less than 100% of the
Tranche B Per Share Target Value established for such Tranche B Performance
Measurement Date and (ii) either (A) the Per Share Equity Value as of the
immediately subsequent Tranche B Performance Measurement
9
<PAGE>
Date equals or exceeds the Tranche B Per Share Target Value as of such
subsequent Tranche B Performance Measurement Date pursuant to Section 7(a) or
(B) both (x) the Per Share Equity Value as of the immediately subsequent
Tranche B Performance Measurement Date equals at least 80% of the Tranche B
Per Share Target Value established for such Tranche B Performance Measurement
Date, but is less than 100% of the Tranche B Per Share Target Value
established for such subsequent Tranche B Performance Measurement Date and
(y) the Per Share Equity Value as of the second subsequent Tranche B
Performance Measurement Date equals or exceeds the Tranche B Per Share Target
Value established for such second subsequent Tranche B Performance
Measurement Date pursuant to Section 7(a), then the Tranche B Options which
did not become Vested Options as of the Tranche B Missed Performance
Measurement Date shall become Vested Options as of the first anniversary of
the Tranche B Missed Performance Measurement Date if the Optionee holding the
applicable Tranche B Option is employed by the Company as of the first
anniversary of the Tranche B Missed Performance Measurement Date.
(d) If a Change-in-Control shall occur prior to December 31, 2001, all of
the Tranche B Options will become Vested Options if the Fair Market Value of
the per share consideration received by the holders of Shares (after giving
effect to the vesting described herein) equals or exceeds (i) the Tranche B Per
Share Target Value for the Tranche B Performance Measurement Date immediately
preceding such Change-in-Control plus (ii) the product of (x) (A) the Tranche B
Per Share Target Value for the Tranche B Performance Measurement Date
immediately following such Change-in-Control less (B) the Tranche B Per Share
Target Value for the Tranche B Performance Measurement Date immediately
preceding such Change-in-Control, multiplied by (y) a fraction, the numerator
of which is the number of days elapsed as of the consummation of such Change-in-
Control since the immediately preceding Tranche B Performance Measurement Date
and the denominator of which is 365.
(e) Notwithstanding anything to the contrary contained in this Plan, 25%
of the Tranche B Options shall become Vested Options on each of the first four
anniversaries of the last day of the month in which the Effective Date occurs
to the extent that any such anniversary occurs after a Qualified Public
Offering if after such Qualified Public Offering, Newport Investment LLC shall
sell more than 50% of the Shares held by it as of the Effective Date at an
average price exceeding (i) the Tranche B Per Share Target Value for the
Tranche B Performance Measurement Date immediately preceding such Qualified
Public Offering plus (ii) the product of (x) (A) the Tranche B Per Share Target
Value for the Tranche B Performance Measurement Date immediately following such
Qualified Public Offering less (B) the Tranche B Per Share Target Value for the
Tranche B Performance Measurement Date immediately preceding such Qualified
Public Offering, multiplied by (y) a fraction, the numerator of which is the
number of days elapsed as of the consummation of such Qualified Public Offering
since the immediately preceding Tranche B Performance Measurement Date and the
denominator of which is 365.
(f) Notwithstanding anything to the contrary contained in this Plan, the
determination as to whether the Per Share Equity Value equals or exceeds the
Tranche B Per Share Target Value shall be made after the Company's audited
financials for the applicable fiscal year become available.
(g) Notwithstanding anything to the contrary contained in this Plan, each
Tranche B Option shall cease vesting as of the time that an Optionee's
employment with the Company is
10
<PAGE>
terminated for any reason and no Tranche B Option which is not a Vested
Option as of such time shall become a Vested Option thereafter. All
decisions by the Committee with respect to any calculations pursuant to this
Section (absent manifest error) shall be final and binding on all Optionees.
8. EXERCISABILITY AND VESTING OF TRANCHE C OPTIONS
(a) All of the Tranche C Options shall become Vested Options on the date
that is seven years and six months immediately following the date of the grant
("TRANCHE C VESTING DATE") if the Optionee is employed by the Company on the
Tranche C Vesting Date. However, if the Per Share Equity Value as of the
Tranche C Performance Measurement Date indicated below (each a "TRANCHE C
PERFORMANCE MEASUREMENT DATE") equals or exceeds the corresponding Tranche C
Per Share Target Value indicated below (the "TRANCHE C PER SHARE TARGET VALUE")
and the Optionee is employed by the Company on such Tranche C Performance
Measurement Date indicated below, then 25% of the Tranche C Options shall vest
on such Tranche C Performance Measurement Date.
<TABLE>
<CAPTION>
TRANCHE C TRANCHE C PER
PERFORMANCE SHARE TARGET
MEASUREMENT DATE VALUE
------------------ -------------
<S> <C>
December 31, 1998 $15.40
December 31, 1999 $21.56
December 31, 2000 $30.18
December 31, 2001 $42.26
</TABLE>
(b) If the Tranche C Per Share Target Value is not achieved for any year,
the Committee, upon consultation with management, will have the discretion to
cause all or part of the applicable Tranche C Options to become Vested Options.
(c) If both (i) the Per Share Equity Value as of any Tranche C
Performance Measurement Date equals at least 80% of the Tranche C Per Share
Target Value established for such Tranche C Performance Measurement Date (the
"TRANCHE C MISSED PERFORMANCE MEASUREMENT"), but is less than 100% of the
Tranche C Per Share Target Value established for such Tranche C Performance
Measurement Date and (ii) either (A) the Per Share Equity Value as of the
immediately subsequent Tranche C Performance Measurement Date equals or exceeds
the Tranche C Per Share Target Value as of such subsequent Tranche C
Performance Measurement Date pursuant to Section 8(a) or (B) both (x) the Per
Share Equity Value as of the subsequent Tranche C Performance Measurement Date
equals at least 80% of the Tranche C Per Share Target Value established for
such Tranche C Performance Measurement Date, but is less than 100% of the
Tranche C Per Share Target Value established for such subsequent Tranche C
Performance Measurement Date and (y) the Per Share Equity Value as of the
second subsequent
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<PAGE>
Tranche C Performance Measurement Date equals or exceeds the Tranche C Per
Share Target Value established for such second subsequent Tranche C
Performance Measurement Date pursuant to Section 8(a), then the Tranche C
Options which did not become Vested Options as of the Tranche C Missed
Performance Measurement Date shall become Vested Options as of the first
anniversary of the Tranche C Missed Performance Measurement Date if the
Optionee holding the applicable Tranche C Option is employed by the Company
as of the first anniversary of the Tranche C Missed Performance Measurement
Date.
(d) If a Change-in-Control shall occur prior to December 31, 2001, all of
the Tranche C Options will become Vested Options if the Fair Market Value of
the per share consideration received by the holders of Shares (after giving
effect to the vesting described herein) equals or exceeds (i) the Tranche C
Per Share Target Value for the Tranche C Performance Measurement Date
immediately preceding such Change-in-Control plus (ii) the product of
(x) (A) the Tranche C Per Share Target Value for the Tranche C Performance
Measurement Date immediately following such Change-in-Control less (B) the
Tranche C Per Share Target Value for the Tranche C Performance Measurement Date
immediately preceding such Change-in-Control, multiplied by (y) a fraction, the
numerator of which is the number of days elapsed as of the consummation of such
Change-in-Control since the immediately preceding Tranche C Performance
Measurement Date and the denominator of which is 365.
(e) Notwithstanding anything to the contrary contained in this Plan, 25%
of the Tranche C Options shall become Vested Options on each of the first four
anniversaries of the last day of the month in which the Effective Date occurs
to the extent that any such anniversary occurs after a Qualified Public
Offering if after such Qualified Public Offering, Newport Investment LLC shall
sell more than 50% of the Shares held by it as of the Effective Date at an
average price exceeding (i) the Tranche C Per Share Target Value for the
Tranche C Performance Measurement Date immediately preceding such Qualified
Public Offering plus (ii) the product of (x) (A) the Tranche C Per Share Target
Value for the Tranche C Performance Measurement Date immediately following such
Qualified Public Offering less (B) the Tranche C Per Share Target Value for the
Tranche C Performance Measurement Date immediately preceding such Qualified
Public Offering, multiplied by (y) a fraction, the numerator of which is the
number of days elapsed as of the consummation of such Qualified Public Offering
since the immediately preceding Tranche C Performance Measurement Date and the
denominator of which is 365.
(f) Notwithstanding anything to the contrary contained in this Plan, the
determination as to whether the Per Share Equity Value equals or exceeds the
Tranche C Per Share Target Value shall be made after the Company's audited
financials for the applicable fiscal year become available.
(g) Notwithstanding anything to the contrary contained in this Plan, each
Tranche C Option shall cease vesting as of the time that an Optionee's
employment with the Company is terminated for any reason and no Tranche C
Option which is not a Vested Option as of such time shall become a Vested
Option thereafter. All decisions by the Committee with respect to any
calculations pursuant to this Section (absent manifest error) shall be final
and binding on all Optionees.
12
<PAGE>
9. AUTOMATIC TERMINATION OF OPTION
Each Option granted under this Plan shall automatically terminate and
shall become null and void and be of no further force or effect upon the first
of the following to occur (the "EXPIRATION DATE"):
(a) the tenth anniversary on which such Option is granted;
(b) subject to Section 9(e), if an Optionee terminates his employment
with the Company without Good Reason, or the Company terminates the Optionee's
employment for Cause, the thirtieth day following the date of such termination;
(c) subject to Section 9(e), if an Optionee's employment with the Company
is terminated by the Optionee or the Company for any reason other than for
Cause or without Good Reason, the sixtieth day following the date of such
termination;
(d) subject to Section 9(e), if an Optionee's employment with the Company
is terminated due to the death or disability of the Optionee, six months after
the date of such death or disability; or
(e) with respect to Options granted after the Effective Date, the
expiration of such other period of time or the occurrence of such other event
as the Committee, in its discretion, may provide in the Option Agreement
governing such Option.
10. REGISTRATION ON FORM S-8.
On or prior to the first anniversary of a public offering by the
Company of Capital Stock, the Company will file or cause to be filed, and will
use commercially reasonable efforts to cause to be effective, a registration
statement on Form S-8 with respect to the sale of Shares purchased upon the
exercise of Options; PROVIDED that the Company may delay such filing on one or
more occasions for up to 180 days if the Company determines that the filing of
a Form S-8 would require disclosure that the Company deems advisable to defer.
11. REPURCHASE OF SHARES
(a) If an Optionee ceases to be employed by the Company, the Company
shall have the right to purchase each Vested Option (or portion thereof) and
each Share held by such Optionee or holder of Shares, purchased upon the
exercise of an Option, beginning sixty days after termination.
(b) The repurchase right referred to in this Section may be exercised by
delivery of a notice of exercise to such effect to the Optionee at the address
of such Optionee set forth in the Company's records.
13
<PAGE>
(c) The purchase price for Shares purchased pursuant to Section 11(a)
shall be (i) the Fair Market Value of each Share subject to Vested Options,
less the exercise price thereof plus (ii) the Fair Market Value of each Share.
(d) Promptly, but not later than five business days after receipt of the
notice of exercise referred to in this Section, the Optionee shall deliver to
the Company all certificates representing Shares or Options held by such
Optionee, duly endorsed for transfer to the purchaser thereof, against delivery
of the purchase price therefor. Such Shares and Options shall be delivered
free and clear of all liens, charges, encumbrances, pledges, hypothecations and
other security interests.
(e) The Company shall have the right to assign its rights pursuant to
this Section to the Company or to any Affiliate of the Company.
12. DRAG-ALONG RIGHT
(a) If, prior to the consummation of a Qualified Public Offering,
(i) stockholders of the Company holding more than 50% of the outstanding Shares
(assuming all Options are exercised) (the "DRAG-ALONG GRANTEES") enter into an
agreement with any Person or Persons, to Transfer (pursuant to a merger or
otherwise) all Shares then held by the Drag-Along Grantees, the Drag-Along
Grantees shall be entitled, at their option, to require each Optionee to sell
all Shares held by such Optionee (together with all Options then outstanding
and held by such Optionee), by providing such holders with notice at least
fifteen days prior to consummation of the proposed transaction, setting forth
in reasonable detail the material terms and conditions of the proposed
transaction or offering, and the price per share at which such holder shall be
required to sell all of his or her Shares (which price per share shall be equal
to the same price per share that the Drag-Along Grantees shall receive pursuant
to the proposed transaction).
(b) Immediately prior to the closing of the proposed transaction (notice
of the date, place and time of which shall be designated by the Company and
provided to such holder in writing at least five business days prior thereto),
such holder shall exercise all Vested Options. At such closing, the Optionee
shall deliver certificates evidencing all Shares then held by such Optionee,
duly endorsed for transfer to the proposed transferee, against the purchase
price therefor. Such Shares shall be delivered free and clear of all liens,
charges, encumbrances and other security interests. None of the Drag-Along
Grantees nor the Company shall have any liability or obligation to deliver the
purchase price payable pursuant to this Section, except to the extent that any
such Drag-Along Grantees or the Company receive the consideration thereof from
the proposed purchaser. All consideration payable pursuant to this Section
shall be payable in the same form as the consideration received by the Drag-
Along Grantees.
(c) The Company shall have the right to assign its rights pursuant to
this Section to the Company or to any Affiliate of the Company.
(d) The rights granted pursuant to this Section shall terminate upon
consummation of a Qualified Public Offering.
14
<PAGE>
13. TAG-ALONG RIGHT
(a) If stockholders of the Company holding more than 50% of the
outstanding Shares (assuming all Options are exercised) (the "TAG-ALONG
GRANTORS") enter into an agreement with any Person or Persons to Transfer
Shares (pursuant to a merger or otherwise), then each Optionee shall have the
right to include a Pro Rata Portion of Shares owned by such Optionee in the
proposed transaction by providing a notice of exercise to the Company at any
time on or before five business days following the last day that a Drag-Along
Notice may be given. The term "PRO RATA PORTION" means the total number of
Shares held by such Optionee multiplied by a fraction, the numerator of which
is the total number of Shares proposed to be disposed of by the Tag-Along
Grantors in the proposed transaction and the denominator of which is the total
number of Shares outstanding.
(b) At the closing of the proposed transaction (notice of the date, place
and time of which shall be designated by the Company and provided to each such
holder in writing at least five business days prior thereto), such Optionee
shall deliver certificates evidencing a Pro Rata Portion of the Shares owned by
such Optionee, duly endorsed for transfer to the proposed purchaser, against
delivery of the purchase price therefor. Such Shares shall be delivered free
and clear of all liens, charges, encumbrances and other security interests.
None of the Tag-Along Grantors or the Company shall have any liability or
obligation to deliver the purchase price payable pursuant to this Section,
except to the extent that any such Tag-Along Grantors or the Company receive
the consideration thereof from the proposed purchaser. All consideration
payable pursuant to this Section shall be payable in the same form as the
consideration received by the Drag-Along Grantees.
(c) The rights granted pursuant to this Section shall terminate upon
consummation of a Qualified Public Offering.
14. PROCEDURE FOR EXERCISE
(a) PAYMENT. At the time an Option is granted under this Plan, the
Committee shall, in its discretion, specify one or more of the following forms
of payment which may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the Company in an
amount equal to the aggregate Option Price of the Shares with respect to
which the Option is being exercised and the aforementioned form of payment
shall be the only form available on or after a Qualified Public Offering;
(ii) stock certificates (in negotiable form) representing Shares
having a Fair Market Value on the date of exercise equal to the aggregate
Option Price of the Shares with respect to which the Option is being
exercised;
(iii) Vested Options, valued for such purposes at the Fair Market
Value per share of Common Stock on the date of exercise, net of the Option
Price for each such Share; or
15
<PAGE>
(iv) a combination of the methods set forth in clauses (i), (ii) and
(iii) above.
(b) NOTICE. An Optionee (or other person, as provided in Section 16(c))
may exercise a Vested Option granted under this Plan in whole or in part (but
for the purchase of whole Shares only), as provided in the Option Agreement
evidencing his Option, by delivering a written notice (the "NOTICE") to the
Secretary of the Company. The Notice shall state:
(i) that the Optionee elects to exercise the Vested Option;
(ii) the number of Shares with respect to which the Vested Option is
being exercised (the "OPTIONED SHARES");
(iii) the method of payment for the Optioned Shares (which method
must be available to the Optionee under the terms of his or her Option
Agreement);
(iv) the date upon which the Optionee desires to consummate the
purchase (which date must be prior to the termination of such Option);
(v) a copy of any election filed by the Optionee pursuant to Section
83(b) of the Code; and
(vi) such further provisions consistent with this Plan as the
Committee may from time to time require.
The exercise date of a Vested Option shall be the date on which the Company
receives the Notice from the Optionee.
(c) ISSUANCE OF CERTIFICATES. The Company shall issue a stock
certificate in the name of the Optionee (or such other person exercising the
Option in accordance with the provisions of Section 14(c)) for the Shares
purchased upon exercise of an Option as soon as practicable after receipt of
the Notice and payment of the aggregate Option Price for such shares. Neither
the Optionee nor any person exercising a Vested Option in accordance with the
provisions of Section 14(c) shall have any privileges as a stockholder of the
Company with respect to any shares of stock subject to an Option granted under
this Plan until the date of issuance of a stock certificate pursuant to this
Section 12(c).
15. ADJUSTMENTS
(a) CHANGES IN CAPITAL STRUCTURE. If the Common Stock is changed by
reason of a stock split, reverse stock split or stock combination, stock
dividend or distribution, or recapitalization, or converted into or exchanged
for other securities as a result of a merger, consolidation or reorganization
(each such event being a "RECAPITALIZATION"), the Committee shall make such
adjustments in the number and class of shares of stock available under this
Plan as shall be necessary to preserve to an Optionee rights substantially
proportionate to his rights existing immediately prior to such transaction or
event (but subject to the limitations and restrictions on such rights),
including, without limitation, a corresponding adjustment changing the number
and
16
<PAGE>
class of shares allocated to, and the Option Price of, each Option or
portion thereof outstanding at the time of such change and the number of
shares that vest pursuant to this Plan.
(b) SPECIAL RULES. The following rules shall apply in connection with
Section 15(a) above:
(i) no adjustment shall be made for cash dividends or the issuance
to stockholders of rights to subscribe for additional Shares; and
(ii) any adjustments referred to in Section 15(a) shall be made by
the Committee in its sole and absolute discretion, and shall be conclusive
and binding on all persons holding any Options granted under this Plan.
16. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES.
(a) No Options shall be granted under this Plan, and no Shares shall be
issued and delivered upon the exercise of Options granted under this Plan,
unless and until the Company and/or the Optionee shall have complied with all
applicable Federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
(b) The Committee in its sole and absolute discretion may, as a condition
to the exercise of any Vested Option granted under this Plan, require an
Optionee (i) to represent in writing that the Shares received upon exercise of
a Vested Option are being acquired for investment and not with a view to
distribution and (ii) to make such other representations and warranties as are
reasonably deemed appropriate by the Company to satisfy the requirements of
applicable law, including, without limitation, an applicable private placement
exemption of the Securities Act as determined by the Committee. Stock
certificates representing Shares acquired upon the exercise of Vested Options
that have not been registered under the Securities Act shall, if required by
the Committee, bear the following legend and such additional legends as may be
required by the Option Agreement evidencing a particular Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE ISSUER HEREOF
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
(c) No Option granted under this Plan may be Transferred by the Optionee,
except by will or by the laws of descent and distribution. A Vested Option may
be exercised during the lifetime of the Optionee only by the Optionee. If an
Optionee dies, his or her Vested Options shall thereafter be exercisable,
during the period specified in Section 9(d) or the applicable Option Agreement
(as the case may be), by his or her executors or administrators to the full
17
<PAGE>
extent (but only to such extent) to which such Options were exercisable by the
Optionee at the time of his or her death.
(d) No Share issued upon exercise of an Option may be Transferred, except
otherwise provided in this Plan, by will, by the laws of descent and
distribution or to the Company or any of the Company's affiliates.
17. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
(a) This Plan shall become effective on the Effective Date.
(b) No Options may be granted after the tenth anniversary of the
Effective Date.
(c) Any Option outstanding as of the tenth anniversary of the Effective
Date shall remain in effect until the earlier of the exercise thereof and the
Expiration Date with respect to such Option.
18. WITHHOLDING TAXES.
Whenever under this Plan, Shares are to be delivered to an Optionee,
the Company shall be entitled to require as a condition of delivery that the
Optionee remit or, in appropriate cases, agree to remit when due, an amount
sufficient to satisfy all current or estimated future Federal, state and local
withholding tax and employment tax requirements relating thereto.
19. MISCELLANEOUS
Each Option granted under this Plan may contain such other terms and
conditions not inconsistent with this Plan as may be determined by the
Committee, in its sole and absolute discretion.
(a) NUMBER AND GENDER. With respect to words used in this Plan, the
singular form shall include the plural form, the masculine gender shall include
the feminine gender, and vice-versa, as the context requires.
(b) CAPTIONS. The use of captions in this Plan is for convenience. The
captions are not intended to provide substantive rights.
(c) AMENDMENT OF PLAN. This Plan may be modified or amended in any
respect by the Board, with the prior written consent of the Requisite Holders
(as defined in the Stockholders Agreement).
(d) GOVERNING LAW. All questions concerning the construction,
interpretation and validity of this Plan and the instruments evidencing the
Options granted hereunder shall be governed by and construed and enforced in
accordance with the domestic laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether in
18
<PAGE>
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
In furtherance of the foregoing, the internal law of the State of New York
will control the interpretation and construction of this Plan, even if under
such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(e) SECURITIES EXCHANGE ACT COMPLIANCE. The Corporation will use its
commercially reasonable efforts to cause the exemption from Section 16 of the
1934 Act afforded by such Rule 16b-3 to be available at the time the Company
has a class of equity securities registered under Section 12 of the 1934 Act.
(f) NO EVIDENCE OF EMPLOYMENT OR SERVICE Nothing contained in this Plan
or in any Option Agreement shall confer upon any Optionee any right with
respect to the continuation of his or her employment by or service with the
Company or any of its Subsidiaries or interfere in any way with the right of
the Company or any such Subsidiary (subject to the terms of any separate
agreement to the contrary) at any time to terminate such employment or service
or to increase or decrease the compensation of the Optionee from the rate in
existence at the time of the grant of an Option.
19
<PAGE>
EXHIBIT A
LIST OF OPTIONEES AND NUMBER OF OPTIONS AWARDED
<TABLE>
<S> <C>
Richard N. Zehner 120,000
Vincent S. Pino 110,000
</TABLE>
20
<PAGE>
EXHIBIT B
STOCK OPTION AGREEMENT dated as of the date set forth on the signature page
hereto, between ALLIANCE IMAGING, INC., a Delaware corporation (the "COMPANY"),
and the optionee set forth on the signature page hereto (the "OPTIONEE").
The Company, whether acting through its Board of Directors (the
"BOARD") or a committee thereof (the "COMMITTEE") has granted to the Optionee,
effective as of the date of this Agreement, an option under the Company's 1997
Stock Option Plan (the "PLAN") to purchase up to the number of shares of the
Common Stock, $.01 par value, of the Company (the "COMMON STOCK") set forth on
the signature page hereto, on the terms and subject to the conditions set forth
in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, the parties hereto agree as follows:
1. THE PLAN.
The terms and provisions of the Plan are hereby incorporated into
this Agreement as if set forth herein in their entirety. In the event of a
conflict between any provision of this Agreement and the Plan, the provisions
of this Agreement shall control. A copy of the Plan may be obtained from the
Company by the Optionee upon request. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Plan.
2. OPTION; OPTION PRICE.
On the terms and subject to the conditions of this Agreement, the
Optionee is hereby granted the option (the "OPTION") to purchase Shares at the
Option Price set forth on the signature page hereto. The Option is not
intended to qualify for federal income tax purposes as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE").
3. TERM.
The term of the Option (the "OPTION TERM") shall commence on the date
hereof and expire on the tenth anniversary of the date hereof, unless the
Option shall have sooner been terminated in accordance with the terms of the
Plan or this Agreement.
4. RESTRICTION ON TRANSFER.
The Option may not be transferred, pledged, assigned, hypothecated or
otherwise disposed of in any way by the Optionee and may be exercised during
the lifetime of the Optionee only by the Optionee. The Option shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any execution, attachment or similar
process upon the Option, shall be null and void and without effect.
21
<PAGE>
5. OPTIONEE'S EMPLOYMENT.
Nothing in the Option shall confer upon the Optionee any right to
continue to be employed by the Company or any of its Affiliates or interfere in
any way with the right of the Company or its Affiliates or stockholders, as the
case may be, to terminate the Optionee's employment or retention by the Company
or any of its Affiliates or to increase or decrease the Optionee's compensation
at any time.
6. NOTICES.
All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given and delivered if personally delivered or if sent by nationally-
recognized overnight courier guaranteeing next day delivery, by telecopy, or by
registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:
(a) if to the Company, to it at:
Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, California 92806
Attention: President
Telecopier: (714) 688-3388
Telephone: (714) 688-7100; and
(b) if to the Optionee, to him at his address set forth in the Company's
records.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (i) in the case
of personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date sent), (ii) in the case of
nationally-recognized overnight courier, on the next business day after the
date sent, (iii) in the case of telecopy transmission, when received (or if not
sent on a business day, on the next business day after the date sent), and (iv)
in the case of mailing, on the third business day following that on which the
piece of mail containing such communication is posted.
7. WAIVER OF BREACH.
The waiver by either party of a breach of any provision of this
Agreement must be in writing and shall not operate or be construed as a waiver
of any other or subsequent breach.
8. OPTIONEE'S UNDERTAKING.
The Optionee hereby agrees to take whatever additional actions and
execute whatever additional documents the Company may in its reasonable
judgment deem necessary or advisable in order to carry out or effect one or
more of the obligations or restrictions imposed on the Optionee pursuant to the
express provisions of this Agreement and the Plan.
22
<PAGE>
9. MODIFICATION OF RIGHTS.
Anything contained in this Agreement or the Plan to the contrary
notwithstanding, no provision of this Agreement may be modified or amended
without the prior written consent of the Corporation and the Optionee, and no
interpretation, modification, amendment or termination of any provision of the
Plan that would adversely affect the rights of the Optionee under or with
respect to the Plan or this Agreement shall be effective as to the Optionee
without the Optionee's prior written consent.
10. GOVERNING LAW.
All questions concerning the construction, interpretation and
validity of this Agreement shall be governed by and construed and enforced in
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice or conflict of law provision or rule (whether in the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware. In furtherance of
the foregoing, the internal law of the State of Delaware will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive law
of some other jurisdiction would ordinarily apply.
11. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
together shall constitute but one agreement.
12. ENTIRE AGREEMENT.
This Agreement and the Plan (and the other writings referred to
herein) constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and supersede all prior written or oral
negotiations, commitments, representations and agreements with respect thereto.
13. SEVERABILITY.
It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn
so as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
* * * *
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ALLIANCE IMAGING, INC.
By:
--------------------------------
Name:
Title:
--------------------------------
OPTIONEE:
NUMBER OF SHARES
OF COMMON STOCK:
OPTION PRICE: $
DATED: DECEMBER 18, 1997
24
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 19, 1998, by and
between Alliance Imaging, Inc., a Delaware corporation (hereinafter called the
"Corporation"), and Kenneth S. Ord (hereinafter called the "Executive").
WITNESSETH THAT:
The Corporation desires to employ the Executive as its Senior Vice
President and Chief Financial Officer ("CFO"), and the Executive desires to
accept such employment;
NOW, THEREFORE, the Corporation and the Executive, each intending to
be legally bound, hereby mutually covenant and agree as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Corporation shall employ the Executive as the CFO of the
Corporation, and the Executive shall so serve, for the term set forth in
Paragraph 1(b).
(b) Term. The term of the Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Time") and shall end on the
second anniversary of the Effective Time, subject to the extension of such term
as hereinafter provided and subject to earlier termination as provided in
Paragraph 8. The expiration of the term of this Agreement shall be extended
automatically by an additional three months as of the last day of each quarterly
period following the Effective Time unless either party desires to modify or
terminate this Agreement and notifies the other party of its desire to modify or
terminate this Agreement at least 30 days prior to any such quarterly renewal
date. The period of employment as provided in this Paragraph 1(b) is sometimes
referred to herein as the "Term".
2. DUTIES.
During the Term, the Executive shall serve as CFO of the
Corporation and have all powers and duties consistent with such position.
The Executive shall devote substantially his entire time during reasonable
business hours (reasonable sick leave and vacations excepted) and use
diligent efforts to fulfill faithfully, responsibly and to the best of his
ability his duties hereunder; PROVIDED, HOWEVER, that Executive may engage in
and devote time to other non-competitive activities to the extent that such
time spent is immaterial and does not interfere with Executive's obligations
hereunder. During the Term, Executive shall report to the Chairman and Chief
Executive Officer of the Corporation. Executive's duties shall be performed,
initially, principally at the Corporation's current offices located in
Anaheim, California, unless Executive otherwise agrees in writing.
Notwithstanding, the foregoing, Executive may be required to travel in the
conduct of the Corporation's business and to discharge his duties hereunder,
provided that the amount and nature of such travel is reasonably consistent
with the amount and
<PAGE>
nature of travel engaged in by Executive (or his predecessor) during the
twelve-month period immediately preceding the date of this Agreement.
3. SALARY.
The Corporation shall pay to the Executive as compensation for his
services a salary of $250,000 per year, payable in accordance with the
Corporation's payroll procedures. From time to time, the Board of Directors of
the Corporation or a committee thereof (the "Board") will review the Executive's
performance and compensation, and will consider adjustments thereto.
4. ANNUAL BONUSES.
For each calendar year during the term of employment, the Executive
shall be eligible to receive a cash bonus based on the Corporation's achievement
of certain operating and/or financial or other goals established by the Board in
its sole discretion, with an annual target bonus amount (based on the
Corporation's achievement of a reasonable operating budget to be approved by the
Board) equal to 50% (the "Target Bonus") of the Executive's then current annual
base salary. The bonus plan shall be adopted and administered by the
Compensation Committee of the Board.
5. EQUITY INCENTIVE COMPENSATION.
During the term of employment hereunder the Executive shall be
eligible to participate in the Corporation's Stock Option Plan in effect as of
the date hereof.
6. OTHER BENEFITS.
In addition to the compensation described in Paragraphs 3 through 5,
above, the Executive shall also be entitled to the following:
(a) Expense Reimbursement. Executive will be reimbursed all reasonable,
ordinary and necessary business expenses, including expenses for entertainment,
travel and similar items that are approved by the Corporation in accordance with
its regular policy(ies) for business expense reimbursement. The Corporation
will reimburse Executive for all expenses upon a presentation by Executive of
itemized accounts of such expenditures in accordance and in the manner and on a
form reasonably prescribed by the Corporation.
(b) Car Allowance. The Corporation shall pay to the Executive, on the
first day of each month during the term of employment, a monthly automobile
allowance (the "Automobile Allowance") of not less than $600, to help defray the
costs associated with Executive's acquisition or maintenance (by lease or
otherwise) of an automobile and the related insurance and maintenance therefor.
(c) Vacation. The Executive shall be entitled to all legal holidays, and
three weeks paid vacation per annum, in accordance with the Corporation's
policies.
2
<PAGE>
(d) Insurance and Benefits. The Executive and his "dependents," to the
extent eligible thereunder, shall be entitled to participate in all employee and
executive benefit plans, programs and policies currently available to other
Corporation employees of comparable status, title and experience, as well as any
plans, programs and policies adopted by the Corporation during the Term of this
Agreement.
(e) Participation in Other Benefit Plans. In addition to the foregoing,
the Executive shall be entitled to participate in all of the other various
retirement, welfare, fringe benefit, executive perquisite, and expense
reimbursement plans, programs and arrangements of the Corporation to the same
extent that employees generally of the Corporation are eligible for
participation under the terms of such plans, programs and arrangements.
7. CONFIDENTIALITY.
In view of the fact that Executive's work as an executive of the
Corporation will bring Executive into close contact with many confidential
affairs of the Corporation, including matters of a business nature, such as
information about customers (including pricing information), costs, profits,
markets, sales, strategic plans for future development and any other information
not readily available to the public, Executive hereby agrees:
(a) To keep secret all confidential matters of the Corporation (including
without limitation such matters which the Corporation notifies Executive are
confidential) learned prior to the date of this Agreement and in the course of
Executive's employment hereunder, and not to disclose them to anyone outside of
the Corporation, either during or after Executive's employment with the
Corporation, or both, until such time as the Corporation gives its written
consent to such disclosure;
(b) To deliver promptly to the Corporation on termination of Executive's
employment by the Corporation or at any other time the Corporation may so
request, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Corporation's business which Executive may then
possess or have under Executive's control; and
(c) That violation of this Paragraph 7 would cause the Corporation
irreparable damage for which the Corporation cannot be reasonably compensated in
damages in an action at law, and therefore in the event of any breach or
threatened breach by Executive of this Paragraph 7, the Corporation shall be
entitled to make application to a court of competent jurisdiction for equitable
relief by way of injunction or otherwise (without being required to post a
bond). This provision shall not, however, be construed as a waiver of any of
the rights which the Corporation may have for damages under this Agreement or
otherwise, and all of the Corporation's rights and remedies shall be
unrestricted and cumulative.
3
<PAGE>
8. TERMINATION.
Unless earlier terminated in accordance with the following provisions
of this Paragraph 8, the Corporation shall continue to employ the Executive and
the Executive shall remain employed by the Corporation during the entire Term.
Paragraph 9 hereof sets forth certain obligations of the Corporation in the
event that the Executive's employment hereunder is terminated. Certain
capitalized terms used in this Paragraph 8, Paragraph 9 and Paragraph 10 hereof
are defined in Paragraph 8(d), below.
(a) Death or Disability. Except to the extent otherwise provided in
Paragraph 9 with respect to certain post-Date of Termination payment obligations
of the Corporation, this Agreement shall terminate immediately as of the Date of
Termination in the event of the Executive's death or in the event that the
Executive becomes disabled. The Executive will be deemed to be disabled upon
the earlier of (i) the end of a six (6)-consecutive month period during which,
by reason of physical or mental injury or disease, the Executive has been unable
to perform substantially all of his usual and customary duties under this
Agreement or (ii) the date that a reputable physician selected by the Board, and
as to whom the Executive has no reasonable objection, determines in writing that
the Executive will, by reason of physical or mental injury or disease, be unable
to perform substantially all of the Executive's usual and customary duties under
this Agreement for a period of at least six (6) consecutive months. If any
question arises as to whether the Executive is disabled, upon reasonable request
therefor by the Board, the Executive shall submit to reasonable medical
examination for the purpose of determining the existence, nature and extent of
any such disability. In accordance with Paragraph 14, the Board shall promptly
give the Executive written notice of any such determination of the Executive's
disability and of any decision of the Board to terminate the Executive's
employment by reason thereof.
(b) Discharge for Cause. In accordance with the procedures hereinafter
set forth, the Board may discharge the Executive from his employment hereunder
for Cause. Except to the extent otherwise provided in Paragraph 9 with respect
to certain post-Date of Termination obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of Termination in the event
the Executive is discharged for Cause. Any discharge of the Executive for Cause
shall be communicated by a Notice of Termination to the Executive given in
accordance with Paragraph 14 of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon and (ii) if the
Date of Termination is to be other than the date of receipt of such notice,
specifies the termination date (which date shall in all events be within fifteen
(15) days after the giving of such notice). In the case of a discharge of the
Executive for Cause, the Notice of Termination shall include a copy of a
resolution duly adopted by the Board at a meeting called and held for such
purpose authorizing such action. No purported termination of the Executive's
employment for Cause shall be effective without a Notice of Termination.
(c) Termination for Other Reasons. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in accordance
with Paragraph 14 at least thirty (30) days prior to the Date of Termination.
The Executive may resign from
4
<PAGE>
his employment by giving written notice to the Corporation in accordance with
Paragraph 14 at least thirty (30) days prior to the Date of Termination.
Except to the extent otherwise provided in Paragraph 9 with respect to
certain post-Date of Termination obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of Termination in the
event the Executive is discharged without Cause or resigns.
(d) Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of Termination, the
sum of (A) the Executive's base salary under Paragraph 3 through the
Date of Termination to the extent not theretofore paid, (B) the amount
of any bonus, incentive compensation, deferred compensation and other
cash compensation accrued by the Executive as of the Date of
Termination to the extent not theretofore paid and (C) any vacation
pay, expense reimbursements and other cash entitlements accrued by the
Executive as of the Date of Termination to the extent not theretofore
paid. For the purpose of this Paragraph 8(d)(i), the amount of bonus
accrued shall be equal to (A) the Average Bonus, multiplied by (B) a
fraction equal to the number of days in such year preceding the Date
of Termination divided by 365.
(ii) "Average Bonus" means (A) if a termination of employment of the
Executive occurs prior to January 1, 1999, the Target Bonus of the
Executive payable in respect of the calendar year in which such
termination occurs and (B) if a termination of employment of the
Executive occurs on or after January 1, 1999, the actual cash bonus
earned by the Executive pursuant to Section 4 for the calendar year
completed immediately prior to the time in question.
(iii) "Cause" means that any of the following has occurred with respect
to Executive: (A) Executive has committed a felony (other than a
motor vehicle moving violation); (B) Executive has stolen funds or
property from the Corporation or otherwise engaged in fraudulent
conduct against the Corporation; (C) Executive has engaged in knowing
and willful misconduct which is materially injurious to the
Corporation; (D) Executive has failed or refused to comply with the
directions of the Board that are reasonably consistent with
Executive's current executive employee title and the terms of this
Agreement, the failure with which to comply is materially injurious to
the Corporation; or (E) Executive has repeatedly failed or refused to
comply with the directions of the Board that are reasonably consistent
with Executive's current executive employee title and the terms of
this Agreement. Notwithstanding clause (E) of the preceding sentence,
no act or omission by the Executive shall constitute Cause hereunder
unless the Corporation has given detailed written notice thereof to
the Executive, and the Executive has failed to remedy such act or
omission within a reasonable time after receiving such notice.
5
<PAGE>
(iv) "Date of Termination" shall mean (A) in the event of a discharge of
the Executive by the Board for Cause, the date the Executive receives
a Notice of Termination, or any later date specified in such Notice of
Termination, as the case may be, (B) in the event of a discharge of
the Executive without Cause or a resignation by the Executive, the
date specified in the written notice to the Executive (in the case of
discharge) or the Corporation (in the case of resignation), which date
shall be no less than thirty (30) days from the date of such written
notice, (C) in the event of the Executive's death, the date of the
Executive's death, and (D) in the event of termination of the
Executive's employment by reason of disability pursuant to Paragraph
8(a), the date the Executive receives written notice of such
termination (or, if earlier, six (6) months following the date the
Executive's disability began).
(v) "Good Reason" shall mean any of the following:
(A) the Corporation reduces Executive's base salary; or
(B) the assignment to the Executive of any duties inconsistent in any
material respect with the Executive's positions with the
Corporation as set forth in this Agreement (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Paragraph 2; or
(C) any material failure by the Corporation to comply with any of the
provisions of this Agreement, which is not remedied within 15
days after notice thereof from the Executive.
(D) the Corporation requires Executive to change the location of his
principal office or offices in a manner inconsistent with
Paragraph 2 hereof;
(E) the Corporation or the Board shall notify the Executive that it
does not want to renew the Term pursuant to Paragraph 1(b); or
(F) the Corporation otherwise subjects Executive to abusive, critical
or adversarial conditions such that there is a material worsening
of the general quality of Executive's job conditions immediately
prior to such change.
9. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
The following provisions describe the obligations of the Corporation
to the Executive under this Agreement upon termination of his employment.
(a) Death, Disability, Discharge for Cause, or Resignation Without Good
Reason. In the event this Agreement terminates pursuant to Paragraph 8(a) by
reason of the death or disability of the Executive, or pursuant to Paragraph
8(b) by reason of the discharge of
6
<PAGE>
the Executive by the Corporation for Cause, or pursuant to Paragraph 8(c) by
reason of the resignation of the Executive other than for Good Reason, the
Corporation shall pay to the Executive, or his heirs or estate, in the event
of the Executive's death, all Accrued Obligations in a lump sum in cash
within thirty (30) days after the Date of Termination; provided further that
in the event this Agreement terminates pursuant to Paragraph 8(a) by reason
of the disability of the Executive, the Corporation shall continue to provide
to the Executive, for a period of twenty-four (24) months from the
commencement of such disability, all health benefits at least equal to those
which would have been provided to Executive in accordance with the plans,
programs and arrangements referred to in Paragraph 7 of this Agreement, in
addition to any other benefits or payments to which Executive is entitled
hereunder or otherwise.
(b) Discharge Without Cause or Resignation with Good Reason. In the event
that this Agreement terminates pursuant to Paragraph 8(c) by reason of the
discharge of the Executive by the Corporation other than for Cause, death or
disability or by reason of the resignation of the Executive for Good Reason (any
such termination, a "Severance"):
(i) The Corporation shall pay all Accrued Obligations to the Executive in
a lump sum in cash within thirty (30) days after the Date of
Termination;
(ii) For a period equal to the greater of two years and the remainder of
the Term (assuming the Term had not expired on the Date of
Termination), the Corporation shall continue to provide benefits to
the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans,
programs and arrangements referred to in Paragraph 6 of this
Agreement; and
(iii) The Corporation shall, at its sole expense (not to exceed
$25,000), provide the Executive with outplacement services the scope
and provider of which shall be selected by the Executive.
10. DEFRA LIMITATION.
(a) Notwithstanding anything in this Agreement to the contrary, in the event
that the provisions of the Deficit Reduction Act of 1984 ("DEFRA") relating to
"excess parachute payments" shall be applicable to any payment or benefit
received or to be received by Executive in connection with a termination of the
Executive's employment with the Corporation, then the total amount of payments
or benefits payable to Executive which are deemed to constitute parachute
payments shall be reduced to the largest amount such that provisions of DEFRA
relating to "excess parachute payment" shall no longer be applicable. Should
such a reduction be required, the Executive shall determine, in the exercise of
his sole discretion, which payment or benefit to reduce or eliminate. Pending
such determination, the Corporation shall continue to make all other required
payments to Executive at the time and in the manner provided herein and shall
pay the largest portion
7
<PAGE>
of any parachute payments such that the provisions of DEFRA relating to
"excess parachute payments" shall no longer be applicable.
(b) Recharacterization of Payments. Due to the complexity in the
application of Section 280(G) of the Internal Revenue Code of 1986, as amended
(the "Code") it is possible that payments made or benefits received hereunder
should not have been made under Paragraph 10(a) (an "Overpayment"). In the event
that it is determined in writing by the Corporation's outside auditors in their
reasonable good faith judgment or by any court of competent jurisdiction that an
Overpayment has been made resulting in an "Excess Parachute Payment" as defined
in Section 280G(b)(1) of the Code, then any such Overpayment shall be treated
for all purposes as an unsecured, long-term loan from the Corporation to the
Executive, his personal representative, his successors or assigns, as the case
may be, that is payable, together with accrued interest from the date of the
making of the Overpayment at the rate of 8% per annum on the later to occur of
the third anniversary of the payment of such Overpayment, or 6 months following
the date upon which it is determined an Overpayment was made. Should it be
determined that such an Overpayment has been made, the Executive shall
determine, in the exercise of his sole discretion, which payments or benefits
shall be deemed to constitute the Overpayment.
11. NO SET-OFF OR MITIGATION.
The Corporation's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
12. PAYMENT OF CERTAIN EXPENSES.
The losing party in any suit or proceeding to enforce this Agreement
shall reimburse the prevailing party for all reasonable costs and expenses
incurred in connection with such suit or proceeding.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of the
Corporation. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a substantial portion of
its assets, by agreement in form and substance reasonably satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
this Agreement if no such succession had taken place. Regardless of whether such
an agreement is executed, this Agreement shall be binding upon any
8
<PAGE>
successor of the Corporation in accordance with the operation of law, and
such successor shall be deemed the "Corporation" for purposes of this
Agreement.
14. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed within the continental United States by first class certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to the Board or the Corporation, to:
Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
Attention: President
Facsimile: (714) 688-3377
with a copy to:
Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, NY 10019
Attention: Joshua Harris
Facsimile: (212) 261-4102
(b) If to the Executive, to:
Kenneth S. Ord
11 Emerald Glen
Laguna Niguel, CA 92677
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
15. INDEMNIFICATION.
The Corporation agrees to indemnify the Executive to the fullest
extent permitted by law for his services to, or on behalf of the Corporation, as
an Executive hereunder, as a director (as applicable) and in any and every other
capacity in which he may serve the Corporation or its interests. In furtherance
of such agreement to indemnify, but not by way of limitation, the terms of the
Corporation's certificate of incorporation and by-laws providing for such
indemnification and payment of expenses, as in effect on the date hereof (and,
which are attached hereto as Exhibit A), are hereby incorporated by reference as
if fully stated herein. For the purpose of this Agreement, any amendment to
said certificate of incorporation or by-laws shall not be effective to reduce,
qualify or
9
<PAGE>
otherwise limit the scope, benefit or enforceability of this provision;
provided, however, if any such amendment extends or improves the scope,
benefit or enforceability of the indemnification and payment of expenses
contained in such certificate of incorporation or by-laws for any officer,
director, employee or agent, such extended or improved provisions shall be
deemed to be incorporated by reference herein for the benefit of the
Executive without any further action by the Corporation or the Executive.
16. TAX WITHHOLDING.
The Corporation shall provide for the withholding of any taxes
required to be withheld by federal, state, or local law with respect to any
payment in cash, shares of stock and/or other property made by or on behalf of
the Corporation to or for the benefit of the Executive under this Agreement or
otherwise. The Corporation may, at its option: (a) withhold such taxes from any
cash payments owing from the Corporation to the Executive, (b) require the
Executive to pay to the Corporation in cash such amount as may be required to
satisfy such withholding obligations and/or (c) make other satisfactory
arrangements with the Executive to satisfy such withholding obligations.
17. ARBITRATION.
Except as to any controversy or claim which the Executive elects, by
written notice to the Corporation, to have adjudicated by a court of competent
jurisdiction, any controversy or claim arising out of or relating to this
Agreement or the breach hereof shall be settled by arbitration in Los Angeles,
California in accordance with the laws of the State of California. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association. The costs and expenses of the arbitrator(s) shall be
borne by the Corporation. The award of the arbitrator(s) shall be binding upon
the parties. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
18. NO ASSIGNMENT.
Except as otherwise expressly provided herein, this Agreement is not
assignable by any party and no payment to be made hereunder shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
other charge.
19. EXECUTION IN COUNTERPARTS.
This Agreement may be executed by the parties hereto in two (2) or
more counterparts, each of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument, and all signatures
need not appear on any one counterpart.
10
<PAGE>
20. JURISDICTION AND GOVERNING LAW.
Except as provided in Paragraph 17, jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
California, and this Agreement shall be construed and interpreted in accordance
with and governed by the laws of the State of California, other than the
conflict of laws provisions of such laws.
21. SEVERABILITY.
If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be invalid or unenforceable for any reason, such
judgment shall not affect, impair or invalidate the remainder of this Agreement.
Furthermore, if the scope of any restriction or requirement contained in this
Agreement is too broad to permit enforcement of such restriction or requirement
to its full extent, then such restriction or requirement shall be enforced to
the maximum extent permitted by law, and the Executive consents and agrees that
any court of competent jurisdiction may so modify such scope in any proceeding
brought to enforce such restriction or requirement.
22. PRIOR UNDERSTANDINGS.
This Agreement embodies the entire understanding of the parties hereto
and, upon its effectiveness, will supersede all other oral or written agreements
or understandings between them regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are for convenience
and reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Attest: ALLIANCE IMAGING, INC.
/s/ Russell D. Phillips, Jr. by: /s/ Richard N. Zehner
- ------------------------------- ------------------------
Name: Russell D. Phillips, Jr. Name: Richard N. Zehner
Title: Chairman and Chief
Executive Officer
EXECUTIVE
By: /s/ Kenneth S. Ord
------------------------
Name: Kenneth S. Ord
Senior Vice President and
Chief Financial Officer
12
<PAGE>
ALLIANCE IMAGING, INC.
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CA 92806
As of January 19, 1998
Kenneth S. Ord
c/o Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
AGREEMENT
Kenneth:
1. Reference is made to (i) the Alliance Imaging, Inc. 1997 Stock
Option Plan (the "Option Plan") and (ii) the Stock Option Agreement (the
"Option Agreement") between Alliance Imaging, Inc. (the "Company") and you,
dated as of the date hereof. In consideration of the Company granting you
options under the Option Plan, executing and delivering the Option Agreement
and making the payments described in Paragraph 5 below, you agree that no
Competition Event (as defined below) shall occur prior to two years after the
Date of Termination (as defined in the employment agreement between the
Company and you as of the date hereof (the "Employment Agreement")). Defined
terms used but not defined herein shall have the meaning ascribed thereto in
the Employment Agreement.
2. For purposes of this letter agreement, a Competition Event
shall occur if you directly or indirectly (i) engage in any imaging business
or any other business that becomes material to the Company's business during
your employment by the Company (the "Company Business") within the United
States; (ii) compete or participate as agent, employee, consultant, advisor,
representative or otherwise in any enterprise engaged in a business which has
any operations engaged in the Company Business within the United States; or
(iii) compete or participate as a stockholder, partner or joint venturer, or
have any direct or indirect financial interest, in any enterprise which has
any material operations engaged in the Company Business within the United
States; PROVIDED, HOWEVER, that nothing contained herein shall prohibit you
from (A) owning, operating or managing any business, or acting upon any
business opportunity, after obtaining approval of a majority of the Board of
Directors of the Company and a majority of the independent members of the
Board of Directors of the Company (if any); or (B) owning no more than five
percent (5%) of the equity of any publicly traded entity with respect to
which you do not serve as an officer, director, employee, consultant or in
any other capacity other than as an investor.
<PAGE>
Kenneth S. Ord
c/o Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
Page 2
3. As a means reasonably designed to protect certain confidential
information of the Company which would otherwise inherently be utilized in
the following proscribed activities, and in partial consideration of the
Company's covenant to make the payments described in Paragraph 5, you agree
that you will not, prior to the date you cease to receive payments under
Paragraph 5 below, solicit or make any other contact with, directly or
indirectly, any customer of the Company as of the Date of Termination with
respect to the provision of any service to any such customer that is the same
or substantially similar to any service provided to such customer by the
Company.
4. In partial consideration of the Company's covenant to make the
payments described in Paragraph 5, you agree that you will not, prior to the
date you cease to receive payments under paragraph 5, solicit or make any
other contact with, directly or indirectly, any employee of the Company on
the Date of Termination (or any person who was employed by the Company at any
time during the three-month period prior to the Date of Termination) with
respect to any employment, services or other business relationship.
5. In partial consideration of your covenants contained herein,
the Company shall, immediately following the Date of Termination, pay you an
amount equal to (A) the sum of your base salary as of the Date of Termination
and your Average Bonus, multiplied by (B) a fraction, the numerator of which
is the greater of 730 and the number of days remaining in the Term as of the
Date of Termination assuming the Term had not expired on the Date of
Termination and the denominator of which is 365. All payments under this
Paragraph 5 shall be made in equal installments on a bi-weekly basis over a
period equal to the greater of the remaining Term (assuming the Term had not
expired) or two years. Notwithstanding the foregoing, the Company shall not
be obligated to make any payments under this Paragraph 5 to you if you (x)
fail to cure a breach of this Agreement within fifteen days after receipt of
notice of such breach from the Company, or (y) if your employment with the
Company is terminated by reason of your death or disability or for Cause or
by reason of your resignation other than for Good Reason.
6. Notwithstanding paragraph 1 through 4 hereof, if the Company
shall fail to make any payment to you that the Company is obligated to make
pursuant to Paragraph 5 and such failure shall continue for more than five
days after receipt of notice from you, all future payments to you under
Paragraph 5 shall become immediately due and payable or you shall be relieved
of all obligations under this Agreement.
You acknowledge that irreparable damage would occur in the event of
a breach of the provisions of this Agreement by you. It is accordingly
agreed that, in addition to any other remedy to which it is entitled at law
or in equity, the Company shall be entitled to an injunction or injunctions
to prevent breaches of this letter agreement and to enforce specifically the
terms and provisions of this letter agreement.
7. If, at the time of enforcement, any sentence, paragraph,
clause, or combination of the same of this Agreement is in violation of the
law of any state where
<PAGE>
Kenneth S. Ord
c/o Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
Page 3
applicable, such sentence, paragraph, clause, or combination of the same
shall be void in the jurisdictions where it is unlawful, and the remainder of
this Agreement shall remain binding on the parties. In the event that any
part of any covenant of this Agreement is determined by a court of law to be
overly broad thereby making the covenant unenforceable, the parties agree
that such court shall substitute a judicially enforceable limitation in its
place, and that as so modified, the covenants shall be binding upon the
parties as if originally set forth in this Agreement.
If you are in agreement with the foregoing, please sign a copy of this
letter where indicated below.
Very truly yours,
Alliance Imaging, Inc.
By: /s/ Richard N. Zehner
--------------------------------
Name: Richard N. Zehner
Title: Chairman & CEO
Acknowledged and agreed to
as of the date first above
written:
By: /s/ Kenneth S. Ord
----------------------------
Name: Kenneth S. Ord
<PAGE>
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
ALLIANCE IMAGING, INC.
EMBARCADERO HOLDING CORP. I,
EMBARCADERO HOLDING CORP. II,
AMERICAN SHARED HOSPITAL SERVICES,
AND
MMRI, INC.
DATED AS OF MARCH 12, 1998
<PAGE>
SECURITIES PURCHASE AGREEMENT dated as of
March 12, 1998, by and among ALLIANCE IMAGING,
INC., a Delaware corporation ("ALLIANCE"),
EMBARCADERO HOLDING CORP. I, a Delaware
corporation ("PURCHASER A"), EMBARCADERO HOLDING
CORP. II, a Delaware corporation ("PURCHASER B"
AND, TOGETHER WITH PURCHASER A, THE "PURCHASERS"),
AMERICAN SHARED HOSPITAL SERVICES, a California
corporation ("PARENT") and MMRI, INC., a
California corporation ("M SUB").
WHEREAS, each Entity is engaged in the business of providing mobile,
shared diagnostic imaging services to hospitals, medical centers and medical
offices (including magnetic resonance imaging ("MRI") services, computed axial
tomography scanning ("CT") services, ultrasound services, nuclear medicine
services and related services) (collectively, the "BUSINESS");
WHEREAS, the Parent owns all of the issued and outstanding shares of
common stock, par value $1.00, of CT Sub (the "CT SHARES") and the Parent
Partnership Interests;
WHEREAS, M Sub owns the M Sub Partnership Interests;
WHEREAS, the Sellers desire to sell to Alliance, and Alliance desires
to purchase from the Sellers, all of the Shares, on the terms and subject to the
conditions contained in this Agreement; and
WHEREAS, Alliance has designated the Purchasers, each of which is a
wholly-owned Subsidiary of Alliance, to acquire the Shares for and on behalf of
Alliance.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows (certain capitalized terms used herein are defined on ANNEX I hereto):
ARTICLE I
PURCHASE AND SALE
1.1 TRANSFER OF SHARES.
(a) On the terms and subject to the conditions of this Agreement, at
the Closing (after the transactions referenced in SECTION 1.2 have been
consummated), (i) the Parent shall sell, transfer, convey and assign to
Purchaser A, and Purchaser A shall purchase and acquire from the Parent, all of
the Shares (other than the M Sub Partnership Interests), free and clear of all
Encumbrances and (ii) M Sub shall sell, transfer, convey
<PAGE>
and assign to Purchaser B and Purchaser B shall purchase and acquire from M
Sub, the M Sub Partnership Interests, free and clear of all Encumbrances. It
is agreed by the parties, that Purchaser A and Purchaser B have been
designated by, and hereto shall purchase the Shares for and on behalf of
Alliance.
(b) The Sellers shall, at any time after the Closing, upon the
request of the Purchasers, take, execute, acknowledge and deliver, and cause to
be taken, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney or assurances as may be
required to transfer, convey, grant and confirm to and vest in the Purchasers,
good and marketable title to all of the Shares, free and clear of all
Encumbrances.
1.2 TRANSFERS OF ASSETS AND LIABILITIES.
(a) Prior to the Closing Date, the Parent and M Sub shall effectively
sell, transfer, convey and assign (the "ASSET CONTRIBUTION") to the Partnership,
(i) all of the Parent's and M Sub's right, title and interest in, to and under
the assets, properties, interests in properties and rights of the Parent or M
Sub, as the case may be, of every kind, nature and description, whether real,
personal or mixed, movable or immovable, tangible or intangible, used in or held
for use in the Business, wherever located and listed on SCHEDULE 1.2(a) hereof
(the "PURCHASED PARENT ASSETS") and (ii) all of the Liabilities (other than any
Excluded Liabilities) related to the Purchased Parent Assets, on terms and
conditions satisfactory to the Purchasers including, without limitation,
pursuant to such deeds, bills of sale, endorsements, assignments and other good
and sufficient instruments of sale, transfer, conveyance and assignment
(collectively, the "CONVEYANCE INSTRUMENTS") as are necessary to sell, transfer,
convey and assign to the Partnership the Purchased Parent Assets and such
Liabilities.
(b) Prior to the Closing Date, (i) the Parent shall cause each of the
Entities to effectively sell, transfer, convey and assign (the "ASSET
DISPOSITION") to the Parent all of such Entities' right, title and interest in,
to and under the assets, properties, interests in properties and rights listed
on SCHEDULE 1.2(b) hereof (the "EXCLUDED ASSETS") and (ii) the Parent shall
assume from each of the Entities all of the Excluded Liabilities which are
Liabilities of each Entity, on terms and conditions satisfactory to the
Purchasers including, without limitation, pursuant to Conveyance Instruments as
are necessary to sell, transfer, convey and assign to the Parent the Excluded
Assets and the Excluded Liabilities.
(c) Anything contained in this Agreement to the contrary
notwithstanding, (i) neither the Purchasers nor Alliance are assuming any
Liabilities (fixed or contingent, known or unknown, matured or unmatured) of the
Sellers or the Entities whether or not relating to the Business which are
specified on SCHEDULE 1.2(c) (the "EXCLUDED LIABILITIES") all of which Excluded
Liabilities shall at and after the Closing become the exclusive responsibility
of the Parent and (ii) on the Closing Date, the Sellers or any of their
Subsidiaries (other than the Entities and GK Finance) shall retain (x) not less
than $600,000 aggregate amount of Liabilities in respect of accounts payable (y)
not less than $175,000 aggregate amount of Liabilities in respect of accrued
expenses (other than
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<PAGE>
Liabilities in respect of accrued expenses referenced in SECTION 1.2(c)(z))
and (z) all of the Liabilities in respect of accrued expenses for "accrued
payroll" and "accrued payroll taxes and benefits" outstanding as of the
Closing Date.
1.3 PAYMENT OF THE PURCHASE PRICE.
The aggregate purchase price (the "PURCHASE PRICE") to be paid by
Alliance to the Sellers for the Shares and the covenants set forth in SECTION
5.10 of this Agreement shall be a cash amount equal to $13,552,000. At the
Closing and subject to the terms and conditions of this Agreement and the
Related Documents, Alliance shall cause the Purchasers to make payment of the
Purchase Price (minus $75,000 of the Purchase Price which was previously paid to
the Parent) to the Sellers by wire transfer of immediately available funds to
the accounts previously designated in writing to the Purchasers by the Parent.
1.4 ALLOCATION OF PURCHASE PRICE.
The parties hereto agree that the Purchase Price, subject to any
indemnification payments made hereunder, shall be allocated to the CT Shares and
to the Partnership Interests by the Purchasers on a basis reasonably
satisfactory to the Sellers.
ARTICLE II
THE CLOSING
Unless this Agreement shall have terminated pursuant to its terms, the
closing (the "CLOSING") of the transactions contemplated by this Agreement and
the Related Documents shall take place at the offices of O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 a.m.
(New York time) on a date that shall be mutually agreeable to the parties hereto
(the "CLOSING DATE"), PROVIDED, HOWEVER, that the parties shall use commercially
reasonable efforts to consummate the Closing, in accordance with SECTION 5.3
hereof, as soon as practicable following the date of the Parent Stockholder
Approval.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Sellers jointly and severally represent and warrant to the Purchasers
and Alliance as of the date hereof, and as of the Closing Date as follows:
3.1 TITLE TO THE SHARES.
Each of the Sellers is the lawful record and beneficial owner of the Shares
purported to be owned by it and has good and marketable title to such Shares,
free and clear of any Encumbrances whatsoever and with no restriction on the
voting rights and other incidents of record and beneficial ownership pertaining
thereto (except restrictions
3
<PAGE>
imposed by federal and state securities laws). No Entity is the subject of
any bankruptcy, reorganization or similar proceeding.
3.2 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
(a) CT Sub is a corporation. The Partnership is a general
partnership. The Parent was incorporated on October 31, 1983 in the State of
California. CT Sub was incorporated on May 1, 1984 in the State of Delaware. M
Sub was incorporated on October 8, 1987 in the State of California. The
Partnership was formed on March 7, 1985 in the State of California.
(b) Each Seller and each Entity is duly organized and validly
existing and in good standing under the laws of its jurisdiction of organization
and has all requisite power and authority (corporate and otherwise) to own,
lease and operate its assets and properties and to carry on its business as
presently conducted.
(c) Each Seller and each Entity is duly qualified and in good
standing to transact business as a foreign Person in those jurisdictions set
forth opposite its name on SCHEDULE 3.2(c), which constitute all the
jurisdictions in which the character of the property owned, leased or operated
by such Person or the nature of the business or activities conducted by such
Person makes such qualification necessary other than those jurisdictions in
which the failure to be so qualified and in good standing could not reasonably
be expected to have a Material Adverse Effect.
(d) The Purchasers have been furnished with true, correct and
complete copies of the Organizational Documents of each Entity and each Seller,
in each case as amended and in effect on the date hereof.
(e) No Entity or Seller has (i) during the five year period prior to
the date hereof, engaged in any business other than the Business or as otherwise
set forth opposite its name on SCHEDULE 3.2(e)(i) and (ii) within the last five
years, used any trade names or assumed names other than the trade names or
assumed names set forth opposite its name on SCHEDULE 3.2(e)(ii).
(f) Each Seller has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions contemplated hereby and thereby. Except for the Parent
Stockholder Approval, each Seller's execution and delivery of this Agreement and
each Related Document to which it is or will be a party, and the performance by
each Seller of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite corporate action on the part of such Seller,
and this Agreement and each Related Document to which either Seller is or will
be a party has been, or upon the execution thereof will be, duly and validly
executed and delivered by such Seller, respectively, and constitutes, or upon
its execution and delivery will constitute, a valid and binding obligation of
such Seller, respectively, enforceable against such Seller, respectively, in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
4
<PAGE>
moratorium or other similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in
equity or at law). Except as set forth on SCHEDULE 3.2(f), none of the
execution and delivery by each Seller of this Agreement and each Related
Document, the performance by either Seller of its obligations under this
Agreement and each Related Document to which it is or will be a party, or the
consummation of the transactions contemplated hereby or thereby, does or will
(a) result in the creation of an Encumbrance upon any Entities' assets or
properties, (b) conflict with, or result in any violation or breach of, any
of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default or give rise to any right of contingent
payment, termination, cancellation, acceleration or non-renewal, under, any
provision of any Organizational Document of any such Person or any Contract
to which any such Person is a party or by which any of its assets or
properties is or may be bound which, in the case of such Contracts, could
reasonably be expected to have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby or under the Related
Documents and other than with respect to the foregoing for which consents
have been obtained, or (c) violate any Law applicable to any Entity or
Seller, which conflict or violation could prevent the consummation of the
transactions contemplated by this Agreement or any of the Related Documents
to which any such Person is or will be a party.
(g) Except as contemplated by this Agreement or as set forth on
SCHEDULE 3.2(g), no consent, approval, Permit, Order, notification or
authorization of, or any exemption from or registration, declaration or filing
with, any Governmental Entity or any Person is required in connection with the
execution, delivery and performance by any Seller of this Agreement or any
Related Document to which any Seller is or will be a party or the consummation
by any Seller of the transactions contemplated hereby or thereby, except for
those consents, approvals, Permits, Orders, notifications, authorizations,
exemptions, registrations, declarations or filings the failure to obtain could
not reasonably be expected to have a Material Adverse Effect or prevent the
consummation of the transactions contemplated hereunder or under the Related
Documents or for those consents, approvals, Permits, Orders, notifications,
authorizations, exemptions, registrations, declarations and filings which have
been obtained.
3.3 CAPITALIZATION.
(a) The authorized capital stock of CT Sub consists of 1,000 duly
authorized shares of common stock, par value $1.00 per share, of which 1,000
shares are duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership thereof and
all of which are held of record and beneficially by the Parent.
(b) The Partnership Interests of the Partnership are owned
beneficially and of record in the amounts and by the Persons set forth in
SCHEDULE 3.3(b).
(c) There are no securities outstanding which are convertible into,
exchangeable for, or carrying the right to acquire, Equity Interests of any
Entity, or
5
<PAGE>
subscriptions, warrants, options, calls, puts, convertible securities,
registration or other rights, arrangements or commitments obligating any
Entity to issue, sell, register, purchase or redeem any of its Equity
Interests or any ownership interest or rights therein. There are no voting
trusts or other similar agreements to which any Entity is bound with respect
to the voting of the any Entity's Equity Interests. There are no stock
appreciation rights, phantom stock rights or similar rights or arrangements
outstanding with respect to any Entity.
(d) Except as set forth on SCHEDULE 3.3(d), there are no Contracts,
commitments, arrangements, understandings or restrictions to which any Seller or
any of its Subsidiaries is bound relating in any way to any Equity Interest of
any Entity, including any rights of first refusal and any rights of first offer.
(e) All Shares issued by each Entity have been issued in transactions
exempt from registration under the Securities Act and the rules and regulations
promulgated thereunder and all applicable state securities or "blue sky" laws,
and no Entity has violated the Securities Act or any applicable state securities
or "blue sky" laws which may give rise to rights of rescission, cancellation or
damages in connection with the issuance of any such securities.
3.4 SUBSIDIARIES; INVESTMENTS.
No Entity owns or holds, directly or indirectly, any Equity Interest in any
Person.
3.5 FINANCIAL INFORMATION.
(a) The Parent has filed with the SEC all reports, forms, schedules
and statements and other documents required to be filed by it (the "SEC
DOCUMENTS"). As of their respective filing dates, (i) the SEC Documents
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such SEC Documents, and (ii) none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements included in the SEC Documents
complied, as of their respective filing dates, as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC and as otherwise noted therein) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present, in all material respects, the consolidated financial position of the
Parent and its Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth on SCHEDULE 3.5(a) and except for Liabilities incurred in the ordinary
course of business consistent with past practices since the date of the most
recent consolidated balance sheet included in the SEC Documents filed and
publicly available prior to the date hereof, neither the Parent nor any
6
<PAGE>
of its Subsidiaries has any Liabilities of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
balance sheet or in the notes thereto.
(b) SCHEDULE 3.5(b) contains true, correct and complete copies of the
unaudited balance sheets of each of the Entities as of December 31, 1997 (the
"LATEST BALANCE SHEET"; and such date being the "LATEST BALANCE SHEET DATE"),
and the unaudited statements of operations, shareholders' equity and cash flows
for the twelve month period then ended, adjusted to give effect to the
consummation of the transactions contemplated by SECTION 1.2 hereof as if such
transactions were consummated at January 1, 1997 prepared in accordance with
GAAP (the "ENTITIES' FINANCIAL STATEMENTS").
(c) Neither of the Sellers has any knowledge of any fact, event or
circumstance that would reasonably cause it to believe that the Entities'
Financial Statements do not fairly present, in all material respects, the
financial position of the Persons referenced therein as of the dates indicated
and the results of operations and cash flows of such Persons for the periods
indicated.
(d) SCHEDULE 3.5(d) sets forth as of January 31, 1998, the Funded
Indebtedness owed by the Parent and each Entity to any third party (separately
identifying the portion of such Funded Indebtedness incurred in respect of each
mobile and each fixed magnetic resonance imaging unit (each, an "MRI UNIT"),
each mobile and each fixed computed axial tomography unit (each, a "CT UNIT"),
each single photon emission computed tomography unit (each a "SPECT UNIT"), each
ultrasound machine (each, an "ULTRASOUND MACHINE"), each respiratory system
(each a "RESPIRATORY SYSTEM"), and each cardiac catherization lab (each a "CATH
LAB" and together with the MRI Units, CT Units, SPECT Units, Ultrasound
Machines, Respiratory Systems, and Cath Labs, the "UNITS") owned, leased or on
order by any Entity and the Parent, if any). As of the date hereof, the sum of
the aggregate commitments of the lenders under the DVI Revolving Credit
Agreement is $5,500,000 and as of the close of business on March 10, 1998,
the aggregate principal amount of loans and obligations outstanding thereunder
is $5,222,484.75.
(e) SCHEDULE 3.5(e) sets forth as of (other than in the case of
clause (iv) below) the date which is 10 Business Days prior to the date hereof,
(i) the specifications of each Unit owned, leased, used or on order by any
Entity or the Parent, (ii) the name of the applicable Entity or the Parent,
whether such Unit is owned, leased, used or on order and, in the case of Units
used but not owned or leased by any such Person, the name of the owner or the
lessee thereof, (iii) the date that such Person purchased, commenced leasing or
using or, in the case of Units on order, has committed to purchase or lease,
such Unit, (iv) the net book value per Unit as of December 31, 1997 or, in the
case of Units on order, the price to be paid to the manufacturer thereof or that
any such Person or any source of financing has committed to pay to the
manufacturer thereof (specifying, if applicable, the price applicable to the
Unit and the price applicable to the coach or van used or to be used to
transport such Unit) and (v) a summary of whether Tax payments in respect of the
lease payments for each Unit are paid at the inception of the relevant lease or
as part of the monthly lease payment.
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(f) SCHEDULE 3.5(f) sets forth (i) the date and cost of each upgrade
completed in the one year period prior to the date hereof to each Unit owned,
leased or used by each Entity or the Parent and (ii) all amounts in excess of an
aggregate of $25,000 that each Entity or the Parent has committed to pay in
respect of any pending upgrade.
(g) SCHEDULE 3.5(g) sets forth a true and correct Schedule of all of
the accounts payable of the Entities (including payee, amount due and due date)
as of the close of business on January 31, 1998.
(h) SCHEDULE 3.5(h) sets forth a true and correct Schedule of (i) all
principal payments or prepayments made by the Parent and each Entity for the
year ended on the Latest Balance Sheet Date and for the one month period ending
January 31, 1998, (ii) the interest expense incurred by the Parent and each
Entity in respect of Funded Indebtedness for the year ended on the Latest
Balance Sheet Date and for the one month period ending January 31, 1998, (iii)
the revenues, cash operating expenses, and EBITDA generated per Unit for the
Parent and each Entity for the year ended on the Latest Balance Sheet Date and
for the one month period ending January 31, 1998 and (iv) the capital
expenditures made by the Parent and each Entity for the year ended on the Latest
Balance Sheet Date, and for the one month period ending January 31, 1998, in
each case, setting forth such information separately for each such Person.
3.6 INFORMATION SUPPLIED
None of the information supplied or to be supplied by the Parent
specifically for inclusion or incorporation by reference in any documents to be
filed by the Parent with the SEC or any other Governmental Entity in connection
with the Parent Stockholder Vote and the other transactions contemplated hereby
and under the Related Documents will, on the date of its filing, or, with
respect to the Proxy Statement, as supplemented if necessary, on the date it is
sent or given to stockholders or at the time of the Parent Stockholder Vote,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; PROVIDED, that no representation or warranty is made by the Sellers
with respect to statements made or incorporated by reference therein based on
information supplied by the Purchasers specifically for inclusion or
incorporation by reference therein. The Proxy Statement and any such other
documents filed by the Parent with the SEC or with any other Governmental Entity
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.
3.7 ABSENCE OF CHANGES.
Since the Latest Balance Sheet Date and on or prior to the date hereof,
except as set forth on SCHEDULE 3.7, the Parent (with respect to the Business)
and each Entity have been operated in the ordinary course, consistent with past
practice, and there has not been:
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(a) any change or event that, individually or in the aggregate with
any other change or event, has had or can reasonably be expected to have a
material adverse effect on the assets, properties, business, financial
condition, results of operations or prospects of the Business (a "Material
Adverse Effect");
(b) any general uniform increase in the salaries or wages of
employees of the Parent or any Entity, or any increase in salaries or wages
payable to any officer, director or employee of any such Person whose total
salary, wages, bonus and commissions for 1997 exceeded $75,000;
(c) any change in the tax or other accounting methods or practices
followed by the Parent or any Entity, any change in depreciation or amortization
policies or rates previously adopted or any write-up of inventory or other
assets;
(d) any delivery of a notice of non-renewal or any failure to renew
any Contract by any hospitals, clinics, medical or healthcare providers, health
maintenance organizations or other customers or third party payors, which are
material, individually or in the aggregate, except that any such event shall not
be deemed material for this purpose to the extent that new or additional
Contracts as replacements thereof have been obtained;
(e) any loss of any employee of the Parent or any Entity who earned,
during 1997, more than $125,000 (in salary, bonus and other cash compensation);
(f) any sale, lease, license or other disposition of any assets with
a book value in excess of $50,000 in the aggregate;
(g) any issuance, sale or transfer of any Equity Interests of any
Entity or issuance or sale of any securities convertible into, exercisable or
exchangeable for or options or warrants to purchase or rights to subscribe for,
any such Equity Interests;
(h) any new Contract (except for any Contract related to any Employee
Benefit Plan of the Parent for which neither Entity has assumed or has any
Liability that is not disclosed hereunder) entered into with aggregate payments
which could exceed $50,000, any incurrence of Funded Indebtedness or operating
leases (other than Funded Indebtedness or operating leases outstanding on the
date hereof and disclosed on any Schedule hereunder) or any amendment, waiver or
modification with respect to the terms of any Funded Indebtedness or operating
leases (including, without limitation, any increase in the commitments to extend
credit thereunder);
(i) a change in any accounting principles or policies;
(j) any material Tax election made or compromise of any material Tax
Liability;
(k) any payments made by the Parent or any Entity to or for the
benefit of GK Finance (other than payments made on behalf of GK Finance and
reimbursed by GK Finance on a basis consistent with past practices and in the
ordinary course of business);
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(l) any amendment to any Organizational Document or Contracts;
(m) any creation or incurrence (whether or not voluntary) of any
Encumbrance other than Permitted Encumbrances and Encumbrances which exist on
the date hereof and which have been disclosed on the Schedules to this
Agreement;
(n) any payments made or deferred in respect of accounts payable or
any expenses in a manner which is not consistent with past practices or is not
in the ordinary course of business; or
(o) any agreement, whether in writing or otherwise, to take any of
the actions specified in the foregoing clauses in this SECTION 3.7.
3.8 TAX MATTERS; CERTAIN DEFINITIONS.
(a) Except as set forth on SCHEDULE 3.8(a), each Entity, each Seller
and every other corporation (a "CONSOLIDATED AFFILIATE") that is or has been
included (or should have been included) in the filing of a consolidated or
combined Tax Return that included any Entity or Seller, (but with respect to a
Consolidated Affiliate, only for the years that such Consolidated Affiliate was
(or should have been included) in such Tax Return (the "YEARS INCLUDED")),
(i) has timely paid or caused to be paid all Taxes required to
be paid by it through the date hereof and as of the Closing Date
(including any Taxes shown due on any Tax Return filed by such Entity
or Seller);
(ii) has filed or caused to be filed in a timely and proper
manner (within any applicable extension periods) all Tax Returns required
to be filed by it with the appropriate Governmental Entities in all
jurisdictions in which such Tax Returns are required to be filed; and
(iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which Tax Return
has not since been filed.
(b) The Sellers have previously delivered true, correct and
complete copies of all Tax Returns filed by or on behalf of the Sellers and
each Entity for each of the Tax years of each such Person for which the
applicable statutes of limitation have not, as of the Closing Date, expired.
All such Tax Returns are true, complete and correct.
(c) Except as set forth in SCHEDULE 3.8(c):
(i) no Entity, Seller or Consolidated Affiliate, for the Years
Included, has been notified by the Internal Revenue Service or any other
taxing authority that any issues have been raised, which issues are
currently pending, by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of any such Person, there are
no pending Tax audits and no waivers of
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statutes of limitation have been given or requested with
respect to any such Person which waivers are currently in effect;
(ii) full and adequate provision has been made (A) on the
Latest Balance Sheet, and the books and records of each Entity and the
Sellers for all Tax Liabilities of such Person for all periods ending on
or prior to the Latest Balance Sheet Date, and (B) on the books and
records of each such Person for all Tax Liabilities of each such Person
for all periods beginning after the Latest Balance Sheet Date;
(iii) no Entity, Seller or Consolidated Affiliate has or
shall incur any Tax Liability from and after the Latest Balance Sheet
Date through the Closing Date other than Taxes attributable to the
transactions described herein or attributable to transactions or other
activities conducted in the ordinary course of business and consistent
with previous years and past practices;
(iv) no Entity or the Sellers is or has (A) made an
election to be treated as a "CONSENTING CORPORATION" under Section
341(f) of the Code or (B) been a "PERSONAL HOLDING COMPANY" within the
meaning of Section 542 of the Code;
(v) each Entity, Seller and Consolidated Affiliate, for the
Years Included, has complied in all respects with all applicable Laws
relating to the collection or withholding of Taxes (such as sales Taxes
or withholding of Taxes from the wages of employees);
(vi) CT Sub is, as of the Closing Date will be, and has been
from October 15, 1987 and through the Closing, a member of the affiliated
group, as defined in Section 1504 of the Code, that included the Parent
(the "CONSOLIDATED GROUP"). CT Sub has been included in all consolidated
Tax Returns filed by the Consolidated Group for all periods during which
CT Sub has been a member of the Consolidated Group including the taxable
year of the Consolidated Group that includes the Closing Date;
(vii) no Entity or the Sellers has incurred any
Liability to make or possibly make any payments either alone or in
conjunction with any other payments, including payments that are made in
connection with transactions contemplated hereunder or under the Related
Documents, that would constitute a "PARACHUTE PAYMENT" within the
meaning of, Section 280G of the Code (or any corresponding provision of
state, local or foreign income Tax Law);
(viii) no Entity has agreed with the Internal Revenue Service
to change its method of accounting and the Internal Revenue Service has
not proposed that any Entity change its method of accounting for any Tax
period;
(ix) no written claim has ever been made by any taxing
authority in a jurisdiction in which any Entity, Seller or Consolidated
Affiliate (for the Years Included) does not file Tax Returns that such
Person is or may be subject to taxation by that jurisdiction; and
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(x) no Entity or the Sellers is a foreign Person
within the meaning of Treas. Reg. Section 1.1445-2(b), and the
Purchasers have been furnished with a true and accurate certificate of
each such Person so stating which complies in all respects with Treas.
Reg. Section 1.1445-2(b)(1).
(d) SCHEDULE 3.8(d) sets forth a list of all of the states and
localities with respect to which each Entity and the Sellers is required
to file or be included in a consolidated or combined filing of any
corporate, income or franchise tax returns during the three taxable
years ended December 31, 1996.
(e) The Partnership, since its date of organization and for
all years and periods thereafter up to the Closing, has been validly
classified as a partnership for Federal, state and local income tax
purposes and subject to the provisions of Subchapter K of the Code, the
Partnership will have a valid Section 754 election in effect as of the
Closing Date.
(f) M Sub has not engaged in any sales, transfers or
dispositions of tangible personal property (other than the sale of the M
Sub Partnership Interests to be sold on the Closing Date) during the
twelve month period ending on the Closing Date.
3.9 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
(a) Each Entity has (or will have after the consummation of
the Asset Contribution) good and marketable title to all of the assets,
properties and interests in properties, real, personal or mixed,
reflected on its Latest Balance Sheet or acquired after such Latest
Balance Sheet Date (except accounts receivable paid in full subsequent
to the Latest Balance Sheet Date), free and clear of all Encumbrances,
of any kind or character, except for those Encumbrances set forth on
SCHEDULE 3.9 and Permitted Encumbrances. The properties and assets
necessary or required to conduct the Business are in reasonably good
repair and operating condition, ordinary wear and tear excepted and are
sufficient for the conduct of the Business as presently conducted. After
the consummation of the transactions contemplated by SECTION 1.2 hereof,
the Parent and M Sub shall own no assets whatsoever related to the
Business (other than the Excluded Assets) and the Partnership shall
acquire good and marketable title to all of the Purchased Parent Assets.
As of the Closing Date, each of the transactions contemplated by
SECTION 1.2 hereof shall have been consummated in accordance with their
respective terms. Each of SCHEDULE 1.2(a), SCHEDULE 1.2(b) and SCHEDULE
1.2(c) accurately reflects the aggregate balances of each of the assets
and liabilities set forth therein, in each case as of the date hereof.
(b) Except as set forth in SCHEDULE 3.9, the Parent and each
Entity has complied in all material respects with the terms of all
material leases to which it is a party or under which it is in occupancy
relating to the Business, and all such leases are in full force and
effect. The Parent and each Entity enjoy peaceful and undisturbed
possession under all such material leases.
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3.10 REAL PROPERTY-OWNED OR LEASED.
No Entity owns any real property. SCHEDULE 3.10(a) contains a list
and brief description of all of the real property leased by each Entity
pursuant to one or more leases (the "LEASED PROPERTY"), and sets forth
the names of the lessor and the lessee and the basic terms thereof. The
Leased Property constitutes all real property used or occupied by the
Entities in connection with the Business.
3.11 INTELLECTUAL PROPERTY.
(a) Except in each case as set forth on SCHEDULE 3.11(a):
(i) each Entity owns, has the right to use, sell, license and
dispose of, and has the right to bring actions for the infringement of,
all Intellectual Property Rights necessary or required for the conduct
of the Business (collectively, the "OWNED REQUISITE RIGHTS"), other than
those Intellectual Property Rights for which any Entity has a valid
license, all of which are listed on SCHEDULE 3.11(a) (collectively, the
"LICENSED REQUISITE RIGHTS"; and together with the Owned Requisite
Rights, the "REQUISITE RIGHTS"), and such rights to use, sell, license,
dispose of and bring actions are exclusive with respect to the Owned
Requisite Rights;
(ii) each Entity has taken reasonable and practicable steps
designed to safeguard and maintain (i) the secrecy and confidentiality of
Confidential or Proprietary Information and (ii) the proprietary rights
of each Entity in all of its Requisite Rights;
(iii) no Entity has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property Rights of any Person or committed any acts of unfair
competition, and no Entity has received from any Person in the past five
years any notice, charge, complaint, claim or assertion thereof, and no
such claim is impliedly threatened; and
(iv) no Entity has sent to any Person in the past five
years, or otherwise communicated to any Person, any notice, charge,
complaint, claim or other assertion of any present, impending or
threatened infringement by or misappropriation of, or other conflict
with, any Intellectual Property Rights of any Entity by such other
Person or any acts of unfair competition by such other Person, nor to
the Best Knowledge of the Sellers, is any such infringement,
misappropriation, conflict or act of unfair competition occurring or
threatened.
(b) SCHEDULE 3.11(b) contains a true and complete list of all
applications, filings and other formal actions made or taken pursuant to
any Laws by each Entity to perfect or protect its interest in its
Intellectual Property Rights, including, without limitation, all
patents, patent applications, trademarks, trademark applications,
service marks and service mark applications, copyrights and copyright
applications.
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3.12 AGREEMENTS, NO DEFAULTS, ETC.
(a) Except for Contracts relating to any Employee Benefit Plan
listed on SCHEDULE 3.17(a), SCHEDULE 3.12 contains a true and complete
list and brief description of all Contracts, to which each Entity is a
party and (x) which were entered into or made outside the ordinary
course of business, or (y) which were entered into or made in the
ordinary course of business and are described in any of CLAUSES (i)
through (xiv) of this SECTION 3.12(a). Except as set forth on SCHEDULE
3.12, no Entity is a party to any of the following: (i)
distributorship, dealer, sales, advertising, agency, manufacturer's
representative or other Contract relating to the payment of a
commission; (ii) Contract for the employment of any officer, employee or
consultant or any other type of Contract or understanding with any
officer, employee or consultant, including any agreement or
understanding relating to severance payments, but excluding Contracts,
agreements or understandings relating to any Employee Benefit Plan
listed on SCHEDULE 3.17(a); (iii) indenture, mortgage, promissory note,
loan agreement, security agreement, pledge agreement, conditional sale,
guarantee or other Contract for the borrowing of money, for a line of
credit or for a Capital Lease; (iv) Contract for charitable
contributions; (v) Contract for capital expenditures in excess of
$25,000 individually or $100,000 in the aggregate; (vi) Contract or
arrangement for the sale of any assets, properties or rights other than
the sale of services or products in the ordinary course of business;
(vii) lease or other agreement pursuant to which it is a lessee of or
holds or operates any machinery, equipment (including Units), motor
vehicles, office furniture, fixtures, products, merchandise or other
personal property owned by any other Person, with annual lease payments
in excess of $20,000 individually or $50,000 in the aggregate; (viii)
Contract with respect to the lending or investing of funds, other than
with respect to any Employee Benefit Plan listed on SCHEDULE 3.17(a);
(ix) Contract with respect to any form of intangible property, including
any Intellectual Property Rights; (x) Contract which restricts any
Entity from engaging in any aspect of the Business or any other business
anywhere in the world; (xi) Contract or group of related Contracts with
the same Person (excluding purchase orders entered into in the ordinary
course of business which are to be completed within three months of
entering into such purchase orders) for the purchase or sale of products
or services under which the undelivered balance thereof (including the
aggregate undelivered balance under any such Contracts between the same
Person and such Entity) has a selling price or outstanding balance in
excess of $10,000; (xii) agreement for the acquisition or disposition of
a Person or a division of a Person for which either of the Entities
shall have continuing Liabilities after the Closing Date; (xiii)
Contract to provide MRI, CT, ultrasound or nuclear medicine services to
a hospital, clinic or provider; and (xiv) other Contract material to the
Business, including all franchise agreements and license agreements and
all financing agreements related thereto, other than with respect to any
Employee Benefit Plan listed on SCHEDULE 3.17(a). With respect to the
Contracts specified in SECTION 3.12(a)(vii), SCHEDULE 3.12 sets forth
with respect to each such Contract, as of the date hereof, the aggregate
annual rental payments (including interest factor) and the purchase
price payable to terminate such Contract and acquire the underlying
asset. With respect to the Contracts specified in SECTION
3.12(a)(xiii), SCHEDULE 3.12 sets forth the fees, as of the date hereof,
for each scan, study or other service performed thereunder.
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(b) All items listed on SCHEDULE 3.12 are in full force and effect,
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law). Except as set forth on SCHEDULE 3.12, there
exists no default, or any event which upon the giving of notice or the passage
of time, or both, would give rise to a claim of a default in the performance by
any Entity or to the Best Knowledge of the Sellers, any other party to any of
the foregoing of their respective obligations thereunder. The Purchasers have
been furnished with true, complete and correct copies of all items listed on
SCHEDULE 3.12.
3.13 LITIGATION, ETC.
(a) Except as disclosed on SCHEDULE 3.13(a), there are no (i)
Proceedings pending or, to the Best Knowledge of the Sellers, threatened against
any Entity, whether at law or in equity, whether civil or criminal in nature or
whether before or by any Governmental Entity or arbitrator, or (ii) Orders of
any Governmental Entity or arbitrator with respect to, involving or against any
Entity. The Sellers have delivered to the Purchasers, or made available to the
Purchasers, all material documents and correspondence relating to such matters
referred to on SCHEDULE 3.13(a).
(b) SCHEDULE 3.13(b) lists each matter described in SECTION 3.13(a)
that was in existence within the last 3 years that resulted in any criminal
sanctions or payments in excess of $50,000 by any Entity (whether as a result of
a judgment, civil fine, settlement or otherwise).
3.14 COMPLIANCE WITH LAWS.
Each Entity (a) has complied in all respects with, and is in compliance in
all respects with, all Laws, Orders and Permits applicable to it and the
Business, the noncompliance with which could reasonably be expected to have a
Material Adverse Effect and (b) has all material Permits used or necessary in
the conduct of the Business. All of such Permits are listed on SCHEDULE 3.14,
are in full force and effect, no violations with respect to any thereof have
occurred or are or have been recorded, no Proceeding is pending or, to the Best
Knowledge of the Sellers, threatened to revoke or limit any thereof except, in
each case, such of the foregoing as could not reasonably be expected to have a
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to any Entity is pending or, to the Best Knowledge of the Sellers,
threatened, nor has any Governmental Entity notified any Entity or any Seller of
its intention to conduct the same.
3.15 INSURANCE.
(a) SCHEDULE 3.15(a) contains a true and complete list of all
policies of liability, theft, fidelity, fire, product liability, workmen's
compensation and other forms of insurance held by each Entity and/or by any
Seller for the benefit of any Entity
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(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims thereunder) other than policies relating to any
Employee Benefit Plan.
(b) Except as set forth on SCHEDULE 3.15(b), with respect to each
policy of insurance listed on SCHEDULE 3.15(a): (i) all premiums with respect
thereto are currently paid and are not subject to adjustment, and no Person is
in default in any respect with respect to its obligations under such policy, and
(ii) no Entity has received any notice that such policy has been or shall be
canceled or terminated or will not be renewed on substantially the same terms as
are now in effect or the premium on such policy shall be materially increased on
the renewal thereof.
3.16 LABOR RELATIONS: EMPLOYEES.
(a) SCHEDULE 3.16(a) sets forth a list of all directors, officers and
employees of each Entity and employees of the Parent (solely with respect to the
Business) as of the date hereof whose aggregate compensation exceeded $75,000 in
1997, together with their respective titles, their rate of annual salary,
bonuses and commissions for 1997 and the respective dates on which they
commenced employment. To the extent any such employee is on a leave of absence
as of the date hereof, SCHEDULE 3.16(a) indicates the nature of such leave of
absence and such employee's anticipated date of return to active employment.
Except as set forth on SCHEDULE 3.16(a), no former employee whose aggregate
compensation exceeded $75,000 in 1997 has left the service of any Entity or the
Parent within the last 6 months. The schedule of employees of the Parent and
the Entities previously provided to the Purchasers by the Parent (which sets
forth the Person (as among the Parent and the Entities) which employs each such
employee) was true and correct as of the date provided and none of such
employees who are currently employees of Parent or the Entities has become
employed by any other Person (as among Parent and the Entities) since such date.
(b) As of the date hereof, except as set forth on SCHEDULE 3.16(b):
(i) there is no labor strike or work stoppage actually pending against any
Entity or the Parent; (ii) no Entity or the Parent is a party to or bound by any
collective bargaining agreement or union contract; (iii) no such agreement is
currently being negotiated by any Entity or the Parent and (iv) no Entity or the
Parent has received a request for recognition from any labor organization or any
notice that a petition for election with respect to such Person has been filed
with the National Labor Relations Board.
3.17 ERISA COMPLIANCE.
(A) SCHEDULE 3.17(a) contains a true, complete and correct list of
all existing Employee Benefit Plans (collectively, the "EMPLOYEE PLANS") (i)
that cover any employees, contract employees or former employees of any Entity
or any spouses, family members or beneficiaries thereof (A) that are maintained,
sponsored or contributed to by any Entity or (B) with respect to which any
Entity is obligated to contribute or has any Liability, or (ii) with respect to
which any Entity has any Liability on account of the maintenance or sponsorship
thereof or contribution thereto by any present or former ERISA Affiliate of any
Entity.
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(b) ADMINISTRATION AND COMPLIANCE. Except as set forth on SCHEDULE
3.17(b), with respect to each Employee Plan:
(i) such Employee Plan has been established, maintained,
operated and administered in all material respects in accordance with
its terms and in compliance in all material respects with ERISA, the
Code, and other applicable Laws (including with respect to reporting and
disclosure);
(ii) all amounts withheld pursuant to such Employee
Plan from employees have, where applicable, been timely deposited into
the appropriate trust or account;
(iii) no Entity or any ERISA Affiliate of either
Entity has breached the fiduciary rules of ERISA or engaged in a
prohibited transaction that could subject either Entity to any Tax or
penalty imposed under Section 4975 of the Code or Section 502(i), (j) or
(l) of ERISA in excess of $50,000;
(iv) as of the date hereof, no Proceedings (other than
routine claims for benefits or administrative appeals with respect
thereto) are pending against such Employee Plan;
(v) such Employee Plan, if intended to be "QUALIFIED",
within the meaning of Section 401(a) of the Code, has been determined by
the Internal Revenue Service to be so qualified to the extent addressed
in the most recent favorable determination letter, and nothing has
occurred that has or could reasonably be expected to adversely affect
such qualification;
(vi) except as may be required under Laws of general
application, such Employee Plan does not obligate any Entity to provide
any employee or former employee, or their spouses, family members or
beneficiaries, any post-employment or post-retirement health or life
insurance, accident or other "WELFARE-TYPE" benefits;
(vii) if such Employee Plan is a "GROUP HEALTH PLAN"
within the meaning of Section 5000 of the Code, such Employee Plan has
been maintained in compliance with Section 4980B of the Code and Title
I, Subtitle B, Part 6 of ERISA so that no Tax imposed under Section
4980B of the Code has been or is expected to be incurred by either
Entity in excess of $50,000;
(viii) all reporting and disclosure obligations imposed
under ERISA and the Code have been satisfied in all material respects
and no IRS Form 5500 has been filed late (after consideration of any
applicable extension) for any of the three most recently ended plan
years; and
(ix) without limiting SECTION 3.8(c), no benefit
payable or which becomes payable by any Entity pursuant to such Employee
Plan shall constitute an "excess parachute payment," within the meaning
of Section 280G of the Code, which is or may be subject to the
imposition of an excise Tax under Section 4999
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of the Code or which will not be deductible by reason of Section 280G of
the Code.
(c) Since 1988, no Entity and no ERISA Affiliate of any Entity
is or has ever maintained or been obligated to contribute to a
"multiemployer plan" as defined in Section 3(37) of ERISA, a "multiple
employer plan," as defined in Section 413 of the Code, or a "defined
benefit pension plan," as defined in Section 3(35) of ERISA;
(d) With respect to each Employee Plan, as of the date hereof,
the Purchasers have been provided with true and complete copies, to the
extent applicable, of each plan and trust document governing the terms
of such Employee Plan, the two most recent annual reports (Form 5500 and
attachments) and financial statements prepared therefor, the most recent
favorable determination letter issued to Parent or either Entity (and
pending requests therefor), and each of the foregoing documents
accurately reflects the terms of such Employee Plan in effect at the
time such document was prepared (including, without limitation, any
agreement or provision which would limit the ability of any Entity to
make any prospective amendments or terminate such Employee Plan).
3.18 CERTAIN ADDITIONAL REGULATORY MATTERS.
(a) None of the Sellers, the Entities or any officer, director
or managing employee of the Sellers or the Entities (within the meaning
of 42 U.S.C. (Section 1320a-5(b)) have engaged in any activities which
constitute violations of, or are cause for imposition of civil penalties
upon any Entity or mandatory or permissive exclusion of any Entity from
Medicare or Medicaid, under (S) 1320a-7, 1320a-7a, 1320a-7b, or 1395nn
of Title 42 of the United States Code, the federal Civilian Health and
Medical Plan of the Uniformed Services statute ("CHAMPUS"), or the
regulations promulgated pursuant to such statutes or regulations or
related state or local statutes or which constitute violations of or
deficiencies under the standards of any private accrediting organization
from which any Entity is accredited or seeks accreditation, including
the following activities:
(i) knowingly and willfully making or causing to be
made a false statement or representation of a material fact in any
application for any benefit or payment;
(ii) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(iii) knowingly and willfully presenting or causing to be
presented a claim for reimbursement under CHAMPUS, Medicare, Medicaid
or any other State Health Care Program or Federal Health Care Program
that is (i) for an item or service that the Person presenting or causing
to be presented knows or should know was not provided as claimed, or
(ii) for an item or service where the Person presenting knows or should
know that the claim is false or fraudulent;
(iv) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly,
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overtly or covertly, in cash or in kind (i) in return for referring, or
to induce the referral of, an individual to a Person for the furnishing
or arranging for the furnishing of any item or service for which payment
may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or any
other State Health Care Program or any Federal Health Care Program, or
(iii) in return for, or to induce, the purchase, lease, or order, or the
arranging for or recommending of the purchase, lease, or order, of any
good, facility, service, or item for which payment may be made in whole
or in part by CHAMPUS, Medicare or Medicaid or any other State Health
Care Program or any Federal Health Care Program; or
(v) knowingly and willfully making or causing to be
made or inducing or seeking to induce the making of any false statement
or representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading) of a material fact with respect to (i) the conditions or
operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or any other State Health Care Program
certification or any Federal Health Care Program certification, or (ii)
information required to be provided under (S) 1124(A) of the Social
Security Act ("SSA") (42 U.S.C. (S) 1320a-3).
(b) Each Entity has a Medicare provider number, and a
participating provider agreement in force with a Medicare Part B
carrier, in each locale, as applicable, in which such Entity bills
directly to Medicare for services furnished by such Entity.
(c) Each Entity has a Medicaid number and a participating
provider agreement in each state, as applicable, in which such Entity
bills directly to such states' Medicaid agency for services provided by
such Entity.
3.19 MEDICARE/MEDICAID PARTICIPATION.
None of the Sellers, the Entities, or any officer, director, or
managing employee (as defined in SSA (S) 1126(b) or any regulations
promulgated thereunder) of the Sellers or the Entities: (1) has had a
civil monetary penalty assessed against him, her or it under (S) 1128A
of the SSA or any regulations promulgated thereunder; (2) has been
excluded from participation under the Medicare program or a state health
care program as defined in SSA (S) 1128(h) or any regulations
promulgated thereunder ("STATE HEALTH CARE PROGRAM") or a federal health
care program as defined in SSA (S) 1128B(f) ("FEDERAL HEALTH CARE
PROGRAM"); or (3) has been convicted (as that term is defined in 42
C.F.R. (S) 1001.2) of any of the following categories of offenses as
described in SSA (S) 1128(a) and (b)(1), (2), (3) or any regulations
promulgated thereunder:
(i) criminal offenses relating to the delivery of an item or
service under Medicare or any State Health Care Program or any Federal
Health Care Program;
(ii) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health care
item or service;
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(iii) criminal offenses under federal or state law relating
to fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or
local governmental agency;
(iv) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense; or
(v) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.
3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.20(a), each Entity is in
material compliance with all applicable Environmental, Health and Safety
Laws. Each Entity has all of the Permits, licenses, authorizations,
registrations and approvals from Governmental Entities necessary to
operate the Business, and all such Permits, licenses, authorizations,
registrations and approvals are valid and in effect
(b) Except as set forth on SCHEDULE 3.20(b), there are no
pending or, to the knowledge of the Sellers, threatened claims by any
Governmental Entity concerning or alleging a violation of any
Environmental Health and Safety Law by any Entity, nor are any pending
or, to the knowledge of the Sellers, threatened claims under any
Environmental Health and Safety Laws concerning any property or facility
previously owned, leased or operated by any Seller or Entity or
predecessor of any Seller or Entity.
(c) Except as set forth on SCHEDULE 3.20(c), no Entity
presently is the subject of any ongoing administrative or judicial
proceeding or investigation brought by any Governmental Entity under any
Environmental, Health or Safety Law including, without limitation, any
voluntary clean-up program or any Proceeding under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA," also
known as "SUPERFUND") or any state counterparts to CERCLA, nor is any
Entity obligated to remediate, monitor, investigate, conduct corrective
action or report on environmental, health and safety matters concerning
the Business pursuant to any order, agreement, decree or mediation or
arbitration proceeding.
(d) Except as set forth on SCHEDULE 3.20(d), in the five years
preceding the date hereof, no Entity has received any written notice,
report or other written information (i) regarding any actual or alleged
violation of any Environmental, Health and Safety Laws, or (ii) that any
Entity is potentially responsible under any Environmental, Health and
Safety Laws for response costs, corrective action or natural resource
damages, as those terms are defined under any Environmental, Health and
Safety Laws.
(e) Except as set forth on SCHEDULE 3.20(e), Sellers are not aware of
impending changes in Environmental Health or Safety Laws which could reasonably
be
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expected to materialize before the one year anniversary of the
Closing Date and which could result in a Material Adverse Effect.
(f) Sellers have provided to the Purchasers copies of, or
access for purposes of review to, all documents, reports, studies or
other non-legally privileged information concerning environmental, heath
or safety matters relating to the Business which are in the possession
of Sellers. The information prepared or originated by the Sellers or
the Entities and provided to the Purchasers is true and correct.
3.21 BROKERS.
No Seller or Entity has employed any broker or finder or incurred
any Liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby for which any
Purchaser or Alliance may have Liability after the Closing.
3.22 RELATED TRANSACTIONS.
Except as set forth on SCHEDULE 3.22 or on SCHEDULES 3.17 (a) OR
(b) and except for compensation to bona-fide employees of any Entity for
services rendered in the ordinary course of business, no Affiliate of
any Entity or any "associate" (as defined in the rules promulgated under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"))
thereof, is now (i) party to any transaction or Contract with any Entity
providing for the furnishing of services by, or rental of real or
personal property from, or otherwise requiring payments to, any such
Affiliate or associate, or (ii) the direct or indirect owner of a
controlling interest in any Person which is a present or potential
competitor, supplier or customer of any Entity (other than nonaffiliated
holdings in publicly held companies). Except as set forth on SCHEDULE
3.22, no Entity is a guarantor or otherwise liable for any actual or
potential Liability of its Affiliates and their associates (other than
with respect to any Entity, the other Entity). Except as set forth on
SCHEDULE 3.22, no Entity owns or pays for any social club memberships,
whether or not for the benefit of any Entity and/or its executives.
3.23 BANK ACCOUNTS; POWERS OF ATTORNEY.
SCHEDULE 3.23 sets forth a true and complete list of (i) all bank
accounts and safe deposit boxes of each Seller and Entity and all
Persons who are signatories thereunder or who have access thereto and
(ii) the names of all persons, firms, associations, corporations or
business organizations holding general or special powers of attorney
from any Seller or Entity and a summary of the terms thereof.
3.24 VOTING.
The affirmative vote of a majority of the outstanding shares (the
"PARENT STOCKHOLDER APPROVAL") of the Parent's common stock, par value
$0.01 per share (the "PARENT COMMON STOCK") is the only vote of the
holders of any class or series of the Parent's capital stock which is
necessary to approve this Agreement and the transactions contemplated
hereby.
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3.25 OPINION OF FINANCIAL ADVISOR.
The Board of Directors of the Parent has received the oral opinion
of Paine Webber Incorporated to the effect that, as of the date hereof,
the consideration to be received in respect of Shares pursuant to this
Agreement is fair from a financial point of view to the Parent.
3.26 PHYSICIAN RELATIONSHIPS.
(a) Except as set forth in SCHEDULE 3.26 the Entities do not
have any "financial relationship" with any "referring physician" or an
immediate family member of such physician, within those terms' meanings
under 42 U.S.C. Section 1395nn.
(b) To the Best Knowledge of each of the Sellers, no
"referring physician" (within the meaning of 42 U.S.C. Section 1395nn)
owns any securities of the Sellers.
3.27 OTHER HOSPITAL RELATIONSHIPS.
Except as set forth in SCHEDULE 3.27 other than with respect to reading
radiologists, the Entities do not have any lease or other arrangement with any
hospital or other entity whereby the Entities pay the hospital or other entity
rent or any other fee the amount of which is dependent in whole or in part on
the gross or net revenues, net income, or cash flow of any segment of the
business of the Entities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants, severally as to itself, as of the
date hereof and as of the Closing Date as follows:
4.1 ORGANIZATION; CORPORATE AUTHORITY.
Such Purchaser is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation and has
all requisite power and authority (corporate or otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted. Such Purchaser is duly
qualified and in good standing to transact business as a foreign Person in those
jurisdictions set forth on SCHEDULE 4.1, which, as of the date hereof,
constitute all the jurisdictions in which the character of the property owned,
leased or operated by such Purchaser or the nature of the business or activities
conducted by such Purchaser makes such qualification necessary.
4.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Such Purchaser has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this Agreement
and each Related Document to which it is or will be a party and to consummate
the transactions
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contemplated hereby and thereby. The execution, delivery and
performance by such Purchaser of this Agreement and each Related
Document to which it is or will be a party, and performance of its
obligations hereunder and thereunder have been duly and validly
authorized by all necessary corporate action on the part of such
Purchaser. This Agreement and each Related Document to which it is or
will be a party has been or upon the execution thereof will be, duly and
validly executed and delivered by such Purchaser, and constitutes, or
upon its execution and delivery will constitute, a valid and binding
obligation of such Purchaser, enforceable against it in accordance with
its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in equity or at
law). Neither such Purchaser's execution and delivery of, and/or
performance of its obligations under, this Agreement and each Related
Document to which it is or will be a party, nor the consummation of the
transactions contemplated hereby and thereby shall (i) conflict with or
result in any violation or breach of, any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both)
a default under, or give rise to any right of termination, cancellation
or acceleration or result in the creation of any Encumbrance upon any of
the assets or properties of such Purchaser under provision of such
Purchaser's Organizational Documents or any Contract to which such
Purchaser is a party (other than security documents relating to
financing arrangements existing for the benefit of the Purchasers'
Affiliates) or bywhich it or any of its assets or properties is or may
be bound which, in the case of such Contracts, would reasonably be
expected to have a material adverse effect on any Purchaser or prevent
the consummation of the transactions contemplated hereby or under the
Related Documents and other than with respect to the foregoing for which
consents have been obtained or (ii) violate, or result in the creation
of an Encumbrance upon any of such Purchaser's assets as a result of,
any Law's applicable to such Purchaser or any of its properties or
assets, in each case, which would prohibit the such Purchaser from
consummating the transactions contemplated hereby.
4.3 BROKERS.
Such Purchaser has not employed any broker or finder or incurred any
Liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby for which any Seller may have any
Liability after the Closing.
4.4 CONSENTS.
Except as contemplated by this Agreement or as set forth on SCHEDULE 4.4,
and the Related Documents, no consent, approval, Order or authorization of, or
registration, declaration or filing with or notification to, any Governmental
Entity or any third party is required in connection with the execution, delivery
and performance by such Purchaser of this Agreement or the Related Documents to
which such Purchaser is or will be a party or the consummation of the
transactions contemplated hereby or thereby except for those consents,
approvals, Orders, authorizations, registrations, declarations, filings or
notifications the failure to obtain could not reasonably be expected to have a
material
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adverse effect on such Purchaser or except for those consents,
approvals, Orders, authorizations, registrations, declarations or
filings which have been obtained.
4.5 INVESTMENT REPRESENTATIONS.
Each of the Purchasers are acquiring the Shares to be purchased by
it, for its own account, for investment and not with a view to the
distribution thereof in violation of the Securities Act.
4.6 INFORMATION SUPPLIED.
None of the written information supplied or to be supplied by any
Purchaser specifically for inclusion or incorporation by reference in
the Proxy Statement, as supplemented if necessary, and any other
documents to be filed by the Parent with the SEC or any Governmental
Entity in connection with the transactions contemplated hereby will, on
the date of its filing or, with respect to the Proxy Statement, as
supplemented if necessary, on the date it is sent or given to
stockholders or at the time of the Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ALLIANCE
Alliance represents and warrants, as to itself, as of the date hereof
and as of the Closing Date as follows:
5.1 ORGANIZATION; CORPORATE AUTHORITY.
Alliance is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite power and authority (corporate or otherwise) to own, lease and operate
its assets and properties and to carry on its business as presently conducted
and as presently proposed to be conducted.
5.2 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
Alliance has all requisite power and authority (corporate and
otherwise) to execute, deliver and perform its obligations under this
Agreement and each Related Document to which it is or will be a party
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Alliance of this Agreement and
each Related Document to which it is or will be a party, and performance
of its obligations hereunder and thereunder have been duly and validly
authorized by all necessary corporate action on the part of Alliance.
This Agreement and each Related Document to which Alliance is or will be
a party has been or upon the execution thereof will be, duly and validly
executed and delivered by it, and constitutes, or upon its execution and
delivery will constitute, a valid and binding obligation of it,
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enforceable against it in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of
whether enforcement is sought in equity or at law). Neither Alliance's
execution and delivery of, and/or performance of its obligations under,
this Agreement and each Related Document to which it is or will be a
party, nor the consummation of the transactions contemplated hereby and
thereby shall (i) conflict with or result in any violation or breach of,
any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default under, or give rise to any
right of termination, cancellation or acceleration or result in the
creation of any Encumbrance upon any of the assets or properties of
Alliance under provision of its Organizational Documents or any Contract
to which it is a party or by which it or any of its assets or properties
is or may be bound which, in the case of such Contracts, would
reasonably be expected to have a material adverse effect on it or
prevent the consummaton of the transactions contemplated hereby or under
the Related Documents and other than with respect to the foregoing for
which consents have been obtained or (ii) violate, or result in the
creation of an Encumbrance upon any of its assets as a result of, any
Law's applicable to it or any of its properties or assets, in each case,
which would prohibit it from consummating the transactions contemplated
hereby.
5.3 DESIGNATION OF PURCHASERS.
Alliance has duly designated the Purchasers to acquire the Shares
hereunder, and will cause the Purchasers to perform each and every obligation
undertaken by them herein.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 ACCESS TO RECORDS AND PROPERTIES OF THE ENTITIES.
From and after the date hereof until the Closing, the Sellers shall, and
shall cause each Entity to afford, (i) to the Purchasers, their respective
lenders and Affiliates and each of their respective authorized representatives,
including accountants, consultants and attorneys, free and full access at all
reasonable times to the assets, business, facilities, properties, books, records
(including tax returns filed and in preparation), customers, consultants, and
employees of or relating to each Entity and the Parent in order that the
Purchasers have full opportunity to make such investigation as they shall
reasonably desire to make of the affairs of each Entity and the Parent and in
order that the Purchasers may integrate the Business into the business currently
being conducted by the Purchasers' Affiliates, and (ii) to the respective
independent certified public accountants of the Purchasers, free and full access
at all reasonable times to the records of the independent certified public
accountants of each Entity and the Parent. The Sellers shall cause their
employees to actively cooperate and assist Purchasers and such other Persons in
effecting such integration. From and after the date hereof until the Closing,
(i) the Sellers shall provide to the Purchasers promptly but in any event no
later than the 25th day after the
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last day of each calendar month, a copy of the consolidated and
consolidating balance sheets, statements of operations, shareholders
equity and cash flows of the Parent and its Subsidiaries for each such
calendar month, together with a copy of the Parent's "white book" and
"blue book" (and any supporting information with respect thereto), and
(ii) such other information regarding the Parent and its Subsidiaries as
may be reasonably requested by the Purchasers. The investigation
contemplated by this SECTION 5.1 shall not affect or otherwise diminish
or obviate in any respect any of the representations and warranties or
the indemnification obligations contained in this Agreement.
6.2 CONDUCT PENDING CLOSING.
From and after the date hereof until the earlier of the Closing or
the termination of this Agreement pursuant to ARTICLE 8, each of the
Sellers shall, and shall cause each Entity to (unless otherwise
consented to in writing by the Purchasers):
(a) not sell, lease, license or otherwise dispose of any
assets with a book value in excess of $50,000 in the aggregate;
(b) not issue, sell or in any way transfer any Equity
Interests of the Entities or issue or sell any securities convertible
into, exercisable or exchangeable for or options or warrants to purchase
or rights to subscribe for, any such Equity Interests;
(c) not change the number of authorized shares of the Equity
Interests of the Entities or reclassify, combine, split, subdivide or
redeem or otherwise repurchase any of such Equity Interests, or issue,
deliver, pledge or encumber any additional Equity Interests of the
Entities or other securities equivalent to, or exchangeable for, Equity
Interests of the Entities or enter into any Contract to do any of the
foregoing;
(d) not incur or issue any securities evidencing any Funded
Indebtedness or enter into any operating leases (other than Funded
Indebtedness of a Seller for which no Entity (or its assets) is liable
or obligated (whether contractually, by applicable Law, as a guarantor
or through the incurrence or grant of any Encumbrances), Funded
Indebtedness related to money advanced from Sellers or GK Finance to an
Entity on a basis consistent with past practice and in the ordinary
course of business, provided that the amounts so advanced are repaid
prior to the Closing Date, Funded Indebtedness or operating leases
outstanding on the date hereof and disclosed on any Schedules
hereunder), or amend, modify or agree to a waiver of the terms of any
Funded Indebtedness or operating leases (including, without limitation
increasing any commitments to extend credit thereunder);
(e) not enter into any Contract with aggregate payments which
could exceed $50,000 (except for any Contract related to any Employee
Benefit Plan of the Parent or any Subsidiary other than the Entities,
and for which Contract neither Entity assumes or has any Liability not
disclosed hereunder) or any Contract in respect of the rental of any
Unit;
(f) not enter into any employment agreement, or in any manner
change the Person (as among the Parent and the Entities) which is the
employer of the employees of the Parent and the Entities from the Person
disclosed on the schedule referenced in the
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last sentence of SECTION 3.16(a) as such employee's employer, or
terminate the employment of any employees in a manner which is
inconsistent with past practices or policies, or except as required by
applicable Law, effect any increase in the rate or terms of compensation
payable or to become payable to officers or employees of any Entity or
the Parent (solely as relating to the Business) other than increases in
compensation under Employee Benefit Plans which are available to all
employees generally;
(g) not create or suffer to exist any Encumbrance on any of its
assets or properties other than Permitted Encumbrances, Encumbrances on Equity
Interests or assets of GK Finance or any assets of Subsidiaries of the Parent
other than the Entities, and Encumbrances which exist on the date hereof and
which have been disclosed on the Schedules to this Agreement;
(h) not change its tax or accounting principles, policies or
practices, change any depreciation or amortization policies or rates previously
adopted or write-up inventory or any other assets;
(i) not make any material Tax election or compromise any material Tax
Liability;
(j) not make any payments to or for the benefit of GK Finance (other
than payments made on behalf of GK Finance and reimbursed by GK Finance on a
basis consistent with past practices and in the ordinary course of business);
(k) not amend any of its Organizational Documents or any Contracts
(other than Contracts related to any Employee Plan);
(l) not enter into any transaction other than in the ordinary course
of business, or any transaction which is not at arms-length with unaffiliated
third Persons;
(m) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall have
been previously agreed to in writing by the parties hereto;
(n) not make any material change in the manner in which such Person
extends discounts or credits to customers or any material change in the manner
or terms by which such Person collects its accounts receivable or otherwise
deals with customers;
(o) not agree or otherwise commit to take any of the actions set
forth above;
(p) promptly provide the Purchasers with at least five Business Days
notice of (i) the terms and conditions with respect to renewals of any existing
Contracts to be renewed by the Entities, (ii) any intention to not renew any
existing Contracts and (iii) the actual nonrenewal of any existing Contract;
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(q) conduct its business substantially as presently conducted and
only in the ordinary course consistent with past practice;
(r) use commercially reasonable efforts to (i) maintain its business,
assets, relations with present employees, customers, suppliers, partners,
licensees and operations as an ongoing business and preserve its goodwill, in
accordance with past custom and practice and (ii) to satisfy each of the closing
conditions to be satisfied by it set forth in ARTICLE 6 hereof; and
(s) pay and continue to defer all accounts payable and all expenses
in a manner which is consistent with past practices and in the ordinary course
of business.
6.3 EFFORTS TO CONSUMMATE.
Subject to the terms and conditions of this Agreement, each party shall use
commercially reasonable efforts to take or cause to be taken all actions and do
or cause to be done all things required under all applicable Laws, in order to
consummate the transactions contemplated hereby.
6.4 NO SOLICITATION.
(a) The Parent shall, shall cause M Sub and each Entity to and shall
direct and cause its and each such Person's officers, directors, employees,
representatives and agents to, immediately cease any discussions or negotiations
with any parties (other than the Purchasers and Alliance) that may be ongoing
with respect to an Alternative Transaction. The Parent shall not, shall cause M
Sub and each Entity not to and shall not authorize or permit any of its or any
such Person's officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative representing any
such Person to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal that may lead to an
Alternative Transaction or (ii) participate in any discussions or negotiations
regarding any proposed Alternative Transaction; PROVIDED, HOWEVER, that if, at
any time prior to the Closing Date, the Board of Directors of the Parent
determines in good faith, based on written advice from outside counsel, that
action is required by reason of such Board of Directors' fiduciary duties to the
Parent's stockholders under applicable law, the Parent may (subject to
compliance with SECTION 5.4(c)), in response to an unsolicited Third Party
Proposal, (A) furnish information with respect to the Parent and the Entities to
the Person making such Third Party Proposal pursuant to a confidentiality
agreement that is at least as protective of the Parent's and its Subsidiaries'
interests as is the Confidentiality Agreement and (B) participate in
negotiations regarding such a Third Party Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any director, officer or employee of the Parent, M Sub
or any Entity or any investment banker, financial advisor, attorney, accountant
or other representative acting on behalf of any such Person shall be deemed to
be a breach of this SECTION 5.4(a).
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(b) Neither the Board of Directors of the Parent nor any committee
thereof shall (i) withdraw or modify the approval or recommendation by such
Board of Directors or such committee of this Agreement, the Related Documents or
any of the transactions contemplated hereby or thereby, (ii) approve or
recommend any Alternative Transaction or (iii) cause or permit the Parent, M Sub
or any Entity to enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement (an "ACQUISITION AGREEMENT") with
respect to an Alternative Transaction unless the Board of Directors of the
Parent shall have previously terminated this Agreement pursuant to SECTION
8.1(f).
(c) In addition to the obligations of the Parent set forth in
paragraphs (a) and (b) of this SECTION 5.4, the Parent shall immediately advise
the Purchasers orally and in writing of any request for information or of any
proposal or any inquiry regarding any Alternative Transaction, the material
terms and conditions of such request, proposal or inquiry and the identity of
the Person making such request, proposal or inquiry. The Parent will keep the
Purchasers fully informed of the status and details (including amendments or
proposed amendments) of any such request, proposal or inquiry.
(d) Nothing contained in this SECTION 5.4 shall prohibit the Parent
from at any time taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
from making any disclosure to the Parent's stockholders, in each case with
respect to any Third Party Proposal, if the Parent shall have provided the
Purchasers with as much advance notice of its position and proposed disclosure
as is possible under the circumstances; PROVIDED, HOWEVER, that neither the
Parent nor its Board of Directors nor any Committee thereof shall, except as
permitted by SECTION 5.4(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to this Agreement, the Related Documents or
any of the transactions contemplated hereby or thereby or approve or recommend,
or propose to approve or recommend, an Alternative Transaction.
6.5 CONFIDENTIALITY.
The Sellers and the Purchasers agree that, through and including the
Closing Date, they shall comply with that certain letter agreement relating to
matters of confidentiality dated as of July 24, 1997 (as amended, modified or
supplemented, the "CONFIDENTIALITY AGREEMENT").
6.6 NOTICE OF PROSPECTIVE BREACH.
Each party shall immediately notify the other parties in writing upon the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause any representation or warranty of such
party that is contained in this Agreement or any Related Document to be untrue
or inaccurate in any material respect at any time from the date of this
Agreement to the Closing.
6.7 PUBLIC ANNOUNCEMENTS.
Each party agrees that, except (i) as otherwise required by Law or Order
and (ii) for disclosure to its respective directors, officers, employees,
financial advisors, potential
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financing sources, legal counsel, independent certified public
accountants or other agents, advisors or representatives on a
need-to-know basis and with whom such party has a confidential
relationship, it will not issue any reports, statements or releases, in
each case pertaining to this Agreement or any Related Document to which
it is a party or the transactions contemplated hereby or thereby,
without consulting in advance with the other parties hereto.
6.8 COOPERATION REGARDING TAX FILINGS; SECTION 338(h)(10).
(a) After the Closing, the Purchasers and the Sellers shall
act in good faith and cooperate with one another for the purpose of
filing all Tax Returns and reports required to be filed by any of them.
Parent shall join Purchaser A in a timely election pursuant to Section
338(h)(10) of the Code (and under any comparable provision of any state
or local law) with respect to the CT Shares (the "338(h)(10) ELECTION").
The parties hereto recognize that the 338(h)(10) Election will result
in the purchase of the CT Shares hereunder being treated as a sale of
assets by CT Sub for Federal income Tax purposes and for applicable
state and local tax purposes and that any Tax Liability arising with
respect to the 338(h)(10) Election (other than a Liability for Transfer
Taxes described in SECTION 9.14) shall be deemed a Covered Tax. None of
the parties hereto shall make any Tax Return or other filing that is
inconsistent with the foregoing.
(b) The Purchasers shall be responsible for the preparation
and filing of all 338(h)(10) Election forms and the Sellers shall
execute and deliver to Purchasers such documents as are reasonably
requested to properly complete such forms at least twenty (20) days
prior to the date such 338(h)(10) Election is required to be filed. The
Sellers agree that the Purchasers shall be entitled to determine the
allocation of the Modified Aggregate Deemed Sales Price (as defined in
the treasury regulations promulgated under Section 338 of the Code)
among the assets of CT Sub in their sole discretion, and in accordance
with Section 338 of the Code and the regulations thereunder (including
the allocation of any adjustment to the Modified Aggregate Deemed Sales
Price by reason of any purchase price adjustment or indemnification
payment under this Agreement), and shall notify the Sellers of such
determination as soon as possible after making such determination. The
Purchasers and the Sellers agree to act in accordance with any such
allocation in all relevant Tax Returns and filings.
(c) Parent shall cause to be prepared and cause to be timely
filed all consolidated, combined or unitary federal, state, local or
foreign Tax Returns required to be filed with respect to Parent for all
taxable periods ending before or including the Closing Date and shall
include CT Sub in all such returns in which it is eligible to be
included. The Purchasers agree to cooperate with Parent and its
Affiliates in the preparation of the portions of such Tax Returns
pertaining to CT Sub. The Parent shall permit the Purchasers to review
and comment on the portion of all Tax Returns prepared by Parent
pursuant to this SECTION 5.8(c) pertaining to CT Sub, or the Partnership
prior to the filing of such Tax Returns. Parent shall cause to be
timely paid all Taxes to which such Tax Returns relate for all periods
covered by such Tax Returns.
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(d) The extent to which Taxes of CT Sub and the Partnership for a
taxable period that includes but does not end on the Closing Date are treated as
Taxes for the period ending on or prior to the Closing Date shall be determined
for all purposes, including for purposes of calculating Covered Taxes, as
follows: (i) Taxes measured in whole or in part by net or gross income and Taxes
relating to specific transactions shall be apportioned on the basis of a closing
of the books of the Entity liable for such Tax at the close of business on the
Closing Date; provided, however, that all transactions not in the ordinary
course of business and not contemplated in this Agreement that occur on the
Closing Date after Purchaser A's purchase of the CT Shares shall be reported on
Purchaser A's federal income tax return to the extent permitted by Treas. Reg.
Section 1502-76(b((1)(3); and (ii) all other Taxes shall be prorated according
to the ratio of the number of days in such taxable period prior to and including
the Closing Date to the number of days in such taxable period.
(e) The Sellers shall cause to be prepared all required federal,
state, local and foreign Tax Returns of CT Sub and the Partnership for any
period which ends on or before the Closing Date, for which Tax Returns have not
been filed as of the Closing Date (other than Tax Returns to be filed by Parent
pursuant to SECTION 5.8(c)). The Purchasers shall cause to be prepared and
cause to be timely filed all required federal, state, local and foreign Tax
Returns of CT Sub and the Partnership (other than Tax Returns to be filed by
Parent pursuant to SECTION 5.8(c)) for taxable periods beginning before and
ending after the Closing Date. The Sellers and Purchasers agree to cooperate
with each other in the preparation of such Tax Returns. The Purchasers shall
permit Sellers to review and comment on all Tax Returns prepared by the
Purchasers pursuant to this SECTION 5.8(e) and such Tax Returns shall be subject
to the prior approval of the Sellers which approval shall not be unreasonably
withheld. The Sellers shall permit the Purchasers to review and comment on all
Tax Returns prepared by the Sellers pursuant to this SECTION 5.8(e). Prior to
the date such Tax Returns are due, the Parent will provide the Purchasers with
amounts equal to the Covered Taxes, as shown on the Tax Returns to be filed
under this SECTION 5.8(e), after taking into account any Tax or estimated Tax
paid with respect to such Covered Taxes prior to the Closing Date. Promptly
after receipt by the Purchasers of the amounts in respect of the Covered Taxes
from the Parent, the Purchasers will cause the applicable Tax Returns prepared
by the Seller to be filed.
(f) Parent shall be entitled to any refund of Taxes paid by or with
respect to CT Sub that is attributable to taxable periods ending on or prior to
the Closing Date, and the Purchasers shall cause CT Sub to pay over to Parent
any such refunds (net of any Tax Liability attributable thereto and any expenses
incurred in the collection of such refund) within fifteen (15) days after
receipt thereof. If the amount of such refund that is paid over by Parent is
subsequently reduced by a Governmental Entity, Parent shall pay to Purchasers an
amount necessary to reflect such adjustment.
(g) The Parent shall not file any claim for a refund or credit, or an
amended return claiming a refund or credit, after the Closing Date, for any Tax
paid by CT Sub without the prior written consent of the Purchasers, which
consent shall not be unreasonably withheld.
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(h) Each of the Purchasers and the Sellers shall promptly notify the
other party upon receipt of a notice of any pending or threatened Tax audit or
assessment (a "TAX CLAIM") that may affect the Tax Liabilities of CT Sub, or the
Partnership and for which any Seller would be liable under this Agreement;
PROVIDED, HOWEVER, that no delay on the part of either party in so notifying the
other party shall relieve the other party from any liability or obligation
hereunder (unless, and then solely to the extent) that the other party is
materially and irrevocably prejudiced by such delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Tax
Claim.
(i) If the Sellers shall acknowledge in a writing delivered to the
Purchasers that such Tax Claim is properly subject to their indemnification
obligations hereunder and the Sellers shall have the financial resources to meet
such indemnification obligations, then subject to the further provisions of this
SECTION 5.8(i), the Sellers shall have the right to assume the defense of such
Tax Claim at their own expense and by their own counsel and other advisers,
which counsel and other advisors shall be reasonably satisfactory to the
Purchasers; provided, however, that the Sellers shall not have the right to
assume the defense of any Tax Claim, notwithstanding the giving of such written
acknowledgment, if the Sellers shall not have assumed the defense of such Tax
Claim in a timely fashion. Notwithstanding anything to the contrary contained
herein, if a Tax Claim involves, or could have a material effect on any material
matter beyond the scope of the indemnification obligations of the Sellers, the
Sellers and Purchasers shall jointly assume the defense of such Tax Claim at
their own expense. If the Sellers exercise their right to assume the defense of
a Tax Claim pursuant to and in accordance with this SECTION 5.8(i), (i) the
Purchasers shall be entitled to participate in such defense with their own
counsel and other advisors at their own expense, (ii) the Purchasers will
reasonably cooperate with the Sellers and their counsel and advisors in the
defense of such Tax Claim, and (iii) the Sellers shall not make any settlement
of such Tax Claim without the written consent of the Purchasers, which consent
shall not be unreasonably withheld, provided that consent may be withheld if any
Losses to be incurred by the Purchasers pursuant to such settlement are not
indemnified pursuant to the indemnification provisions set forth in ARTICLE VII
hereunder.
(j) If the Sellers shall assume the defense of a Tax Claim pursuant
to and in accordance with SECTION 5.8(i), the Sellers shall not be responsible
for any legal or other defense costs subsequently incurred by the Purchasers in
connection with the defense thereof. If the Sellers do not exercise their right
to assume the defense of a Tax Claim or are otherwise restricted from doing so
pursuant to SECTION 5.8(i), the Sellers shall nevertheless be entitled to
participate in such defense with their own counsel and other advisors at their
own expense. If the defense of a Tax Claim is retained by the Purchasers, the
Purchasers shall not be entitled to settle such Tax Claim without the prior
written consent of the Sellers, which consent shall not be unreasonably
withheld.
(k) After the Closing Date, the Sellers and the Purchasers shall make
available to the other, as reasonably requested, all information, records or
documents relating to Tax Liabilities or potential Tax Liabilities of CT Sub or
the Partnership for all periods ending on or prior to the Closing Date, and
shall preserve all such information,
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records and documents until the expiration of any applicable statute of
limitations or extensions thereof.
(l) All Tax Returns which are required to be prepared by Sellers
pursuant to SECTIONS 5.8(c) AND (e) shall be prepared and filed in a manner
consistent with past practice and applicable Law and, on such Tax Returns, no
position shall be taken, elections made or method adopted that is inconsistent
with positions taken, elections made or methods used in preparing and filing
similar Tax Returns in prior periods.
6.9 EXCHANGE PROCEEDS.
If, between the date hereof and the Closing, any Entity or any Seller
receives any proceeds in consideration for the exchange of any of its assets
(solely, in the case of the Parent as it relates to the Purchased Parent
Assets), whether from the sale of any such assets, from insurance proceeds
payable on account of any loss or casualty to such assets, any proceeds from the
taking of such assets pursuant to the power of eminent domain, or any other
proceeds from whatever source relating to the disposition of such assets (the
"EXCHANGE PROCEEDS"), the Sellers shall immediately notify the Purchasers of the
receipt of such Exchange Proceeds and shall consult with the Purchasers with
respect to the application of any such Exchange Proceeds. The Sellers shall
ensure that any Exchange Proceeds received by any Entity shall either be used to
purchase replacement assets or shall be retained by the applicable Entity.
6.10 NON-COMPETE; NON-SOLICITATION.
(a) During the Non-Compete Period, the Parent shall not, and cause
its Affiliates not to, directly or indirectly, own, manage, control, participate
in, consult with, render services for, or in any manner engage in or represent
any business within any Restricted Territory that is competitive with the
Business or any product or services of the Business as such Business is
conducted or proposed to be conducted from and after the Closing Date; PROVIDED,
HOWEVER, that nothing herein shall be deemed to prevent the Parent or any of its
Affiliates from engaging in any activities presently conducted or proposed to be
conducted by GK Finance or from providing any imaging modality as part of its
"Operating Room of the Twenty First Century" business.
(b) During the Non-Compete Period, none of the Parent nor any
Affiliate shall directly or indirectly through another Person (i) induce or
attempt to induce any employee of any Purchaser or any Affiliate of such
Purchaser to leave the employ of such Purchaser or such Affiliate or in any way
interfere with the relationship between such Purchaser or any such Affiliate, on
the one hand, and any employee thereof, on the other hand, or (ii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
any Purchaser or any Affiliate of such Purchaser to cease doing business with
such Person or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation, on the one hand, and such
Person, on the other hand.
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(c) If, at the time of enforcement of this SECTION 5.10, a
court holds that the restrictions stated herein are unreasonable under
the circumstances then existing, the parties agree that the maximum
period, scope or geographical area reasonable under such circumstances
shall be substituted for the stated period, scope or area. The parties
hereto acknowledge that money damages would be an inadequate remedy for
any breach of this SECTION 5.10. Therefore, in the event of a breach or
threatened breach of this SECTION 5.10, the Purchasers or their
successors or assigns may, in addition to other rights and remedies
existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to
enforce, or prevent any violations of, the provisions of this SECTION
5.10.
6.11 CERTAIN TAX MATTERS.
From the date hereof until the Closing Date, (i) the Parent shall
and shall cause each Entity to file all tax returns and reports
("POST-SIGNING RETURNS") required to be filed in a manner consistent
with past practices; (ii) the Parent shall and shall cause each Entity
to timely pay all Taxes shown as due and payable on the Post-Signing
Returns; (iii) the Parent shall and shall cause each Entity to make
provision for all Taxes payable for which no Post-Signing Return is due
prior to the Closing Date; (iv) the Parent shall allow the Purchasers an
opportunity to review and comment on any Post-Signing Return prior to
the due date of such Post-Signing Return; and (v) the Parent will
promptly notify the Purchasers of any action, suit, proceeding, claim or
audit pending against or with respect to the Parent or any Entity in
respect of any Tax where there is a possibility of a determination or
decision which could have an adverse effect on the Parent's or any
Entity's Tax Liabilities or Tax attributes.
6.12 ADVICE OF CHANGES; FILINGS.
The Parent shall confer with the Purchasers on a regular and
frequent basis as reasonably requested by the Purchasers, report on
operational matters and promptly advise the Purchasers orally and, if
requested by the Purchasers, in writing of any change with respect to
the Parent or any Entity. The Parent shall promptly provide to the
Purchasers (or their counsel) copies of all filings made by the Parent
or any Entity with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
(a) The Parent will, as soon as practicable following the date
hereof, duly call, give notice of, convene and hold a meeting of its
stockholders (the "STOCKHOLDERS MEETING") for the purpose of obtaining
the approval of this Agreement, the Related Documents, and the
transactions contemplated hereby and thereby. The Parent will, through
its Board of Directors, recommend to its stockholders that the Parent
Stockholder Approval be given.
(b) The Parent will, as soon as practicable following the date
hereof, prepare and file a preliminary proxy or information statement
(as amended, modified or supplemented, the "PROXY STATEMENT") with the
SEC and will use its best efforts to respond to any comments of the SEC
or its staff and to cause the Proxy Statement to be
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mailed to its stockholders as promptly as practicable after responding
to all such comments to the satisfaction of the SEC staff. The Proxy
Statement shall contain the written opinion of Paine Webber
Incorporated, opining as to the matters set forth in SECTION 3.25. The
Parent will afford the Purchasers opportunity to review and comment upon
any description of the Purchasers or their Affiliates, this Agreement,
the Related Documents or the transactions contemplated hereby and
thereby set forth in the Proxy Statement (including all drafts or
amendments thereto). Each Purchaser shall provide the Parent with all
necessary information reasonably requested with respect to itself and
Alliance solely for inclusion by the Parent in the Proxy Statement. The
Parent will notify the Purchasers promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for
additional information and will supply the Purchasers with copies of all
correspondence between the Parent or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to
the Proxy Statement. If at any time prior to the Stockholders Meeting
there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Parent will promptly prepare and
mail to its stockholders such an amendment or supplement.
6.13 MAINTENANCE OF CASH AND CASH EQUIVALENTS.
During the period commencing on the Closing Date and ending on April 15,
1999, the Parent shall at all times hold cash or Cash Equivalents of not less
than $1,000,000 in the aggregate in an investment account at a financial
institution reasonably satisfactory to the Purchasers which shall not be subject
to any Encumbrance other than Permitted Encumbrances. During such period, the
Parent shall provide copies of all notices or reports delivered to it in respect
of such account to the Purchasers within 5 Business Days of the receipt thereof.
6.14 FURTHER ASSURANCES.
The Sellers shall and shall cause the Entities to take such further actions
or execute such further documents or instruments as shall be reasonably
requested by the Purchasers to further implement the transactions contemplated
by SECTION 1.2 including, without limitation, discharging or disposing of any
Excluded Liability which may be a Liability of any Entity on terms reasonably
satisfactory to the Purchasers.
6.15 AUDITED FINANCIAL STATEMENTS.
The Parent shall, and shall cause each of its Subsidiaries to, provide
the Purchasers and their advisors with such information (including, without
limitation, consolidating balance sheets and statements of operations as at
December 31, 1997 and for the fiscal year then ended; such consolidating
financial statements to incorporate the Entities in such form as presented in
SCHEDULE 3.5(b) as well as individual columns for each of GK Finance, Parent and
each other Subsidiary of the Parent, in each case, as adjusted to give effect to
the transactions contemplated by SECTION 1.2 hereof), and access to its books
and records (including, without limitation, access to its management employees),
to permit them or their advisors to prepare audited balance sheets of the
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Entities as of December 31, 1997, and related audited statements of
operations, shareholders' equity and cash flows for the period then
ended, in each case in accordance with GAAP and adjusted to give effect
to the consummation of the transactions contemplated by SECTION 1.2 as
if such transactions were consummated at January 1, 1997.
6.16 DVI FUNDED INDEBTEDNESS.
At the request of the Purchasers, on the Closing Date, the Parent
shall and shall cause its Subsidiaries to repay all Funded Indebtedness
held by DVI Financial Services, Inc. and DVI Business Credit Receivables
Corp. ("DVI") under agreements relating to Funded Indebtedness provided
by DVI to the Parent and its Subsidiaries upon payment by the Purchasers
in full of all amounts due on the Closing Date to DVI in respect of
principal, accrued interest thereon and prepayment premiums not to
exceed $75,000 in the aggregate. On the Closing Date, Parent shall
deliver all instruments and documents reasonably requested by the
Purchasers to evidence the repayment in full of such Funded Indebtedness
including reasonably satisfactory pay-off letters, releases of
Encumbrances, releases of pledges of Equity Interests and UCC-3
financing statements.
6.17 TRANSFER OF PARENT PARTNERSHIP INTERESTS.
Upon the request of the Purchasers, the Parent shall, on or
immediately prior to the Closing Date, assign the Parent Partnership
Interests to a newly organized wholly-owned corporate Subsidiary (which
shall conduct no business whatsoever) and shall cause such Subsidiary to
assign the Parent Partnership Interests to Purchaser A in accordance
with SECTION 1.1 hereof.
6.18 CERTAIN EMPLOYEE MATTERS.
(a) On the Closing Date, the Purchasers shall or shall cause
the Entities or an Affiliate of the Purchasers, to continue the
employment of or offer employment, as applicable, to the employees of
the Entities and Parent to be identified by the Purchasers prior to the
Closing Date in accordance with the terms of a letter, dated of even
date herewith, delivered by Purchaser A to the Parent (any such
employees who so continue or accept such offer of employment being
referred to herein as the "HIRED EMPLOYEES"). Such employment shall be
in a substantially similar position as such Hired Employee held while
employed by the applicable Entity or Parent prior to the Closing, and
the Purchasers shall have no Liability or obligation to any other
employees of the Parent or any of its Subsidiaries (other than the
Entities as set forth herein). Prior to the Closing, Parent and the
Entities shall take such actions and, after the Closing Date, Parent and
the Purchasers shall take, and the Purchasers shall cause the Entities
to take, such actions as are necessary so that each Hired Employee shall
cease to be entitled to participate in or accrue benefits under any of
Parent's Employee Benefit Plans, programs, policies and arrangements
except to the extent required by applicable Law. The Purchasers shall,
or shall cause the Entities or an Affiliate of the Purchasers, to take
such actions as may be necessary such that, subject to the provisions of
this SECTION 5.18, on and after the Closing Date, each Hired Employee
shall be eligible to participate in, and be subject to
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the provisions of, the Employee Benefit Plans (including a 401(k) plan
and a flexible benefits plan), programs, personnel policies and
guidelines sponsored or maintained by Alliance, and applicable for
employees of Alliance or its Affiliates in a similar position, subject
to the satisfaction of all the eligibility criteria for participation
thereunder (except as otherwise provided in this SECTION 5.18).
(b) With respect to the Alliance Employee Benefit Plans,
programs, personnel policies and guidelines, Alliance shall grant all
Hired Employees from and after the Closing Date credit for all service
with the Entities and Parent prior to the Closing Date for all purposes.
Alliance shall take such actions as are necessary to provide that on
the Closing Date all Hired Employees and their spouses and dependents
shall be immediately covered by the group health plan maintained by
Alliance which shall (i) provide immediate coverage as of the Closing
Date without any waiting period, (ii) waive any pre-existing condition
exclusions or limitations, and (iii) provide that any amounts paid by
Hired Employees through the Closing Date for medical expenses that are
treated as deductible, co-insurance and out-of-pocket payments under the
Parent's health plan shall reduce the amount of any deductible,
co-insurance or out-of-pocket payments required to be paid for a similar
period under the Alliance health plan; provided, however, that the
Sellers shall provide Alliance with a list of all current and former
employees participating in the Parent's health plan along with a listing
of each employee's deductible and co-insurance payments through the
Closing Date.
(c) Effective as of the Closing, the Purchasers shall assume
the Parent's or Entities' obligations with respect to accrued sick pay,
personal holidays and vacation pay for Hired Employees, provided that
the vacation pay costs as of the Latest Balance Sheet Date have been
accrued and reflected on the Latest Balance Sheet.
(d) (dm) Parent shall take such actions as are necessary to
provide that the Hired Employees are fully vested in their benefits
under the Retirement Plan for Employees of Parent and CT Sub (the "ASHS
401(k) PLAN"). Parent shall also take such actions as are necessary to
provide that the Hired Employees will be eligible to receive
distributions from the ASHS 401(k) Plan that will be eligible for
rollover to the Alliance "401(k)" plan. The Purchasers shall take such
action as is necessary after the Closing Date to provide that the
Alliance "401(k)" plan will allow rollovers of distributions from the
ASHS 401(k) Plan.
(e) After the Closing Date, the Purchasers and the Sellers
agree to take such actions as are necessary to provide for the transfer
of the account balances of the flexible spending accounts of each Hired
Employee from Parent's "Section 125" plan to the Alliance "Section 125"
plan and the Purchasers shall provide for the reimbursement from the
Alliance "Section 125" plan of medical and childcare expenses incurred
by Hired Employees during 1998.
(f) After the Closing Date, the Purchasers shall be
responsible for providing health care continuation coverage pursuant to
the requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), to the extent required by COBRA, for all
former employees of the Entities and/or their
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"qualified beneficiaries" (as such term is defined in Part 6 of Title I
of ERISA) who were receiving health care continuation coverage under
COBRA prior to the Closing Date or who are or become eligible to receive
such coverage on or after the Closing Date. As of the date hereof,
there were 2 former employees of the Entities and/or their "qualified
beneficiaries" who were receiving health care continuation coverage
under COBRA and 8 former employees who experienced a "qualifying event"
under COBRA.
ARTICLE VII
CLOSING CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to consummate the transactions
contemplated hereby is subject to the satisfaction prior to the Closing Date of
the following conditions unless waived (to the extent such conditions can be
waived) by the Parent (on behalf of the Sellers) or the Purchasers and Alliance,
as applicable:
(a) APPROVALS. The authorizations, consents, Orders or approvals of,
or declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby
shall have been obtained or made.
(b) STOCKHOLDER APPROVAL. The Parent Stockholder Approval shall have
been obtained.
(c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
(d) ACTIONS AND STATUTES. No Proceeding shall have been taken or
threatened, and no Law or Order shall have been enacted, promulgated or issued
or deemed applicable to the transactions contemplated by this Agreement or the
Related Documents by any Governmental Entity that could (i) make the
consummation of the transactions contemplated hereby or thereby illegal or
substantially delay the consummation of any material aspect of the transactions
contemplated hereby or thereby or (ii) render any party unable to consummate the
transactions contemplated hereby or thereby.
7.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS AND ALLIANCE.
The obligations of the Purchasers and Alliance under this Agreement are
subject to the satisfaction of the following conditions unless waived (to the
extent such conditions can be waived) by the Purchasers and Alliance:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Sellers in this Agreement and the Related Documents
shall be
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true and correct, individually or in the aggregate, in all material
respects (except for such representations and warranties which are
qualified by their terms by a reference to materiality, or "Material
Adverse Effect" which representations and warranties as so qualified
shall be true and correct, individually or in the aggregate, in all
respects) as of the date hereof and as of the Closing Date (unless such
representations and warranties relate to a specific date other than the
Closing Date, in which case such representations and warranties shall be
true and correct, individually or in the aggregate, in all material
respects, or in all respects, as the case may be, on such date) with the
same effect as if such representations and warranties had been made at
and as of the Closing Date (including, after giving effect to the
transactions contemplated by SECTION 1.2).
(b) PERFORMANCE OF OBLIGATIONS OF THE SELLERS. The Sellers
shall have performed in all material respects all obligations,
agreements and covenants required to be performed by them under this
Agreement and the Related Documents prior to or as of the Closing Date.
(c) CERTIFICATES. At the Closing, in consideration of the
delivery of the Purchase Price pursuant to SECTION 1.3 hereof, (a) the
Parent shall deliver or cause to be delivered to Purchaser A, the
certificates representing the Shares (other than the M Sub Partnership
Interests) and the Parent shall deliver or cause to be delivered to
Purchaser B, a certificate representing the M Sub Partnership Interests,
in each case, duly endorsed in blank for transfer or accompanied by
stock and partnership transfer powers duly executed in blank, sufficient
in form and substance to convey to each Purchaser good and marketable
title to all of the Shares purchased by such Purchaser, free and clear
of all Encumbrances.
(d) CONSENTS AND APPROVALS. The Purchasers shall have
received duly executed copies of all consents and approvals required for
or in connection with the execution and delivery by the Sellers of this
Agreement and each of the Related Documents to which any of them may be
parties (including, without limitation, the assumption of any Funded
Indebtedness and any consents or approvals necessary to be obtained in
connection with the transactions contemplated by SECTION 9.4(b)), the
consummation of the transactions contemplated hereby and thereby, and
the continued conduct of the Business as previously conducted
(including, without limitation, the transfer of any necessary regulatory
Permits currently in the name of the Parent or any Subsidiary other than
the Entities), in form and substance reasonably satisfactory to the
Purchasers and their counsel. The Sellers shall obtain all Permits
required to conduct the Business which have not been obtained on or
prior to the date hereof in the name of the Entities. The Parent shall
cause each of the Encumbrances designated to be terminated on or prior
to the Closing Date on SCHEDULE 3.9 to be so terminated on or prior to
the Closing Date (unless such Encumbrances cease to be effective under
applicable Law).
(e) ASSET CONTRIBUTION AND ASSET DISPOSITION. The Asset
Contribution, Asset Disposition and the other transactions contemplated
by SECTION 1.2 shall each be consummated in accordance with SECTION 1.2
hereof.
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(f) ABSENCE OF MATERIAL ADVERSE EFFECT. Since the Latest
Balance Sheet Date, there shall have been no change in respect of the
Business that has had or is reasonably likely to have a Material Adverse
Effect.
(g) RELATED DOCUMENTS. Each of the agreements attached hereto
as EXHIBIT A-1 and EXHIBIT A-2, respectively (each as amended, modified
or supplemented, a "RELATED DOCUMENT" or a "STOCKHOLDER AGREEMENT")
shall have been executed and delivered by the parties thereto and the
transactions contemplated thereby to be completed at or prior to the
Closing substantially consummated or effected, as the case may be, in
accordance with the terms thereof.
(h) PARTNERSHIP AGREEMENT AMENDMENT. The Partnership
Agreement shall be amended and restated in its entirety by the Sellers
on such terms and conditions as shall be satisfactory to the Sellers and
the Purchasers.
(i) SELLERS' CERTIFICATES. Each of the following certificates
shall have been executed and delivered, as the case may be, by the
Person who or which is the subject thereof:
(i) a certificate of the Sellers, dated as of the
Closing Date, certifying, in each case, (i) that true and complete
copies of the Organizational Documents of each Entity and the Sellers as
in effect on the Closing Date are attached thereto, (ii) as to the
incumbency and genuineness of the signatures of each officer of such
Seller executing this Agreement and the Related Documents, (iii) the
genuineness of the resolutions (attached thereto) of the board of
directors of the Sellers authorizing the execution, delivery and
performance of this Agreement and the Related Documents to which the
Sellers are a party and the consummation of the transactions
contemplated hereby and thereby and (iv) the genuineness of the
resolutions (attached thereto) of the management committee or similar
governing body of each Entity authorizing such Entity to consent to the
transactions contemplated by this Agreement;
(ii) certificates of the secretaries of state of the
states (or other applicable office) in which each Seller and each Entity
is organized and qualified to do business, dated as of a date not more
than five days prior to the Closing Date, certifying as to the good
standing and non-delinquent tax status of such Seller and Entity;
(iii) a certificate signed by the principal executive
officer of each Seller, dated as of the Closing Date, and certifying as
to (A) the accuracy of the representations and warranties of the Sellers
contained herein, as contemplated by SECTION 6.2(a) hereof, and (B) the
performance of the obligations, covenants and agreements of the Sellers
contained herein, as contemplated in SECTION 6.2(b) hereof; and
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(iv) a certificate of the Sellers dated as of the
Closing Date, certifying that no Entity is a foreign person within the
meaning of Section 1445 of the Code.
(j) RESIGNATION OF OFFICERS AND DIRECTORS. The Purchasers
shall have received letters from all of the officers and directors of
the Entities, resigning their respective positions as officers and
directors of such Entities, respectively, immediately upon the Closing.
(k) OFFICER'S CERTIFICATE. The Purchasers shall have received
a certificate of a duly authorized officer of the Parent certifying as
to the matters set forth in SECTION 6.2(e).
7.3 CONDITIONS TO OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers under this Agreement are subject to
the satisfaction of the following conditions unless waived (to the
extent such conditions can be waived) by the Sellers:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by Alliance and the Purchasers in
this Agreement and the Related Documents shall be true and correct,
individually or in the aggregate, in all material respects (except for
such representations and warranties which are qualified by their terms
by a reference to materiality, or "Material Adverse Effect" which
representations and warranties as so qualified shall be true and
correct, individually or in the aggregate, in all respects) as of the
date hereof and at and as of the Closing Date (unless such
representations and warranties relate to a specific date other than the
Closing Date, in which case, such representations and warranties shall
be true and correct, individually or in the aggregate, in all material
respects, or in all respects, as the case may be, on such date) with
the same effect as if such representations and warranties had been made
at and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF THE PURCHASERS AND ALLIANCE.
Alliance and the Purchasers shall have performed in all material
respects all obligations, agreements and covenants required to be
performed by them under this Agreement and the Related Documents prior
to or as of the Closing Date.
(c) CERTIFICATES. Each of the following certificates shall
have been executed and delivered, as the case may be, by the Person who
or which is the subject thereof:
(i) a certificate of the secretary of Alliance and
each Purchaser, dated as of the Closing Date, certifying, in each case,
(i) that true and complete copies of its Organizational Documents as in
effect on the Closing Date are attached thereto, (ii) as to the
incumbency and genuineness of the signatures of each officer of Alliance
and such Purchaser executing this Agreement and the Related Documents,
and (iii) the genuineness of the resolutions (attached thereto) of the
board of directors of Alliance and such Purchaser (or committee thereof)
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authorizing the execution, delivery and performance of this Agreement
and the Related Documents to which Alliance or such Purchaser is a party
and the consummation of the transactions contemplated hereby and thereby;
(ii) certificates of the secretaries of state of the
states in which Alliance and each of the Purchasers is organized, dated
a date not more than five days prior to the Closing Date as of the
Closing Date, certifying as to the good standing and non-delinquent tax
status of Alliance and the Purchasers; and
(iii) a certificate signed by a principal executive
officer of Alliance and each Purchaser, dated as of the Closing Date,
and certifying as to (A) the accuracy of the representations and
warranties of Alliance and such Purchaser contained herein, as
contemplated by SECTION 6.3(a) hereof and (B) the performance of the
obligations, agreements and covenants of Alliance and such Purchaser
contained herein, as contemplated in SECTION 6.3(b) hereof.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION GENERALLY; ETC.
(a) Subject to the further terms of this ARTICLE 7, the
Sellers agree, jointly and severally, to indemnify the Purchaser
Indemnified Persons for, and hold them harmless from and against, any
and all Purchaser Losses arising from or in connection with any of the
following:
(i) the untruth, inaccuracy or breach of any
representation or warranty (without regard to whether such
representation or warranty is qualified by reference to materiality or
"Material Adverse Effect") of the Sellers contained herein, in any
Related Document, or in any certificate delivered by any Seller relating
thereto delivered in connection herewith (or any facts or circumstances
constituting any such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of the Sellers
contained in this Agreement or in any Related Document;
(iii) any Liability of any Entity in any manner related to a
claim asserted under the Agreement for Purchase and Sale of Assets, dated
as of December 30, 1994 among Vencor, Inc., CT Sub and Parent;
(iv) for any Liability with respect to Covered Taxes
and for 50% of any Liability with respect to all transfer, documentary,
sales, use, stamp, registration and other such Taxes and fees ("TRANSFER
TAXES") with respect to the transactions contemplated by SECTION 1.2; and
(v) any Liability of any Entity for Taxes attributable to
the inclusion of an adjustment in taxable income of an Entity under
Section 481 of the
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Code for any Tax period beginning on or after the Closing Date as a
result of a required or optional change in method of accounting with
respect to a Tax period ending on or prior to the Closing Date.
(b) Subject to the further terms of this ARTICLE 7, each of
Alliance and the Purchasers agree jointly and severally to indemnify the
Seller Indemnified Persons for, and hold them harmless from and against,
any and all Seller Losses arising from or in connection with any of the
following:
(i) the untruth, inaccuracy or breach of any representation
or warranty (without regard to whether such representation or warranty
is qualified by reference to materiality or "Material Adverse Effect")
of Alliance or such Purchaser contained herein, any Related Document, or
any certificate delivered by Alliance or such Purchaser in connection
herewith at or before the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of Alliance or
either Purchaser contained in this Agreement or in any Related Document;
(iii) any failure to comply after the Closing Date
with the Worker Adjustment and Retraining Act of 1988, as amended, or
any similar state law arising out of, or relating to, any actions taken
by Alliance or the Purchasers with respect to Hired Employees after the
Closing Date; and
(iv) any Liability for Transfer Taxes to be borne by
Purchasers or Alliance pursuant to SECTION 9.14.
(c) Notwithstanding the foregoing the Purchasers shall not be
entitled to indemnification hereunder for any Losses arising as a result
of the untruth or inaccuracy of any representation or warranty to the
extent that a Liability arising as a result of such untruth or
inaccuracy is reflected as a Liability in the financial statements
delivered on the date hereof pursuant to SECTION 3.5 hereof.
(d) Absent fraud, the rights of the parties for
indemnification relating to this Agreement and the transactions
contemplated hereby and under the Related Documents shall be strictly
limited to those contained in this ARTICLE VII, and such indemnification
rights shall be the exclusive remedies of the parties subsequent to the
Closing Date with respect to any matter relating to this Agreement or
arising in connection herewith.
8.2 ASSERTION OF CLAIMS.
No claim shall be brought for a breach of a representation or warranty
under SECTION 7.1 hereof unless the Indemnified Persons, or any of them, at any
time prior to the applicable Survival Date, give the Indemnifying Persons (a)
written notice of the existence of any such claim, specifying the nature and
basis of such claim and the amount thereof, to the extent known or (b) written
notice pursuant to SECTION 7.3 of any Third Party Claim, the existence of which
might give rise to such a claim. Upon the giving of
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such written notice as aforesaid, the Indemnified Persons, or any of
them, shall have the right to commence legal proceedings prior to or
subsequent to the Survival Date for the enforcement of their rights
under SECTION 7.1.
8.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
The obligations and liabilities of an Indemnifying Person with
respect to Losses resulting from the assertion of claim or Liability by
third parties other than in respect of Tax Claims (each, a "THIRD PARTY
CLAIM") shall be subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice
to the Indemnifying Persons of any Third Party Claim which might give
rise to any Loss by the Indemnified Persons, stating the nature and
basis of such Third Party Claim, and the amount thereof to the extent
known; PROVIDED, HOWEVER, that no delay on the part of the Indemnified
Persons in notifying any Indemnifying Persons shall relieve the
Indemnifying Persons from any liability or obligation hereunder unless
(and then solely to the extent) the Indemnifying Person thereby is
materially and irrevocably prejudiced by the delay. Such notice shall
be accompanied by copies of all relevant documentation with respect to
such Third Party Claim, including any summons, complaint or other
pleading which may have been served, any written demand or any other
document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing
delivered to the Indemnified Persons that such Third Party Claim is
properly subject to their indemnification obligations hereunder, then
the Indemnifying Persons shall have the right to assume the defense of
any Third Party Claim at their own expense and by their own counsel,
which counsel shall be reasonably satisfactory to the Indemnified
Persons; PROVIDED, HOWEVER, that the Indemnifying Persons shall not have
the right to assume the defense of any Third Party Claim,
notwithstanding the giving of such written acknowledgment, if (i) the
Indemnified Persons shall have been advised by counsel that there are
one or more legal or equitable defenses available to them which are
different from or in addition to those available to the Indemnifying
Persons, and, in the opinion of the Indemnified Persons, counsel for the
Indemnifying Persons could not adequately represent the interests of the
Indemnified Persons because such interests could be in conflict with
those of the Indemnifying Persons, or (ii) the Indemnifying Persons
shall not have assumed the defense of the Third Party Claim in a timely
fashion.
(c) If the Indemnifying Persons shall assume the defense of a
Third Party Claim (under circumstances in which the proviso to the first
sentence of SECTION 7.3(b) is not applicable), the Indemnifying Persons
shall not be responsible for any legal or other defense costs
subsequently incurred by the Indemnified Persons in connection with the
defense thereof. If the Indemnifying Persons do not exercise their
right to assume the defense of a Third Party Claim by giving the written
acknowledgment referred to in SECTION 7.3(b), or are otherwise
restricted from so assuming by the proviso to the first sentence of
SECTION 7.3(b), the Indemnifying Persons shall nevertheless be entitled
to participate in such defense with their own counsel and at their own
expense. If the
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defense of a Third Party Claim is assumed by the Indemnified Persons,
the Indemnified Persons shall not be entitled to settle such Third Party
Claim without the prior written consent of the Indemnifying Persons,
which shall not be unreasonably withheld.
(d) If the Indemnifying Persons exercise their right to assume
the defense of a Third Party Claim, (i) the Indemnified Persons shall be
entitled to participate in such defense with their own counsel at their
own expense and (ii) the Indemnifying Persons shall not make any
settlement of any claims without the written consent of the Indemnified
Persons, which shall not be unreasonably withheld.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Subject to the further provisions of this SECTION 7.4, the
representations and warranties contained in this Agreement, the Related
Documents, or in any certificate or other writing delivered in
connection with this Agreement shall survive the Closing Date until
April 15, 1999; PROVIDED, HOWEVER, that (i) the representations and
warranties contained in SECTIONS 3.1, 3.2, 3.3, 3.4, 3.21, 4.1, 4.2,
4.3, 4.4, 4A.1, 4A.2 AND 4A.3 (other than the covenant set forth therein
which shall survive in accordance with the second sentence of this
SECTION 7.4(a)) of this Agreement shall survive indefinitely and (ii)
the representations and warranties contained in SECTIONS 3.8 AND 3.20 of
this Agreement shall survive the Closing Date until the expiration of
any applicable statue of limitations (those representations and
warranties referenced in the foregoing clauses (i) and (ii), being the
"Excluded Representations and Warranties") for Third Party Claims
applicable to the matters covered thereby. The covenants and other
agreements of the parties contained in this Agreement and the Related
Documents (including the indemnity provided for in SECTION 7.1(a)(iii)
of this Agreement) shall survive the Closing Date until they are
otherwise terminated by their terms. The obligations of the Sellers
under SECTION 7.1(a)(iv) AND (a)(v) shall survive the Closing Date until
the expiration of any applicable statute of limitations with respect to
the matters set forth therein. The obligations of Alliance and the
Purchasers under SECTION 7.1(b)(iv) shall survive the Closing Date until
the expiration of any applicable statute of limitations with respect to
the matters set forth therein.
(b) For convenience of reference, the date upon which any
representation or warranty contained herein shall terminate, if any, is
referred to herein as the "SURVIVAL DATE".
8.5 LIMITATIONS ON INDEMNIFICATION.
(a) INDEMNITY BASKETS FOR THE SELLERS. The Purchaser
Indemnified Persons shall not have the right to be indemnified for
breaches of representations and warranties pursuant to SECTION 7.1(a)(i)
unless and until the Purchaser Indemnified Persons shall have incurred
on a cumulative basis aggregate Losses (without giving effect, in
determining whether and to what extent representations and warranties
were breached or Losses were incurred, to qualifications therein
relating to materiality or "Material Adverse Effect") in an amount of
$500,000, in which event the right to be indemnified shall apply in
respect of all Losses; PROVIDED, HOWEVER, that in no event shall
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the limitations set forth in this SECTION 7.5(a) apply with respect to
the Excluded Representations and Warranties.
(b) INDEMNITY LIMITATIONS FOR THE SELLERS. The sum of all Losses
(without giving effect, in determining whether and to what extent
representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect")
pursuant to which indemnification is payable by the Sellers pursuant to SECTION
7.1(a)(i) shall not exceed $2,000,000; PROVIDED, HOWEVER, that in no event shall
the limitations set forth in this SECTION 7.5(b) apply with respect to the
Excluded Representations and Warranties.
8.6 LIMITATIONS ON INDEMNIFICATION.
(a) INDEMNITY BASKETS FOR THE PURCHASERS AND ALLIANCE. The Seller
Indemnified Persons shall not have the right to be indemnified for breaches of
representations and warranties pursuant to SECTION 7.1(b)(i) unless and until
the Seller Indemnified Persons shall have incurred on a cumulative basis
aggregate Losses (without giving effect, in determining whether and to what
extent representations and warranties were breached or Losses were incurred, to
qualifications therein relating to materiality or "Material Adverse Effect") in
an amount of $500,000, in which event the right to be indemnified shall apply in
respect of all Losses; PROVIDED, HOWEVER, that in no event shall the limitations
set forth in this SECTION 7.6(a) apply with respect to the Excluded
Representations and Warranties.
(b) INDEMNITY LIMITATIONS FOR THE PURCHASERS AND ALLIANCE.
The sum of all Losses (without giving effect, in determining whether and
to what extent representations and warranties were breached or Losses
were incurred, to qualifications therein relating to materiality or
"Material Adverse Effect") pursuant to which indemnification is payable
by the Purchasers and Alliance pursuant to SECTION 7.1(b)(i) shall not
exceed $2,000,000; PROVIDED, HOWEVER, that in no event shall the
limitations set forth in this SECTION 7.6(b) apply with respect to the
Excluded Representations and Warranties.
8.7 ALLOCATION OF INDEMNIFICATION PAYMENTS.
The parties hereto agree that any indemnification payment shall be
treated as an adjustment to the Purchase Price.
ARTICLE IX
TERMINATION; EFFECT OF TERMINATION
9.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing by:
(a) the mutual written consent of the parties hereto; or
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(b) the Purchasers or Alliance, if there has been a breach by
any Seller of any of the representations or warranties in this Agreement
or in any Related Document, individually or in the aggregate, in any
material respect (except for representations and warranties which are
qualified by their terms by a reference to materiality or "Material
Adverse Effect" in which case, such representations or warranties as so
qualified shall have been breached in any respect), covenant, obligation
or agreement set forth in this Agreement or in any Related Document and
such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Purchaser or Alliance (except that no
cure period shall be provided for a breach which by its nature cannot be
cured); or
(c) the Sellers, if there has been a breach by Alliance or any
Purchaser of any of the representations or warranties in this Agreement
or in any Related Document, individually or in the aggregate, in any
material respect (except for representations and warranties which are
qualified by their terms by a reference to materiality or "Material
Adverse Effect" in which case, such representations or warranties as so
qualified shall have been breached in any respect), covenant, obligation
or agreement set forth in this Agreement or in any Related Document and
such breach shall not have been cured within 10 Business Days after
notice thereof is given by any Seller (except that no cure period shall
be provided for a breach which by its nature cannot be cured); or
(d) either the Purchasers, Alliance or the Sellers, if the
Closing shall not have been consummated by September 15, 1998; or
(e) either the Purchasers, Alliance or the Sellers, if any
permanent injunction or Order of a Governmental Entity preventing the
Closing shall have become final and nonappealable;
(f) By either Parent or the Purchasers if, prior to the
Closing Date, (i) the Board of Directors of the Parent determines that a
Third Party Proposal for an Alternative Transaction constitutes a
Superior Proposal, (ii) the Parent promptly notifies the Purchasers of
its determination in writing, which writing shall set forth the terms
and conditions of the Third Party Proposal and the identity of the
Person making the Third Party Proposal, (iii) ten days have elapsed
following receipt by the Purchasers of such written notice, (iv) during
such ten day period the Parent cooperates with the Purchasers with the
intent of enabling, but not obligating, the Purchasers to agree to a
modification of the terms and conditions of this Agreement so that the
transactions contemplated hereby may be effected, and (v) at the end of
such ten day period, the Board of Directors of the Parent continues to
believe that such Third Party Proposal constitutes a Superior Proposal
and the Parent pays to the Purchasers the amounts specified under
SECTION 9.5(b) pursuant to the terms thereof. For purposes of this
Agreement, a "SUPERIOR PROPOSAL" means any Third Party Proposal to
effect an Alternative Transaction; PROVIDED that (i) the Board of
Directors of the Parent determines in its good faith judgment (following
the consultation with, and the receipt of the advice of, the Parent's
financial advisor) that such Third Party Proposal is on terms that are
more favorable to the Parent's stockholders than the transactions
contemplated by this Agreement (taking into account all relevant
factors, including the amount and form of consideration to be received,
the relative value of any non-cash consideration, and the timing and
certainty of closing) and
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(ii) the Board of Directors of the Parent determines in its good faith
judgment (based on the written advice of outside counsel) that the
failure to recommend or accept such Third Party Proposal would violate
the fiduciary duties of the Board of Directors of the Parent under
applicable Law;
PROVIDED, HOWEVER, in each case, that none of the Sellers, Alliance
nor the Purchasers shall be entitled to terminate this Agreement if such
party's breach of this Agreement has prevented the satisfaction of a
condition. Any termination pursuant to this SECTION 8.1 shall be
effected by written notice from the party or parties so terminating to
the other parties hereto, which notice shall specify the Section of this
Agreement pursuant to which this Agreement is being terminated.
9.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
SECTION 8.1, this Agreement shall be of no further force or effect,
except for SECTION 5.7, SECTION 9.5 and this SECTION 8.2, each of which
shall survive the termination of this Agreement; PROVIDED, HOWEVER, that
the Liability of any party for any intentional, willful or knowing
breach by such party of the representations, warranties, covenants,
obligations or agreements of such party set forth in this Agreement
occurring prior to the termination of this Agreement shall survive the
termination of this Agreement and, in addition, in the event of any
action for breach of contract in the event of a termination of this
Agreement, the prevailing party shall be reimbursed by the other party
to the action for reasonable attorneys' fees and expenses relating to
such action.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 AMENDMENT.
This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by the parties hereto. No
waiver by any party of any default, misrepresentation, or breach of
representation or warranty or covenant hereunder, whether intentional or
not, shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.2 ENTIRE AGREEMENT.
This Agreement and the other agreements and documents referenced
herein (including, but not limited to, the schedules and the exhibits
(in their executed form) attached hereto) and any other document or
agreement contemporaneously entered into with this Agreement (including
the Related Documents) contain all of the agreements among the parties
hereto with respect to the transactions contemplated hereby and
supersede all prior agreements or understandings among the parties with
respect thereto (including, but not limited to, the letter agreement
dated September 15, 1997 (as amended to the date hereof) between the
Parent and Apollo Management, L.P.
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10.3 SEVERABILITY.
It is the desire and intent of the parties that the provisions of
this Agreement be enforced to the fullest extent permissible under the
Law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, in the event that any provision of
this Agreement would be held in any jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability
of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to
be invalid, prohibited or unenforceable in such jurisdiction, it shall,
as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
10.4 BENEFITS OF AGREEMENT.
All the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and permitted assigns. Except as expressly provided herein,
this Agreement shall not confer any rights or remedies upon any Person
other than the foregoing; PROVIDED, HOWEVER, that anything contained
herein to the contrary notwithstanding, the Purchasers may (a)
collaterally assign this Agreement and the Related Documents, without
the prior consent of any other party, to a financial or lending
institutions providing financing to such Persons or their Affiliates,
(b) assign the rights to acquire any and all assets (including interests
under leases, Permits and Contracts with third parties) related to
certain MRI Units to be designated by the Purchasers to the Sellers to
any Affiliate of the Purchasers, pursuant to Conveyance Instruments
reasonably satisfactory to the Purchasers on the Closing Date and (c)
assign this Agreement to any wholly-owned Subsidiary of Alliance.
10.5 FEES AND EXPENSES
(a) Except as otherwise provided herein and as provided below
in this SECTION 9.5, all fees and expenses incurred in connection with
this Agreement, the Related Documents and the transactions contemplated
hereby and thereby shall be paid by the party incurring such fees or
expenses, whether or not such transactions are consummated; PROVIDED,
HOWEVER, that the Purchasers shall pay the reasonable fees and expenses
of Ernst & Young, LLP in connection with the preparation of the
financial statements referenced in SECTION 3.5(b) and SECTION 5.15.
(b) If this Agreement is terminated pursuant to SECTION
8.1(f), the Sellers shall pay to the Purchasers promptly upon such
termination $1,350,000 plus all Expenses.
(c) If this Agreement is terminated by any Purchaser or
Alliance pursuant to SECTION 8.1(d) as a result of a failure to be
satisfied of the condition precedent set forth in SECTION 6.1(b), and,
if, within 180 days of such termination either an Alternative
Transaction shall be consummated or any Seller or Entity shall enter
into an Acquisition Agreement providing for an Alternative Transaction,
then the Sellers shall pay the
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Purchasers, upon the closing of such transaction, if and whenever it
occurs, $1,350,000 plus all Expenses. No amounts whatsoever shall be
payable to the Purchasers under this SECTION 9.5(c) if, at the
Stockholders Meeting or any adjournments or postponements thereof, the
Purchasers or their Affiliates fail to vote or cause to be voted, or
fail to grant or cause the granting of consent or approval with respect
to, any shares of Parent Common Stock owned by them or as to which they
have voting rights, in favor of this Agreement and the transactions
contemplated hereby.
(d) The Sellers acknowledge that the agreements contained
in this SECTION 9.5 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, the
Purchasers and Alliance would not enter into this Agreement.
Accordingly, if the Sellers fail promptly to pay any amount due pursuant
to this SECTION 9.5, and, in order to obtain such payment, the
Purchasers or Alliance commence a suit which results in a judgment
against the Sellers for the amounts set forth in this SECTION 9.5, the
Sellers shall pay the Purchasers and Alliance all costs and expenses
(including attorney's fees and expenses) in connection with such suit,
together with interest on such amounts (excluding the Purchaser's and
Alliance's costs and expenses) at the prime rate of the Bankers Trust
Company in effect on the date such payment was required to be made. If
such a suit results in a judgment against the Purchasers or Alliance,
the Purchasers and Alliance shall pay to the Sellers all costs and
expenses (including attorney's fees and expenses) in connection with
such suit. "EXPENSES" shall mean all reasonably documented
out-of-pocket expenses incurred by the Purchasers and Alliance in
connection with this Agreement, the Related Documents and the
transactions contemplated hereby and thereby, including fees and
expenses of its consultants, attorneys, accountants, and other advisors;
PROVIDED, HOWEVER, that unless the Parent has previously agreed in
writing to increase such amount, the aggregate amount of such Expenses
reimbursable under this SECTION 9.5 shall not exceed $350,000.
10.6 HEADINGS.
Descriptive headings are for convenience only and shall not control
or affect in any way the meaning or construction of any provision of
this Agreement.
10.7 NOTICES.
All notices or other communications pursuant to this Agreement
shall be in writing and shall be deemed to be sufficient if delivered
personally, telecopied, sent by nationally-recognized, overnight courier
or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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(a) if to any Seller, to:
American Shared Hospital Services
Four Embarcadero Center
Suite 3620
San Francisco, California 94111
Attention: Ernest A. Bates, M.D.
Telephone No.: (415) 788-5300
Facsimile No.: (415) 788-5660
with a copy to:
Sidley & Austin
875 Third Avenue
14th Floor
New York, New York 10022
Attention: Daniel Kelly
Telephone No.: (212) 906-2000
Facsimile No.: (212) 906-2021
(b) if to the Purchasers or Alliance, to:
Alliance Imaging, Inc.
1065 PacifiCenter Drive
Suite 200
Anaheim, California 92806
Attention: Richard N. Zehner
Telephone No.: (714) 688-7100
Facsimile No.: (714) 688-3388
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: John J. Suydam, Esq.
Telephone No.: (212) 408-2400
Facsimile No.: (212) 408-2420.
All such notices and other communications shall be deemed to have been
given and received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of delivery by telecopier, on the date of such
delivery, (iii) in the case of delivery by nationally-recognized, overnight
courier, on the Business Day following dispatch, and (iv) in the case of
mailing, on the third Business Day following such mailing.
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10.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but
all such counterparts together shall constitute one agreement.
10.9 GOVERNING LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF
NEW YORK, OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK TO BE APPLIED. IN
FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK
WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN
IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS,
THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
RELATED DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND
ASSETS, GENERALLY AND UNCONDITIONALLY THE JURISDICTION OF THE AFORESAID
COURTS.
10.10 INCORPORATION OF EXHIBITS AND SCHEDULES.
The ANNEXES, EXHIBITS and SCHEDULES identified in this Agreement
are incorporated herein by reference and made a part hereof.
10.11 INTERPRETATION; CONSTRUCTION.
The term "AGREEMENT" means this agreement together with all
schedules, annexes and exhibits hereto, as the same may from time to
time be amended, modified, supplemented or restated in accordance with
the terms hereof. Unless the context otherwise requires, words
importing the singular shall include the plural, and vice versa. In
this Agreement, the term "BEST KNOWLEDGE" of any Person means (i) the
actual knowledge of such Person and (ii) that knowledge which should
have been acquired by such Person after making such due inquiry and
exercising such due diligence as a prudent businessperson would have
made or exercised in the management of his or her business affairs,
including due inquiry of those officers, directors, employees and
professional advisers (including attorneys, accountants and consultants)
of the Person who could reasonably be expected to have actual knowledge
of the matters in question. When used in the case of the Sellers, the
term "BEST KNOWLEDGE" shall include the Best Knowledge of each Seller
and each Entity. The use in this Agreement of the term "INCLUDING"
means
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"INCLUDING, WITHOUT LIMITATION." The words "HEREIN", "HEREOF",
"HEREUNDER", "HEREBY", "HERETO", "HEREINAFTER", and other words of
similar import refer to this Agreement as a whole, including the
schedules, annexes and exhibits, as the same may from time to time be
amended, modified, supplemented or restated, and not to any particular
article, section, subsection, paragraph, subparagraph or clause
contained in this Agreement. All references to articles, sections,
subsections, clauses, paragraphs, schedules and exhibits mean such
provisions of this Agreement and the schedules and exhibits attached to
this Agreement, except where otherwise stated. The title of and the
article, section and paragraph headings in this Agreement are for
convenience of reference only and shall not govern or affect the
interpretation of any of the terms or provisions of this Agreement. The
use herein of the masculine, feminine or neuter forms shall also denote
the other forms, as in each case the context may require. Where
specific language is used to clarify by example a general statement
contained herein, such specific language shall not be deemed to modify,
limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has
been chosen by the parties to express their mutual intent, and no rule
of strict construction shall be applied against any party. Accounting
terms used but not otherwise defined herein shall have the meanings
given to them under GAAP. Unless expressly provided otherwise, the
measure of a period of one month or year for purposes of this Agreement
shall be that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists, the
measure shall be that date of the following month or year corresponding
to the next day following the starting date. For example, one month
following February 18 is March 18, and one month following March 31 is
May 1.
10.12 REMEDIES.
The parties shall each have and retain all rights and remedies
existing in their favor under this Agreement, the Related Documents, at
law or equity, including rights to bring actions for specific
performance and injunctive and other equitable relief (including,
without limitation, the remedy of rescission) to enforce or prevent a
breach or any violation of this Agreement or the Related Documents. All
such rights and remedies shall, to the extent permitted by applicable
Law, be cumulative.
10.13 APPOINTMENT OF REPRESENTATIVE.
M Sub hereby irrevocably appoints the Parent to be its
attorney-in-fact and representative for the purpose of administering
this Agreement on behalf M Sub. The Purchasers shall be entitled to deal
exclusively with the Parent, as the representative of M Sub. Purchaser
B hereby irrevocably appoints Purchaser A to be its attorney-in-fact and
representative for the purpose of administering this Agreement on behalf
of Purchaser B. The Sellers shall be entitled to deal exclusively with
Purchaser A as the representative of Purchaser B.
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10.14 SALE AND TRANSFER TAXES.
All Transfer Taxes incurred in connection with the consummation of the
transactions contemplated herein (other than the Transfer Taxes referenced in
SECTION 7.1(a)(iv) to be borne by the Sellers) shall be paid 100% by Alliance
and the Purchasers.
10.15 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED DOCUMENT.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Securities Purchase Agreement as of the date first written above.
ALLIANCE IMAGING, INC.
By: /s/ Richard N. Zehner
--------------------------
Name: Richard N. Zehner
Title: Chief Executive Officer
EMBARCADERO HOLDING CORP. I
By: /s/ Joshua J. Harris
--------------------------
Name: Joshua J. Harris
Title: Vice President
EMBARCADERO HOLDING CORP. II
By: /s/ Joshua J. Harris
--------------------------
Name: Joshua J. Harris
Title: Vice President
AMERICAN SHARED HOSPITAL SERVICES
By: /s/ Earnest A. Bates, MD
--------------------------
Name: Earnest A. Bates, MD
Title: Chairman and President
MMRI, INC.
By: /s/ Earnest A. Bates, MD
--------------------------
Name: Earnest A. Bates, MD
Title: Chairman and President
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ANNEX I
DEFINITIONS
"ACQUISITION AGREEMENT" has the meaning ascribed thereto in SECTION
5.4.
"AFFILIATE" means, with respect to any Person, (i) a director,
officer or greater than 10% shareholder of such Person, (ii) a spouse,
parent, sibling or descendant of such Person (or spouse, parent, sibling
or descendant of any director or executive officer of such Person), or
(iii) any other Person that, directly or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is under common
Control with, such Person.
"ALLIANCE" has the meaning ascribed thereto in the preamble.
"ALTERNATIVE TRANSACTION" means any (i) acquisition or purchase of
any material portion of the Business or any material assets of either
Entity outside the ordinary course of business, (ii) acquisition or
purchase of any Equity Securities of any Entity, any tender offer or
exchange offer that if consummated would result in any Person
beneficially owning more than 50% of any class of Equity Securities of
the Parent or any Equity Securities of either Entity or (iii) any
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving any Entity,
other than the transactions contemplated to be effected with the
Purchasers by this Agreement.
"ASHS 401(k) PLAN" has the meaning ascribed thereto in SECTION 5.18.
"ASSET CONTRIBUTION" has the meaning ascribed thereto in SECTION
1.2.
"ASSET DISPOSITION" has the meaning ascribed thereto in SECTION 1.2.
"BUSINESS" has the meaning ascribed thereto in the first WHEREAS
clause.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or a
day on which banking institutions in New York, New York are not required
to be open.
"CAPITAL LEASE" means any obligation to pay rent or other amounts
under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations
are required to be classified and accounted for as capital leases on a
balance sheet of such Person as of such date computed in accordance with
GAAP.
"CASH EQUIVALENTS" means any of the following: (a) securities
issued, or that are directly and fully guaranteed or insured, by the
United States Government or any agency or instrumentality thereof having
maturities of not more
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than 12 months from the date of acquisition, (b) time deposits and
certificates of deposit having maturities of not more than 12 months
from the date of acquisition of any domestic commercial bank having
capital and surplus in excess of $500,000,000, (c) repurchase agreements
with a term of not more than seven days for underlying securities of the
types described in clauses (a) and (b) above entered into with any bank
meeting the qualifications specified in clause (b) above or with
securities dealers of recognized national standing, and (d) commercial
paper rated (as of the date of acquisition thereof) at least A-1 or the
equivalent thereof by Moody's Investors Service, Inc. and at least P-1
or the equivalent thereof by Standard & Poor's Corporation and maturing
within six months after the date of its acquisition.
"CATH LAB" has the meaning ascribed thereto in SECTION 3.5.
"CERCLA" has the meaning ascribed thereto in SECTION 3.20.
"CHAMPUS" has the meaning ascribed thereto in SECTION 3.18.
"CLOSING" has the meaning ascribed thereto in ARTICLE II.
"CLOSING DATE" has the meaning ascribed thereto in ARTICLE II.
"COBRA" has the meaning ascribed thereto in SECTION 5.18.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL OR PROPRIETARY INFORMATION" means all information
disclosed (i) by or on behalf of any Entity or any Seller to the
Purchasers, Alliance or to employees, consultants or others in a
confidential relationship with any of them, or (ii) by or on behalf of
the Purchasers or Alliance to any Seller or any Entity, or to employees,
consultants or others in a confidential relationship with any of them,
in each case other than such information which (A) becomes generally
available to the public (other than as a result of a breach of this
Agreement), (B) was known to the party to whom such information was
disclosed prior to its disclosure to such party, (C) is hereafter
available to the party to whom such information was disclosed on a
non-confidential basis from a source (other than the party disclosing or
on whose behalf such information was disclosed) which was, to the
knowledge of the receiving party, entitled to disclose the same or (D)
is compelled by Law or Order to be disclosed by the party to whom such
information was disclosed.
"CONFIDENTIALITY AGREEMENT" has the meaning ascribed thereto in
SECTION 5.5.
"CONSOLIDATED AFFILIATE" has the meaning ascribed thereto in
SECTION 3.8.
"CONSOLIDATED GROUP" has the meaning ascribed thereto in SECTION
3.8.
"CONTRACT" means any agreement, contract, or license (i) for
purposes of SECTION 3.7(l) and SECTION 5.2(k), relating to payments by
any Person of a dollar amount
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in excess of $25,000 and (ii) for purposes of all other Sections of this
Agreement, relating to payments by any Person of a dollar amount in
excess of $10,000.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the ownership of
securities, by contract or otherwise.
"CONVEYANCE INSTRUMENTS" has the meaning ascribed thereto in
SECTION 1.2.
"COVERED TAXES" means, all Taxes of CT Sub and/or the Partnership
with respect to periods ending on or prior to the Closing Date other
than those Taxes that are to be paid by Purchasers and Alliance pursuant
to SECTION 9.14.
"CT SHARES" has the meaning ascribed thereto in the second WHEREAS
clause.
"CT SUB" means CuraCare, Inc., a Delaware corporation.
"CT UNIT" has the meaning ascribed thereto in SECTION 3.5.
"DVI" has the meaning ascribed thereto in SECTION 5.16.
"DVI REVOLVING CREDIT AGREEMENT" means the Loan and Security
Agreement dated as of January 31, 1996 among MRI Sub and CT Sub, as
borrowers, the Parent and Ernest A. Bates, M.D., as guarantors, and DVI,
as lender, as amended by Amendment No. 1 dated March 26, 1996, as
amended by Amendment No. 2 dated January 31, 1997, as amended by
Amendment No. 3 dated April 30, 1997, as amended by Amendment No. 4
dated as of July 31, 1997 and as amended by Amendment No. 5 dated as of
December 1, 1997.
"EBITDA" means, for any period with respect to any Unit, net income
(or net loss) from operations PLUS, to the extent deducted in
calculating such net income (or net loss), the sum of (a) interest
expense, (b) income tax expense, (c) depreciation expense and (d)
amortization expense, in each case determined and as properly allocated
to such Unit in accordance with GAAP.
"EMPLOYEE BENEFIT PLAN" means (i) any qualified or non-qualified
"employee pension benefit plan," as defined in Section 3(2) of ERISA,
including any "multiemployer plan," as defined in Section 3(37) of
ERISA, or "multiple employer plan," as defined in Section 413 of the
Code, (ii) any "employee welfare benefit plan," as defined in Section
3(1) of ERISA, or (iii) any severance, employment, incentive, bonus,
profit-sharing, stock option, stock purchase or other pension, welfare
or fringe plan, program or arrangement, whether or not subject to ERISA
and whether or not funded.
"EMPLOYEE PLANS" has the meaning ascribed thereto in SECTION 3.17.
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"ENCUMBRANCES" shall mean any security interest, mortgage, lien,
pledge or charge or any option or right of first refusal.
"ENTITIES" means CT Sub and the Partnership.
"ENTITIES' FINANCIAL STATEMENTS" has the meaning ascribed thereto in
SECTION 3.5.
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means all Laws, Permits,
Orders and Contracts and all common Law relating to or addressing
pollution or protection of the environment, public health and safety, or
employee health and safety, including, but not limited to, all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control or
cleanup of any hazardous materials, substances or wastes, chemical
substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation.
"EQUITY INTERESTS" means (i) with respect to a corporation, any and
all shares, interests, participation or other equivalents (however
designated) of corporate stock, including all common stock and preferred
stock, or warrants, options or other rights to acquire any of the
foregoing and (ii) with respect to a partnership, limited liability
company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in, any such Person.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means, with respect to any Person, any other
Person that is a member of a "CONTROLLED GROUP OF CORPORATIONS" with, or
is under "COMMON CONTROL" with, or is a member of the same "AFFILIATED
SERVICE GROUP" with such Person as defined in Section 414(b), 414(c),
414(m) or 414(o) of the Code.
"EXCHANGE ACT" has the meaning ascribed thereto in SECTION 3.22.
"EXCHANGE PROCEEDS" has the meaning ascribed thereto in SECTION 5.9.
"EXCLUDED ASSETS" has the meaning ascribed thereto in SECTION 1.2.
"EXCLUDED LIABILITIES" has the meaning ascribed thereto in SECTION
1.2.
"EXCLUDED REPRESENTATIONS AND WARRANTIES" has the meaning ascribed
thereto in SECTION 7.4.
"EXPENSES" has the meaning ascribed thereto in SECTION 9.5.
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"FEDERAL HEALTH CARE PROGRAM" has the meaning ascribed thereto in
SECTION 3.19.
"FUNDED INDEBTEDNESS" means, without duplication, with respect to any
Person the aggregate amount (including the current portions thereof) of all (i)
indebtedness for money borrowed from others and purchase money indebtedness
(other than accounts payable in the ordinary course) of such Person; (ii)
indebtedness of the type described in clause (i) above guaranteed, directly or
indirectly, in any manner by such Person, through an agreement, contingent or
otherwise, to supply funds to, or in any other manner invest in, the relevant
debtor, or to purchase indebtedness, or to purchase and pay for property if not
delivered or pay for services if not performed, primarily for the purpose of
enabling such debtor to make payment of the indebtedness or to assure the owners
of the indebtedness against loss (any such arrangement being hereinafter
referred to as a "GUARANTY"), but excluding endorsements of checks and other
instruments in the ordinary course; (iii) indebtedness of the type described in
clause (i) above secured by any Encumbrances upon property owned by such Person,
even though such Person has not in any manner become liable for the payment of
such indebtedness; (iv) interest expense accrued but unpaid, and all prepayment
premiums, on or relating to any of such indebtedness; (v) obligations in respect
of leases which would be required to be capitalized under GAAP; and (vi)
obligations under operating leases for Units.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GK FINANCE" means GK Financing, LLC, a California limited liability
company.
"GOVERNMENTAL ENTITY" means any federal, state, local or foreign
government and any court, tribunal, administrative agency, commission or other
governmental or regulatory authority or agency, domestic, foreign or
supranational.
"GUARANTY" has the meaning ascribed thereto in the definition of
Funded Indebtedness.
"HIRED EMPLOYEES" has the meaning ascribed thereto in SECTION 5.18.
"INDEMNIFIED PERSONS" means and includes the Seller Indemnified
Persons and/or the Purchaser Indemnified Persons, as the case may be.
"INDEMNIFYING PERSONS" means and includes the Seller Indemnifying
Persons and/or the Purchaser Indemnifying Persons, as the case may be.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property rights,
including, without limitation, patents, patent applications, trademarks,
trademark applications, tradenames, servicemarks, servicemark applications,
trade dress, logos and designs and the goodwill connected with the foregoing,
copyrights and copyright applications, know-how, trade secrets, proprietary
processes and formulae, confidential information, franchises, licenses,
inventions, instructions, marketing materials and all
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documentation and media constituting, describing or relating to the
foregoing, including, without limitation, manuals, memoranda and records.
"LATEST BALANCE SHEET" has the meaning ascribed thereto in SECTION
3.5.
"LATEST BALANCE SHEET DATE" has the meaning ascribed thereto in
SECTION 3.5.
"LAW" means any applicable foreign, federal, state or local law,
statute, treaty, rule, directive, regulation, ordinance and similar provision
having the force or effect of law or an Order of any Governmental Entity
(including all Environmental, Health and Safety Laws).
"LEASED PROPERTY" has the meaning ascribed thereto in SECTION 3.10.
"LIABILITY" means any liability whether fixed or unfixed or liquidated
or unliquidated.
"LICENSED REQUISITE RIGHTS" has the meaning ascribed thereto in
SECTION 3.11.
"LOSSES" means any and all losses, claims, damages, Liabilities,
expenses (including reasonable attorneys' and accountants' and other
professionals' fees), assessments and Taxes, (including interest or penalties
thereon) that are the subject of indemnification under ARTICLE 7, in each case,
(i) net of any cash insurance benefits actually received and (ii) net of any Tax
benefits realized in respect of the Losses for which the indemnification
payments are being made. For purposes of this definition, Tax benefits realized
shall mean the sum of all reductions in federal, state, local and foreign Taxes
(including estimated Taxes) payable by the Indemnified Person solely as a result
of the Losses for which the indemnification payments are being made. All
calculations shall be made using reasonable assumptions agreed upon by the
Purchasers, Alliance and the Sellers including the timing of the utilization of
any such Tax benefits, and any such Tax benefits shall be assumed to be utilized
in a given Tax year only after all other Tax benefits available in such year
have first been taken into account. If a Tax benefit that has been taken into
account for purposes of calculating Losses hereunder is wholly or partially
disallowed by a taxing authority, the Indemnifying Person shall pay the
Indemnified Person the amount that would have been paid originally with respect
to such Losses had such disallowed Tax benefit not been taken into account.
"M SUB" has the meaning ascribed thereto in the preamble.
"M SUB PARTNERSHIP INTERESTS" means the 50% general partnership
interests in the Partnership held or owned by M Sub.
"MATERIAL ADVERSE EFFECT" has the meaning ascribed thereto in SECTION
3.7.
"MRI UNIT" has the meaning ascribed thereto in SECTION 3.5.
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"NON-COMPETE PERIOD" means the period ending on the fifth anniversary
of the Closing Date.
"ORDERS" means judgments, writs, decrees, compliance agreements,
injunctions or judicial or administrative orders and determinations of any
Governmental Entity or arbitrator.
"ORGANIZATIONAL DOCUMENTS" means (i) any certificate or articles filed
with any state which filing forms a Person and (ii) all agreements, documents or
instruments governing the internal affairs of a Person, including such Person's
by-laws, codes of regulations, partnership agreements, limited liability company
agreements, joint venture agreements and operating agreements.
"OWNED REQUISITE RIGHTS" has the meaning ascribed thereto in SECTION
3.11.
"PARENT" has the meaning ascribed thereto in the preamble.
"PARENT COMMON STOCK" has the meaning ascribed thereto in SECTION
3.24.
"PARENT PARTNERSHIP INTERESTS" means the 50% general partnership
interest in the Partnership held or owned by the Parent.
"PARENT STOCKHOLDER APPROVAL" has the meaning ascribed thereto in
SECTION 3.24.
"PARTNERSHIP" means American Shared-CuraCare, a California general
partnership.
"PARTNERSHIP AGREEMENT" means the Joint Venture Agreement, between M
Sub and the Parent, dated March 7, 1985, as modified by the Modification to
Joint Venture Agreement dated April 5, 1985, the Modification to Joint Venture
Agreement dated May 20, 1985, the First Supplement to the Joint Venture
Agreement dated as of October 14, 1987, the Second Supplement to the Joint
Venture Agreement dated as of May 15, 1995, and as further amended, modified or
supplemented from time to time including, without limitation, as amended and
restated pursuant to SECTION 6.2 hereunder.
"PARTNERSHIP INTERESTS" means the M Sub Partnership Interests and the
Parent Partnership Interests.
"PERMITS" means all permits, certificates of need, licenses,
authorizations, registrations, franchises, approvals, certificates, variances
and similar rights obtained, or required to be obtained, from Governmental
Entities.
"PERMITTED ENCUMBRANCES" means with respect to any Person, (i)
Encumbrances for Taxes not yet due and payable or being contested in good faith
by appropriate proceedings and for which there are adequate reserves on the
books and records of such Person, (ii) workers or unemployment compensation
liens arising in the
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ordinary course of business, (iii) statutory lessor liens arising under
leases, and (iv) mechanic's, materialman's, supplier's, vendor's or
similar liens arising in the ordinary course of business securing
amounts that are not delinquent.
"PERSON" shall be construed broadly and shall include an individual,
a partnership, a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization or
a Governmental Entity (or any department, agency or political subdivision
thereof).
"POST SIGNING RETURNS" has the meaning ascribed thereto in SECTION
5.11.
"PROCEEDINGS" means any action, suit, investigation or proceedings
before any Governmental Entity or arbitrator other than the review by Internal
Revenue Service of an application for a favorable determination letter regarding
any Employee Plan.
"PROXY STATEMENT" has the meaning ascribed thereto in SECTION 5.12.
"PURCHASE PRICE" has the meaning ascribed thereto in SECTION 1.3.
"PURCHASED PARENT ASSETS" has the meaning ascribed thereto in SECTION
1.2.
"PURCHASER A" has the meaning ascribed thereto in the preamble.
"PURCHASER B" has the meaning ascribed thereto in the preamble.
"PURCHASER INDEMNIFIED PERSONS" means and includes the Purchasers,
their Affiliates (including, without limitation, Alliance), their successors and
assigns, and the respective officers, directors, employees and agents of each of
the foregoing.
"PURCHASER INDEMNIFYING PERSONS" means Alliance and each Purchaser
(jointly and severally) and their successors and assigns.
"PURCHASER LOSSES" means any and all Losses sustained, suffered or
incurred by any Purchaser Indemnified Person arising from or in connection with
any such matter which is the subject of indemnification under ARTICLE 7.
"PURCHASERS" has the meaning ascribed thereto in the preamble.
"RELATED DOCUMENTS" has the meaning ascribed thereto in SECTION 6.2
"REQUISITE RIGHTS" has the meaning ascribed thereto in SECTION 3.11.
"RESPIRATORY SYSTEM" has the meaning ascribed thereto in SECTION 3.5.
"RESTRICTED TERRITORY" means any portion of the United States in which
the Business has operated during the three years preceding the Closing Date.
"SEC" means the United States Securities and Exchange Commission and
any successor agency.
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"SEC DOCUMENTS" has the meaning ascribed thereto in SECTION 3.5.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER INDEMNIFIED PERSONS" means and includes the Sellers and their
respective successors and assigns.
"SELLER INDEMNIFYING PERSONS" means and includes the Sellers (jointly
and severally) and their respective successors and assigns.
"SELLER LOSSES" shall mean any and all Losses sustained, suffered or
incurred by any Seller Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under ARTICLE 7.
"SELLERS" means the Parent and M Sub.
"SHARES" means the CT Shares and the Partnership Interests.
"SPECT UNIT" has the meaning ascribed thereto in SECTION 3.5.
"SSA" has the meaning ascribed thereto in SECTION 3.18.
"STATE HEALTH CARE PROGRAM" has the meaning ascribed thereto in
SECTION 3.19.
"STOCKHOLDERS AGREEMENT" has the meaning ascribed thereto in SECTION
6.2.
"STOCKHOLDERS MEETING" has the meaning ascribed thereto in SECTION
5.12.
"SUBSIDIARY" means any Person with respect to which a specified Person
(or a Subsidiary thereof) has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors or other governing
body.
"SUPERFUND" has the meaning ascribed thereto in SECTION 3.20.
"SUPERIOR PROPOSAL" has the meaning ascribed thereto in SECTION 8.1.
"SURVIVAL DATE" has the meaning ascribed thereto in SECTION 7.4.
"TAX CLAIM" has the meaning ascribed thereto in SECTION 5.8.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TAXES" means, with respect to any Person, (i) all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings or
profits) and all gross receipts,
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sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes,
customs duties and other taxes, fees, assessments or charges of any kind
whatsoever, together with all interest and penalties, additions to tax
and other additional amounts imposed by any taxing authority (domestic
or foreign) on such Person (if any) and (ii) any liability for the
payment of any amount of the type described in CLAUSE (i) above as a
result of (A) being a "TRANSFEREE" (within the meaning of Section 6901
of the Code or any other applicable Law) of another Person, (B) being a
member of an affiliated, combined or consolidated group or (C) a
contractual arrangement or otherwise.
"THIRD PARTY CLAIM" has the meaning ascribed thereto in SECTION 7.3.
"THIRD PARTY PROPOSAL" means a bona fide proposal from a third party,
which proposal did not result from a breach of SECTION 5.4(a) and which third
party the Board of Directors of the Parent determines in good faith has the
capacity and is reasonably likely to consummate a Superior Proposal.
"338(h)(10) ELECTION" has the meaning ascribed thereto in SECTION 5.8.
"TRANSFER TAXES" has the meaning ascribed thereto in SECTION 7.1.
"ULTRASOUND MACHINE" has the meaning ascribed thereto in SECTION 3.5.
"UNITS" has the meaning ascribed thereto in SECTION 3.5.
"YEARS INCLUDED" has the meaning ascribed thereto in SECTION 3.8.
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STOCK PURCHASE AGREEMENT
AMONG
ALLIANCE IMAGING, INC.
AND
US DIAGNOSTIC INC.
MEDICAL DIAGNOSTICS, INC.
DATED AS OF MARCH 30, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . .4
2.1 Purchase and Sale of the Shares . . . . . . . . . . . . . . . . .4
2.2 Share Consideration . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.4 Deliveries by Stockholder . . . . . . . . . . . . . . . . . . . .5
2.5 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . .5
2.6 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . . .6
(a) Preparation of Preliminary Statement of Working Capital. . .6
(b) Review of Preliminary Closing Balance Sheet. . . . . . . . .6
(c) Disputes . . . . . . . . . . . . . . . . . . . . . . . . . .6
(d) Final Statement of Working Capital . . . . . . . . . . . . .7
(e) Adjustment to the Purchase Price . . . . . . . . . . . . . .7
(f) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE III Representations and Warranties of Buyer . . . . . . . . . . .8
3.1 Organization; Authority . . . . . . . . . . . . . . . . . . . . .8
3.2 Authorization, Enforceability . . . . . . . . . . . . . . . . . .8
3.3 No Violation or Conflict. . . . . . . . . . . . . . . . . . . . .8
3.4 Consent of Governmental Authorities . . . . . . . . . . . . . . .8
3.5 Legal Proceeding. . . . . . . . . . . . . . . . . . . . . . . . .9
3.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.7 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . .9
3.8 Availability of Funds . . . . . . . . . . . . . . . . . . . . . .9
3.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IV Representations and Warranties of Stockholder . . . . . . . . . .9
4.1 Organization; Authority Foreign Qualification . . . . . . . . . .9
4.2 Authorization; Enforceability . . . . . . . . . . . . . . . . . 10
4.3 No Violation or Conflict. . . . . . . . . . . . . . . . . . . . 10
4.4 Consent of Governmental Authorities . . . . . . . . . . . . . . 10
4.5 Health Care Providers . . . . . . . . . . . . . . . . . . . . . 11
4.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 11
4.7 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 11
4.8 Legal Proceeding. . . . . . . . . . . . . . . . . . . . . . . . 12
4.9 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 Absence of Material Adverse Changes . . . . . . . . . . . . . . 12
4.11 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 12
4.12 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 12
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4.13 Rights, Warrants, Options . . . . . . . . . . . . . . . . . . . 13
4.14 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Real and Tangible Personal Property. . . . . . . . . . . . 13
(b) Intellectual Property Rights . . . . . . . . . . . . . . . 14
4.15 Governmental Authorizations . . . . . . . . . . . . . . . . . . 14
4.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.17 Employment Matters. . . . . . . . . . . . . . . . . . . . . . . 15
(a) Labor Unions . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Employment Policies. . . . . . . . . . . . . . . . . . . . 15
(c) Employment Agreements. . . . . . . . . . . . . . . . . . . 15
(d) Employee Benefit Plans . . . . . . . . . . . . . . . . . . 15
4.18 Material Agreements . . . . . . . . . . . . . . . . . . . . . . 17
4.19 List of Accounts. . . . . . . . . . . . . . . . . . . . . . . . 17
4.20 Major Customers . . . . . . . . . . . . . . . . . . . . . . . . 17
4.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.22 Guarantees: Powers of Attorney. . . . . . . . . . . . . . . . . 18
4.23 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 18
(a) Definitions. . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Environmental Status . . . . . . . . . . . . . . . . . . . 19
4.24 1997 Merger Agreement . . . . . . . . . . . . . . . . . . . . . 20
4.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.26 Certain Additional Regulatory Matters . . . . . . . . . . . . . 20
4.27 Medicare/Medicaid Participation . . . . . . . . . . . . . . . . 21
4.28 Physician Relationships . . . . . . . . . . . . . . . . . . . . 22
4.29 Other Hospital Relationships. . . . . . . . . . . . . . . . . . 22
ARTICLE V Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Interim Operations of MDI . . . . . . . . . . . . . . . . . . . 23
5.2 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Consent of Governmental Authorities and Others. . . . . . . . . 25
5.6 Acquisition Proposals; No Solicitation. . . . . . . . . . . . . 26
5.7 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . 26
5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.9 Intercompany Receivables. . . . . . . . . . . . . . . . . . . . 26
5.10 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.11 Insurance Matters . . . . . . . . . . . . . . . . . . . . . . . 27
5.12 Confidentiality Arrangements. . . . . . . . . . . . . . . . . . 27
ARTICLE VI Additional Agreements . . . . . . . . . . . . . . . . . . . . . 27
6.1 [Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . 27
6.2 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 Survival of the Representations, Warranties, Covenants and
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 28
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6.5 General Release . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Assignment of Rights of Stockholder Under 1997 Merger Agreement 30
6.7 Post-Closing Access and Cooperation . . . . . . . . . . . . . . 30
6.8 Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . 31
6.8.1 Noncompetition . . . . . . . . . . . . . . . . . . . . . 31
6.8.2 Confidential Information . . . . . . . . . . . . . . . . 31
6.8.3 Solicitation of Business . . . . . . . . . . . . . . . . 32
6.8.4 Solicitation of Personnel. . . . . . . . . . . . . . . . 32
6.8.5 Use of Symbols . . . . . . . . . . . . . . . . . . . . . 32
6.8.6 Injunctive Relief. . . . . . . . . . . . . . . . . . . . 32
6.9 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . 33
6.9.1 Tax and Other Filings. . . . . . . . . . . . . . . . . . 33
6.9.3 Returns for Tax Periods Ending on or Before the
Closing Date. . . . . . . . . . . . . . . . . . . . . . 33
6.9.4 Contest. . . . . . . . . . . . . . . . . . . . . . . . . 34
6.9.5 Returns for Tax Periods Beginning Before and Ending
After the Closing Date. . . . . . . . . . . . . . . . . 34
6.10 Stockholder's Obligations . . . . . . . . . . . . . . . . . . . 34
6.11 Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . 35
6.12 Clifton, New York Project . . . . . . . . . . . . . . . . . . . 35
ARTICLE VII Closing; Conditions Precedent; Termination. . . . . . . . . 35
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.2 Mutual Conditions Precedent . . . . . . . . . . . . . . . . . . 35
(a) Governmental Consents. . . . . . . . . . . . . . . . . . . 35
(b) No Litigation. . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Conditions Precedent to the Obligations of Buyer. . . . . . . . 36
(a) Representations and Warranties True. . . . . . . . . . . . 36
(b) Covenants Performed. . . . . . . . . . . . . . . . . . . . 36
(c) Consents . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Certificate of Stockholder . . . . . . . . . . . . . . . . 36
(e) Intercompany Receivables . . . . . . . . . . . . . . . . . 36
(f) Resignations . . . . . . . . . . . . . . . . . . . . . . . 36
(g) Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . 36
7.4 Conditions Precedent to the Obligations of Stockholder and MDI. 36
(a) Representations and Warranties True. . . . . . . . . . . . 37
(b) Covenants Performed. . . . . . . . . . . . . . . . . . . . 37
(c) Buyer Certificate. . . . . . . . . . . . . . . . . . . . . 37
(d) Intercompany Receivables . . . . . . . . . . . . . . . . . 37
7.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.4 Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . 38
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8.5 No Third Parties Beneficiary. . . . . . . . . . . . . . . . . . 39
8.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.7 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.8 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.10 Litigation: Prevailing Party. . . . . . . . . . . . . . . . . . 39
8.11 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.13 Jurisdiction and Venue. . . . . . . . . . . . . . . . . . . . . 40
8.14 Obligations of MDI. . . . . . . . . . . . . . . . . . . . . . . 40
8.15 Incorporation of Exhibits and Schedules . . . . . . . . . . . . 40
8.16 Independence of Covenants and Representations and Warranties. . 40
8.17 Interpretation; Construction. . . . . . . . . . . . . . . . . . 40
8.18 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . 41
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of March 30, 1998, by and
among US DIAGNOSTIC INC., a Delaware corporation ("Stockholder"), MEDICAL
DIAGNOSTICS, INC., a Delaware corporation ("MDI") which is wholly owned by
Stockholder, and Alliance Imaging, Inc., a Delaware corporation ("Buyer").
PRELIMINARY STATEMENT
MDI is engaged in the business of owning and operating diagnostic imaging
centers in Massachusetts, New York, Tennessee, West Virginia and Virginia and
Buyer desires to acquire such business through the purchase by Buyer from
Stockholder of all of MDI's outstanding capital stock.
AGREEMENT
In consideration of the preliminary statement and the respective covenants,
representations and warranties contained in this Agreement, the parties
intending to be legally bound, agree as set forth below.
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"Acquisition Date" means February 26, 1997.
"Affiliate" has the meaning specified in Rule 144 promulgated by the
Commission under the Securities Act.
"Affiliated Group Agreement" means this Agreement together with all
Exhibits and Schedules referred to herein.
"Applicable Rate" means the "prime rate" of interest, as set forth in The
WALL STREET JOURNAL, as published for the Closing Date.
"Assumed Debt" means, without duplication, the aggregate amount (including
the current portion thereof) of all (i) indebtedness of MDI and its Subsidiaries
for money borrowed from others, purchase money indebtedness (other than accounts
payable and accrued expenses in the ordinary course) including, but not limited
to, indebtedness in respect of capital leases, other equipment financing and
indebtedness evidenced by any mortgage, note, indenture, bond or similar
instrument ("Indebtedness"); (ii) Indebtedness secured by any Lien upon property
owned by MDI or any of its Subsidiaries, even though MDI or any of its
Subsidiaries has not in any
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manner become liable for the payment of such Indebtedness; and (iii) interest
expense accrued but unpaid, and all prepayment premiums which are due and
payable as of or as a result of the Closing, on or relating to any such
Indebtedness (except that if and to the extent such items are included in the
working capital adjustments elsewhere herein they shall not be deemed Assumed
Debt, Indebtedness or Obligations) (items (i) - (iii) being referred to
herein as "Obligations").
"Closing" has the meaning specified in Section 2.3.
"Closing Assumed Debt Schedule" means the schedule to be delivered by
Stockholder on the Closing Date setting forth the Assumed Debt as of the Closing
Date as reasonably estimated by Stockholder based on the books and records of
MDI and its Subsidiaries.
"Closing Date" has the meaning specified in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Covenant Period" has the meaning specified in Section 6.9.
"Delaware GCL" means the General Corporation Law of the State of Delaware.
"Environmental Laws" has the meaning specified in Section 4.23.
"Environmental Permits" has the meaning specified in Section 4.23.
"ERISA" has the meaning specified in Section 4.17.
"Escrow Agent" has the meaning provided in the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Financial Statements" means MDI' s consolidated balance sheet and the
related consolidated statements of operations, stockholder's equity and cash
flow as of and for the year ended December 31, 1997, and the one-month period
ended January 31, 1998, and includes the Latest Balance Sheet.
"GAAP" means generally accepted accounting principles.
"Guaranty" means, as to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees the
indebtedness, liabilities or obligations of others, directly or indirectly, in
any manner, including agreements to purchase such
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indebtedness, liabilities or obligations, or to supply funds to or in any
manner invest in others, or to otherwise assure the holder of such
indebtedness, liabilities or obligations against loss.
"Hazardous Substances" has the meaning specified in Section 4.23.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1 976,
as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" has the meaning specified in the definition of Assumed Debt.
"IRS" means the Internal Revenue Service.
"Knowledge" or "known" means, with respect to Stockholder and/or MDI, the
actual current knowledge of the executive officers of Stockholder, and with
respect to Buyer the executive officers of Buyer, in each case after limited
investigation.
"Latest Balance Sheet" means the consolidated balance sheet of MDI and its
Subsidiaries as of December 31, 1997.
"Licenses" has the meaning specified in Section 4.15.
"Liens" has the meaning specified in Section 2.1.
"Losses" has the meaning specified in Section 6.4.
"Material Adverse Change" with respect to a Person means, a material
adverse change in the financial condition, results of operations, assets,
liabilities, business or business prospects (it being understood that business
prospects shall exclude matters generally relating to the industry or economy
but not regulatory matters) of a Person and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means an effect that is reasonably likely to
cause a Material Adverse Change.
"Material Agreements" has the meaning specified in Section 4.18.
"MDI Intellectual Property" has the meaning specified in Section 4.14(b).
"MDI Plans" has the meaning specified in Section 4.17.
"Obligations" has the meaning specified in the definition of Assumed Debt.
"Pension Plan" has the meaning specified in Section 4.17.
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"Person" means any natural person, corporation, limited liability company,
unincorporated organization, partnership, association, joint stock company,
joint venture, trust or government, or any agency or political subdivision of
any government, or any other entity.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means all of the issued and outstanding common stock, par value
$0.01 per share, of MDI.
"Subsidiary" of any Person means any Person, whether or not capitalized, in
which such Person owns, directly or indirectly, an equity or similar interests
of 50% or more, or any Person which may be controlled, directly or indirectly,
by such Person, whether through the ownership of voting securities, equity or
similar interests, by contract, or otherwise.
"Symbols" has the meaning set forth in Section 6.8.
"Tax Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of any Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Taxes" has the meaning specified in Section 4.21.
"Termination Date" has the meaning specified in Section 7.5.
"Welfare Plan" has the meaning specified in Section 4.17.
ARTICLE II
PURCHASE AND SALE
II.1 PURCHASE AND SALE OF THE SHARES. Upon the terms and subject to the
conditions of this Agreement, at the closing provided for in Section 2.3 (the
"Closing"), Stockholder shall sell, convey, assign, transfer and deliver to
Buyer, and Buyer shall purchase, acquire and accept from Stockholder, all right,
title and interest in and to the Shares, free of liens, encumbrances, security
interests, mortgages, pledges, claims, options, voting rights of others or
restrictions (other than those imposed under applicable securities laws) of any
kind or nature (collectively, "Liens").
II.2 SHARE CONSIDERATION. Upon the terms and subject to the conditions of
this Agreement, in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares, Buyer shall pay to Stockholder in cash the
sum of $35,500,000, less the amount of Assumed Debt set forth on the Closing
Assumed Debt Schedule (the "Estimated Assumed
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Debt"), subject to post-Closing adjustment as provided in Section 2.6 (the
"Purchase Price"). The adjustments set forth in Sections 6.11 and 6.12 shall
also be deemed adjustments to the Purchase Price.
II.3 CLOSING. Unless this Agreement is terminated in accordance with its
terms, the consummation of the Transactions contemplated by this Agreement,
including the purchase and sale of the Shares hereunder (the "Transactions"),
shall take place at the headquarters offices of Stockholder as soon as
practicable, and in any event within three business days after the satisfaction
or waiver of the conditions precedent to the obligations of the parties set
forth in Article VII (the "Closing Date"), or on such other day and at such
other place as may be agreed to by the parties (the "Closing").
II.4 DELIVERIES BY STOCKHOLDER. Prior to or at the Closing, Stockholder
shall deliver or cause to be delivered to Buyer the following:
(a) a stock certificate or stock certificates representing the
Shares, duly endorsed or accompanied by stock powers duly executed in blank or
duly executed instruments of transfer with appropriate transfer stamps, if any,
affixed, and any other documents that are necessary to transfer title to the
Shares to Buyer, as contemplated hereby;
(b) the minute books, stock books, stock ledgers and corporate seals
of MDI and each of its Subsidiaries;
(c) the resignations referred to in Section 7.3(j); and
(d) all other documents, certificates, instruments or writings
required to be delivered by, Stockholder at or prior to the Closing pursuant
hereto or otherwise required in connection herewith.
II.5 DELIVERIES BY BUYER. Prior to or at the Closing, Buyer shall deliver
or cause to be delivered to Stockholder the following:
(a) cash in an amount equal to the Purchase Price (without giving
effect to the Purchase Price Adjustment) less $300,000 (the "Holdback Amount")
to be held by Buyer until the final resolution of the Purchase Price Adjustment
contemplated by Section 2.6 and which shall be credited against any amounts owed
by Stockholder to Buyer under Section 2.6(e) or added to any amounts owed by
Buyer to Stockholder under Section 2.6(e), as the case may be, by wire transfer
of immediately available funds to a bank account designated in writing by
Stockholder at least three business days prior to the Closing Date; and
(b) all other documents, certificates, instruments or writings
required to be delivered by Buyer at or prior to the Closing pursuant hereto or
otherwise required in connection herewith.
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II.6 POST-CLOSING ADJUSTMENT.
(a) PREPARATION OF PRELIMINARY STATEMENT OF WORKING CAPITAL. As soon
as reasonably practicable after the Closing Date (but not later than sixty (60)
days thereafter), Buyer will prepare a consolidated balance sheet of MDI and its
consolidated Subsidiaries as of the Closing Date (the "PRELIMINARY CLOSING
BALANCE SHEET") setting forth the Assumed Debt as of the Closing Date (the
"Closing Assumed Debt") and, based upon such Preliminary Closing Balance Sheet,
a statement of consolidated working capital of MDI and its consolidated
Subsidiaries (the "PRELIMINARY STATEMENT OF WORKING CAPITAL") setting forth the
Closing Working Capital. For purposes of this Agreement, "CLOSING WORKING
CAPITAL" shall be equal to (i) consolidated accounts receivable and other assets
included under the caption "other current assets" on the Preliminary Closing
Balance Sheet (excluding any intercompany receivables or other intercompany
current assets which shall be eliminated pursuant to Section 5.9) less (ii)
consolidated current liabilities (excluding current maturities of Obligations)
in each case, as of the Closing Date. The Preliminary Closing Balance Sheet
shall be prepared in accordance with GAAP on a basis consistent with the
Financial Statements.
(b) REVIEW OF PRELIMINARY CLOSING BALANCE SHEET. If either the
Closing Assumed Debt or the Closing Working Capital would result in an
adjustment in the Purchase Price in accordance with this Section 2.6, Buyer
shall deliver the Preliminary Closing Balance Sheet and the Preliminary
Statement of Working Capital to Stockholder promptly upon its completion. Each
of the Preliminary Closing Balance Sheet and the Preliminary Statement of
Working Capital shall be binding and conclusive upon, and deemed accepted by,
Stockholder if timely delivered by Buyer unless Stockholder shall have notified
Buyer in writing of any objections thereto consistent with the provisions of
this Section 2.6 within sixty (60) days after receipt thereof. The written
notice under this Section 2.6 shall specify in reasonable detail each item on
the Preliminary Closing Balance Sheet and/or the Preliminary Statement of
Working Capital that Stockholder disputes, and a summary of Stockholder's
reasons for such dispute. The parties and their employees, officers, directors,
agents and counsel shall cooperate with one another and provide access and
assistance to one another in connection with the matters contemplated in this
Section 2.6.
(c) DISPUTES. Disputes between Buyer and Stockholder relating to the
Preliminary Closing Balance Sheet and/or the Preliminary Statement of Working
Capital that cannot be resolved by Buyer and Stockholder within thirty (30) days
after receipt by Buyer of the notice referred to in Section 2.6(b) may be
referred thereafter for decision at the insistence of either party to Price
Waterhouse LLP. If Price Waterhouse LLP is unavailable, then Buyer and
Stockholder shall select an independent nationally recognized accounting firm to
decide the matter, Price Waterhouse LLP or such other firm being referred to
herein as the "AUDITOR"). Each of the parties agrees not to select an
accounting firm to review disputed items pursuant to this Section 2.6(c) if, at
the time of selection, either buyer, Stockholder, MDI or any of their respective
Affiliates currently uses or employs or contemplates retaining such accounting
firm, within one year year after such date, for any substantial engagement
having a purpose other than the performance of services pursuant to this Section
2.6(c). The Auditor's decision on any
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matter referred to it shall be rendered within thirty (30) days of its
referral and shall be final and binding on Stockholder and Buyer. The fee of
the Auditor (and any related legal fees and expenses) shall be borne by Buyer
and Stockholder in such proportions as are determined by comparing the
Purchase Price Adjustment as determined by each such party in relation to the
Purchase Price Adjustment as determined by the Auditor.
(d) FINAL STATEMENT OF WORKING CAPITAL. The Preliminary Closing
Balance Sheet and the Preliminary Statement of Working Capital shall become
final and binding upon the parties upon the earlier of (i) the failure by
Stockholder to object thereto within the period permitted under Section 2.6(b),
(ii) the agreement between Buyer and Stockholder with respect thereto and (iii)
the decision by the Auditor with respect to any disputes under Section 2.6(c).
The Preliminary Closing Balance Sheet and the Preliminary Statement of Working
Capital, as adjusted pursuant to the agreement of the parties or the decision of
the Auditor, when final and binding are referred to herein as the "FINAL CLOSING
BALANCE SHEET" and the "FINAL STATEMENT OF WORKING CAPITAL," respectively.
(e) ADJUSTMENT TO THE PURCHASE PRICE. As soon as practicable (but
not more than five (5) business days) after the determination and delivery of
the Final Closing Balance Sheet and the Final Statement of Working Capital in
accordance with this Section 2.6, (i) if the Estimated Assumed Debt is less than
the Closing Assumed Debt on the Final Closing Balance Sheet, then there shall be
an immediate downward adjustment to the Purchase Price payable by Stockholder to
Buyer in an amount equal to such deficiency PLUS the amount, if any, by which
the Closing Working Capital as reflected in the Final Statement of Working
Capital is less than $5,559,000 (the "Working Capital Difference") or (ii) if
the Estimated Assumed Debt is greater than the Closing Assumed Debt, then (A)
there shall be an immediate upward adjustment to the Purchase Price payable by
Buyer to Stockholder in an amount equal to such excess MINUS the Working Capital
difference (if any), or (B) if the amount resulting from the calculation set
forth in clause (ii)(A) of this Section 2.6(e) is a negative number, there shall
be an immediate downward adjustment to the Purchase Price payable by Stockholder
to Buyer in an amount equal to the Working Capital Difference MINUS the amount
by which the Estimated Assumed Debt is greater than the Closing Assumed Debt (in
each case, the "Purchase Price Adjustment"). Any amounts payable under this
Section 2.6(e) after taking into account the Holdback Amount shall be payable by
wire transfer of immediately available funds to the bank designated by Buyer or
Stockholder, as the case may be, within three (3) business days after delivery
of the final Closing Balance Sheet and the Final Statement of Working Capital.
(f) PAYMENT. All payments required to be made pursuant to this
Section 2.6 shall be paid by the Stockholder to the Buyer together with any and
all interest thereon at a rate per annum of 7 percent and accruing from the
Closing Date to the date of payment. Any payment under this Section 2.6 shall
offset any indemnification obligations of the Seller hereunder to the extent the
claim for such indemnification relates to matters pertaining to the purchase
price adjustment contemplated by this Section 2.6, but only to the extent of
such adjustment.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Stockholder to enter into this Agreement and to consummate the
Transactions, Buyer makes the representations and warranties set forth below to
Stockholder.
III.1 ORGANIZATION; AUTHORITY. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation. Buyer has the corporate authority to own or lease and operate
its properties and conduct its business as presently conducted. Buyer has the
corporate power and authority to execute, deliver and perform this Agreement.
III.2 AUTHORIZATION, ENFORCEABILITY. The execution, delivery and
performance of this Agreement by Buyer and the consummation by Buyer of the
Transactions have been duly authorized, all requisite corporate action. The
execution, delivery and performance of this Agreement by Buyer does not require
the approval of Buyer's stockholders. This Agreement has been duly executed and
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable against it in accordance with its terms, except to the extent
that its enforcement is limited by bankruptcy, insolvency, reorganization or
other laws relating to or affecting the enforcement of creditors' rights
generally, and by general principles of equity.
III.3 NO VIOLATION OR CONFLICT. The execution, delivery and
performance by by Buyer of this Agreement and the consummation by Buyer of the
Transactions: ( a) do not and will not violate or conflict with any provision of
law or any regulation, or any writ, order, judgment or decree of any court or
governmental or regulatory authority specifically naming Buyer or any of its
Subsidiaries (other than where such occurrence would not prohibit Buyer from
consummating the Transactions on or prior to the Termination Date), or any
provision of Buyer's certificate of incorporation or bylaws; and (b) do not and
will not, with or without the passage of time or the giving of notice, result in
the breach of, or constitute a default, cause the acceleration of performance,
or require any consent, authorization or approval under, or result in the
creation of any Lien upon any property or assets of Buyer pursuant to any
instrument or agreement to which Buyer is a party or any of its assets are bound
(other than where such occurrence would not prohibit Buyer from consummating the
Transactions on or prior to the Termination Date).
III.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Except as set forth on
Schedule 3.4 and other than in connection with the HSR Act, the Exchange Act,
any applicable state securities laws, no consent, approval or authorization of,
or registration, qualification or filing with any federal, state, local or
foreign governmental or regulatory authority is required to be made by Buyer in
connection with the execution, delivery or performance by Buyer of this
Agreement or the consummation by Buyer of the Transactions, except where the
failure to obtain such consent, approval or authorization or to make such
registration, qualification or filing would not prevent Buyer from consummating
the Transactions on or prior to the Termination Date. Buyer knows
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of no reason why any of the consents, approvals or authorizations set forth
in this Section 3.4 or on Schedule 3.4 would not be granted.
III.5 LEGAL PROCEEDING. Neither Buyer nor any of its Subsidiaries
is a party to any pending or, to the knowledge of Buyer, threatened, legal,
administrative or other proceeding, arbitration or investigation, that would
hinder Buyer in consummating the Transactions on or prior to the Termination
Date. To Buyer's knowledge, neither Buyer nor any of its Subsidiaries is
subject to any order, injunction or other judgment of any court or
governmental authority that would hinder Buyer in consummating the
Transactions on or prior to the Termination Date.
III.6 BROKERS. Buyer has not employed any financial advisor, broker or
finder and has not incurred and will not incur any broker's, finders, investment
banking or similar fees, commissions or expenses, in connection with the
Transactions.
III.7 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to the distribution thereof.
III.8 AVAILABILITY OF FUNDS. Buyer will have cash available which is
sufficient to enable it to pay the Purchase Price and to consummate the
Transactions.
III.9 DISCLOSURE. No representation or warranty of Buyer contained in
this Agreement or the Schedules, and no certificate or notice furnished by or on
behalf of Buyer contains or will contain any untrue statement of a material fact
or omits to state a fact necessary in order to make the statements contained
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
To induce Buyer to enter into this Agreement and to consummate the
Transactions, Stockholder makes the representations and warranties set forth
below to Buyer. Notwithstanding anything to the contrary set forth herein, the
parties expressly agree that any representation or warranty (other than the
representation and warranty set forth in Section 4.6) made by Stockholder or MDI
herein or in any agreement or document executed in connection herewith that
pertains to any period prior to the Acquisition Date shall be deemed to be made
subject to Stockholder's and MDI's knowledge.
IV.1 ORGANIZATION; AUTHORITY FOREIGN QUALIFICATION. Each of Stockholder,
MDI and MDI's corporate Subsidiaries is a corporation duly, organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of MDI's partnership Subsidiaries is a general or limited
partnership, as applicable, duly organized and validly existing under the laws
of its state of organization. Each of MDI and its Subsidiaries is duly
qualified to transact business as a foreign corporation or partnership, as
applicable, in all jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
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Effect on MDI. Each jurisdiction in which MDI or any of its Subsidiaries is
qualified to transact business as a foreign corporation or partnership, as
applicable, is listed on Schedule 4.1. Other than those jurisdictions listed
on Schedule 4.1, there are no jurisdictions in which any of MDI or any of its
Subsidiaries owns or leases property (real or personal), has offices or
employees or maintains inventory. Each of MDI and its Subsidiaries has the
corporate or partnership authority, as applicable, to: (a) own or lease and
operate its properties; and (b) conduct its business as presently conducted.
Each of Stockholder and MDI has the corporate power and authority to execute,
deliver and perform this Agreement. Stockholder has heretofore delivered to
Buyer complete and correct copies of the certificate of incorporation and
by-laws of Stockholder, MDI and its Subsidiaries as each is currently in
effect.
IV.2 AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance of this Agreement by Stockholder and MDI and the consummation by
them of the Transactions have been duly authorized by all requisite corporate
action. The execution, delivery and performance of this Agreement by
Stockholder and MDI and the consummation by them of the Transactions does not
require the approval of Stockholder's stockholders. This Agreement has been
duly executed and delivered by Stockholder and MDI, and constitutes the legal,
valid and binding obligation of Stockholder and MDI, enforceable against them in
accordance with its terms, except to the extent that its enforcement is limited
by bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights generally and by general principles of
equity.
IV.3 NO VIOLATION OR CONFLICT. The execution, delivery and performance by,
Stockholder and MDI of this Agreement and the consummation by Stockholder and
MDI of the Transactions: (a) do not and will not violate or conflict with any
provision of law or regulation, or any writ, order, judgment or decree of any
court or governmental or regulatory authority specifically naming Stockholder or
MDI or any of their respective Subsidiaries, or any provision of Stockholder's
or MDI's certificate of incorporation or bylaws; and (b) do not and will not,
with or without the passage of time or the giving of notice, result in the
breach of, or constitute a default, cause the acceleration of performance, or
require any consent, authorization or approval under, or result in the creation
of any Lien upon any property or assets of Stockholder or MDI or any of MDI's
Subsidiaries pursuant to any Material Agreement, except for consents required
under Material Agreements listed on Schedule 4.3, all of which shall have been
obtained by Stockholder on or prior to the Closing Date without any significant
cost or adverse effect, and except where the same would not have a Material
Adverse Effect on MDI.
IV.4 CONSENT OF GOVERNMENTAL AUTHORITIES. Except as set forth on Schedule
4.4 and except in connection with the HSR Act, the Exchange Act, any applicable
state securities laws, no consent approval or authorization of, or registration,
qualification or filing with any federal, state or local governmental or
regulatory authority is required to be made by Stockholder or MDI in connection
with the execution, delivery or performance by Stockholder and MDI of this
Agreement or the consummation by them of the Transactions, except where the
failure to obtain such consent, approval or authorization or to make such
registration, qualification or filing would not have a Material Adverse Effect
on MDI and its Subsidiaries or materially hinder MDI or
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Stockholder in consummating the Transactions on or prior to the Termination
Date. Neither Stockholder nor MDI knows of any reason any of the material
consents, approvals or authorizations set forth in this Section 4.4 or
Schedule 4.4 would not be granted.
IV.5 HEALTH CARE PROVIDERS. To Stockholder's knowledge, all physicians,
technologists and other personnel retained or employed by MDI or its
Subsidiaries maintain in good standing all staff memberships, licenses,
credentials and other similar affiliations necessary or desirable for their
current provision of services on behalf of MDI and its Subsidiaries, except
where failure to do so would not have a Material Adverse Effect.
IV.6 FINANCIAL STATEMENTS. (a) The Financial Statements, as of the dates
thereof and for the periods covered thereby, present fairly, in all material
respects, the financial position, results of operations and cash flows of MDI
and its Subsidiaries. Except as otherwise noted in Schedule 4.6, the Financial
Statements were prepared in conformity with GAAP applied on a consistent basis,
subject to year-end adjustments and a lack of footnotes for interim Financial
Statements. Other than as disclosed by the Financial Statements or on Schedule
4.18, neither MDI nor any of its Subsidiaries has any liabilities, commitments
or obligations (which could be material to any of them on a consolidated basis)
of any nature whatsoever whether accrued, contingent or otherwise (other than
liabilities, commitments or obligations incurred since December 31, 1997 in the
ordinary course of business consistent with past practices to Persons other than
Affiliates of Stockholder). MDI's accounts receivable, as set forth in the
Financial Statements, arose in the ordinary course of business.
(b) The consolidated sales, EBITDA and EBITDAR (as determined in
accordance with GAAP) of MDI and its Subsidiaries for the calendar month ended
February 28, 1998 shall not be materially less than the consolidated sales,
EBITDA and EBITDAR (as determined in accordance with GAAP consistently applied)
of MDI and its Subsidiaries for the calendar month ended January 31, 1998.
(c) MDI and each of its Subsidiaries shall make or commit to make all
of the capital expenditures and capital additions or betterments in accordance
with MDI's capital expenditure plan previously provided to Buyer and in
accordance with the plans regarding the Clifton, New York project.
(d) Except as set forth on the Closing Assumed Debt Schedule, neither
MDI nor any of its Subsidiaries will have, as of the Closing Date, any Assumed
Debt. The Closing Assumed Debt Schedule will be complete and correct in all
material respects and will set forth all Assumed Debt as of the Closing Date.
IV.7 COMPLIANCE WITH LAWS. MDI and its Subsidiaries (and the properties
held or used by them) are in compliance with all federal, state, local and
foreign laws, ordinances, regulations, judgments, rulings, orders and other
legal requirements applicable to them, their properties or their operations,
except where noncompliance would not have a Material Adverse Effect on MDI.
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IV.8 LEGAL PROCEEDING. Except asset forth in Schedule 4.8, neither MDI nor
any of its Subsidiaries, nor, to the extent relating to MDI or its Subsidiaries,
Stockholder or any of its other Affiliates, is a party to any pending or, to the
knowledge of Stockholder and MDI, threatened, legal, administrative or other
proceeding, arbitration or investigation. None of the proceedings, arbitrations
or investigations set forth in Schedule 4.8, are reasonably likely to have a
Material Adverse Effect on MDI and its Subsidiaries on a consolidated basis or
hinder Stockholder or MDI in consummating the Transactions on or prior to the
Termination Date. MDI is not subject to any order, injunction or other judgment
of any court or governmental authority.
IV.9 BROKERS. Neither Stockholder nor MDI has employed any financial
advisor, broker or finder and neither has incurred and neither will incur any
broker's, finder's, investment banking or similar fees, commissions or expenses
to any other party in connection with the Transactions contemplated by this
Agreement.
IV.10 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth in
Schedule 4.10, since December 31, 1997: (a) each of MDI and its Subsidiaries
has conducted its businesses in the ordinary and usual course; (b) there has
been no Material Adverse Change with respect to MDI and its Subsidiaries; and
(c) neither MDI nor any of its Subsidiaries has engaged or agreed to engage in
any of the actions described in Section 5.1:(a) through (l), (n), (o), (p) (with
respect to workforce and operations), (q) and (r).
IV.11 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule
4.11, there are no, and since December 31, 1997, there have been no, contracts,
Agreements or arrangements of any kind (including those relating to the sharing
of overhead, intercompany loans, the furnishing of services and the lease of
facilities) between any Affiliate of MDI, on the one hand, and MDI or any if its
Subsidiaries, on the other hand.
IV.12 CAPITALIZATION. The authorized capital stock of MDI consists of
1,000 Shares of which 100 shares of common stock par value $0.01 per share, are
issued and outstanding. All of the issued and outstanding Shares are owned
beneficially and of record by Stockholder, free and clear of any and all Liens.
Upon the delivery of the Shares in the manner contemplated by Section 2.4(a),
Buyer will acquire the beneficial and legal, valid and indefeasible title to
such Shares free and clear of any and all Liens. MDI has no treasury capital
stock. All shares of MDI's and each of its Subsidiaries' outstanding capital
stock have been duly authorized, are validly issued and outstanding, and are
fully paid and nonassessable, and are not subject to any preemptive rights. No
securities issued by MDI or any of its Subsidiaries from the date of its
incorporation were issued in violation of any statutory, contractual or common
law preemptive rights. There are no dividends or distributions which have
accrued or been declared but are unpaid on the capital stock of MDI or any of
its Subsidiaries. Except as set forth on Schedule 4.12, neither MDI nor any of
its Subsidiaries has declared or paid any dividends or distributions since the
Acquisition Date. All Taxes (including documentary stamp taxes) required to be
paid in connection with the issuance by MDI or any of its Subsidiaries of MDI's
and each of its Subsidiaries' capital stock have been paid. All authorizations
required to be obtained from or
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registrations required to be effected with any Person in connection with the
issuances of securities by MDI and each of its Subsidiaries from their
respective dates of incorporation have been obtained or effected and all
securities of MDI and its Subsidiaries have been issued in accordance with
the provisions of all applicable securities and other laws. All of the
outstanding securities of each of MDI's Subsidiaries are owned of recorded
and beneficially by either MDI or another of its Subsidiaries, free and clear
of all Liens, except as set forth on Schedule 4.12. Schedule 4.12 lists all
Subsidiaries of MDI, their jurisdictions of incorporation or organization,
the number shares of their respective capital stock or other equity interests
authorized, issued and outstanding. Except asset forth in Schedule 4.12,
neither MDI nor any of its Subsidiaries has any equity investment in any
other Person.
IV.13 RIGHTS, WARRANTS, OPTIONS. There are no outstanding: (a)
securities or instruments convertible into or exercisable for any of the capital
stock or other equity interests of MDI or any of its Subsidiaries issued by MDI
or any of its Subsidiaries or to which Stockholder or MDI or any of its
Subsidiaries is a party; (b) options, warrants, subscriptions or other rights to
acquire capital stock or other equity interests of MDI or any of its
Subsidiaries issued by Stockholder or MDI or any of its Subsidiaries; or (c)
commitments, agreements or understandings of any kind to which Stockholder or
MDI or any of its Subsidiaries is a party, including employee benefit
arrangements, relating to the issuance or repurchase by MDI or any of its
Subsidiaries of any capital stock or other equity interests of MDI or any of its
Subsidiaries, any such securities or instruments convertible into or exercisable
for capital stock or other equity interests of MDI or any such options, warrants
or rights. Each of the terms referenced in the foregoing sentence is
hereinafter referred to as "Options."
IV.14 PROPERTIES.
(a) REAL AND TANGIBLE PERSONAL PROPERTY. Except as set forth on
Schedule 4.14(a), MDI or its Subsidiaries has valid title to all properties,
interests in properties and assets (real and personal) reflected in the Latest
Balance Sheet (except properties, interests in properties and assets sold or
otherwise disposed of since the date of the Latest Balance Sheet in the ordinary
course of business to Persons other than Affiliates of MDI consistent with past
practices), free and clear of all Liens, except the Lien of current taxes not
yet due and payable. Schedule 4.14(a) hereof lists each piece of real property
owned, leased or utilized by MDI and/or its Subsidiaries, including the location
thereof and the use to which it is put by MDI and/or any of its Subsidiaries.
Each of the leases under which the real properties of MDI and its Subsidiaries
are leased is unmodified and in full force and effect and there are no
agreements between Stockholder, MDI or any of their respective Subsidiaries and
any third parties claiming an interest in MDI's or its Subsidiaries' interest in
the leased property occupied by MDI or its Subsidiaries or otherwise affecting
its use and occupancy thereof. Neither MDI nor any of its Subsidiaries is in
default under any of such leases and no defaults (whether or not subsequently
cured) by MDI or its Subsidiaries have been alleged thereunder. To the best of
MDI's and Stockholder's knowledge, each lessor named in any of such leases is
not in default thereunder, and no defaults by such lessor have been alleged
thereunder and are continuing. Schedule 4.14(a) also sets forth, with respect
to each lease (capitalized or otherwise) to which MDI or any
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of its Subsidiaries is a party which is a Material Agreement: (i) the parties
to such lease; (ii) the property covered by such lease; (iii) a schedule of
payments payable under such lease (both throughout the term of the lease and
at the end of the lease); (iv) whether MDI or any of its Subsidiaries has any
rights or obligations to acquire any property which is subject to such lease
and he price and terms thereof; (v) the term of such lease; and (vi) any
options which MDI or any of its Subsidiaries may have to extend the term of
such lease. Set forth on Schedule 4.14(a) is a list of the five largest
lessors of equipment (measured by dollar volume) to MDI and its Subsidiaries
during the fiscal year ended December 31, 1997, and with respect to each, the
name and address and the dollar volume involved.
(b) INTELLECTUAL PROPERTY RIGHTS. MDI or one of its Subsidiaries
owns, or is licensed or otherwise entitled to use, all patents, trademarks,
trade names, service marks, copyrights and applications for any of the
foregoing, together with all other technology, know-how, tangible or intangible
proprietary information or material and formulae in the countries to which such
apply, that are material to the business of MDI and its Subsidiaries as
currently conducted (the "MDI Intellectual Property"), all of which are set
forth on Schedule 4.14(b). Except as disclosed on Schedule 4.14(b), no claims
have been asserted in writing to MDI or any of its Subsidiaries or, to the
knowledge of Stockholder or MDI, otherwise asserted or threatened, by any
Person: (i) to the effect that the MDI Intellectual Property infringes on any
intellectual property rights of any other Person; (ii) against the use by MDI or
any of its Subsidiaries of any of the MDI Intellectual Property; or (iii)
challenging or questioning the validity or effectiveness of any of the MDI
Intellectual Property. All registered trademarks and copyrights listed on
Schedule 4.14(b) are valid and subsisting.
IV.15 GOVERNMENTAL AUTHORIZATIONS. MDI and its Subsidiaries have in
full force and effect and is in compliance with all authorizations, consents,
approvals, franchises, licenses, certificates of need, determinations of need
and permits required under applicable law or regulation (collectively, referred
to as "Licenses") for the ownership of MDI's and its Subsidiaries' properties
and operation of their businesses as presently operated except where the failure
to have the same would not have a Material Adverse Effect on MDI, except that
certificates of need and determinations of need shall be deemed material.
Except as set forth on Schedule 4.15, the execution, delivery and performance by
Stockholder and MDI of this Agreement and the consummation by them of the
Transactions do not and will not have a Material Adverse Effect on any of MDI's
Licenses.
IV.16 INSURANCE. Schedule 4.16 sets forth a list and description of
all insurance policies existing as of the date hereof providing insurance
coverage of any nature to MDI or any of its Subsidiaries. Furthermore: (a) none
of MDI or any of its Subsidiaries is in default under any such policies and
there is no inaccuracy in any application for any such policies; (b) each of
MDI's and its Subsidiaries' activities and operations have been conducted in a
manner so as to conform in all material respects to the applicable provisions of
such policies; (c) all premiums and other charges under each such policy shall
have been paid though the Closing Date and none of Stockholder, MDI nor any of
their respective Subsidiaries has received written notice of cancellation or
non-renewal with respect to any such policy; and (d) timely notice has been
given
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of any and all claims under all such policies. Schedule 4.16 also lists all
risks for which MDI and its Subsidiaries are self-insured. MDI and its
Subsidiaries have not, during the past two years, been refused insurance
coverage by any company, nor have any of them had insurance coverage offered
to them at unreasonably high premiums or with limited coverage.
IV.17 EMPLOYMENT MATTERS.
(a) LABOR UNIONS. None of the employees of MDI or any of its
Subsidiaries is represented by any labor union, and neither MDI nor any of its
Subsidiaries is subject to any labor or collective bargaining agreement. None
of the employees of MDI or any of its Subsidiaries is known by Stockholder or
MDI to be engaged in organizing any labor union or other employee group that is
seeking recognition as a bargaining unit. Neither MDI nor any of its
Subsidiaries has had any strikes, work stoppages, slow down, lockouts or claims
of unfair labor practices for the past three years, and to the best knowledge of
the Stockholder and MDI, there exist no facts which could reasonably be expected
to lead thereto.
(b) EMPLOYMENT POLICIES. MDI has provided to Buyer written employee
policies, employee manuals or other written statements of rules or policies
concerning employment applicable to the employees of MDI and/or its
Subsidiaries.
(c) EMPLOYMENT AGREEMENTS. Except as set forth on Schedule 4.17(c),
there are no employment, consulting, severance or indemnification arrangements,
agreements, or understandings between MDI or any of its Subsidiaries and any of
their current or former employees, directors, officers or consultants.
(d) EMPLOYEE BENEFIT PLANS. Schedule 4.17(d) sets forth a complete
list of all pension, retirement, stock purchase, stock bonus, stock ownership,
stock option, profit sharing, savings, medical, disability, hospitalization,
insurance, deferred compensation, bonus, incentive, welfare or any other
employee benefit plan, policy, agreement, commitment, arrangement or practice
currently, or previously maintained or contributed to (or required to be
contributed to) by Stockholder, MDI or any of MDI's Subsidiaries for any of
their directors, officers, consultants, employees or former employees of MDI or
any of its Subsidiaries (the "MDI Plans"). Schedule 4.17(d) also identifies
each MDI Plan which constitutes an "employee pension benefit plan" ("Pension
Plan") or an "employee welfare benefit plan" ("Welfare Plan"), as such terms are
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). None of the MDI Plans is a "multiemployer plan," as such term is
defined in ERISA, or is subject to Title IV of ERISA. With respect to each MDI
Plan sponsored by MDI, either MDI or a Subsidiary has delivered or made
available to Buyer true and complete copies of the following: (i) the Plan
document; (ii) summary plan description of the MDI Plan; (iii) the trust
agreement, insurance policy or other instrument relating to the funding of the
MDI Plan; (iv) the most recent Annual Report (Form 5500 series) and accompanying
schedules filed with the IRS or Department of Labor with respect to the MDI
Plan; (v) the most recent annual financial statement for the MDI Plan; and (vi)
the most recent determination letter issued by the IRS with respect to the MDI
Plan that is intended to qualify under Section 401(a) of the Code.
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Each Pension Plan has been determined by the IRS to be qualified under
Section 401 (a) of the Code, and to Stockholder's and MDI's knowledge, no
facts or circumstances exist which could reasonably be expected to result in
the revocation of such qualification or result in a material sanction or
liability to MDI or its Subsidiaries under the Internal Revenue Service's
Employee Plans Compliance Resolution System (as described in Revenue
Procedure 98-22). Each Welfare Plan which is intended to meet the
requirements for tax-favored treatment under the Code to Stockholder's and
MDI's knowledge meets such requirements. Without limiting the generality of
Section 4.7, each MDI Plan has been administered in accordance with its terms
and the Code, and each Pension Plan and Welfare Plan has been administered in
all material respects in accordance with ERISA. Stockholder and MDI have
paid all amounts required under applicable law, any Pension Plan and any
Welfare Plan to be paid as a contribution or insurance premium to or with
respect to each Pension Plan and Welfare Plan through the date hereof. MDI
has set aside adequate reserves to meet contributions which are not yet due
under any Pension Plan or Welfare Plan. Neither MDI nor any of its
Subsidiaries, nor any other Person has engaged in any transaction or taken
any other action with respect to any MDI Plan which would subject MDI, any
Subsidiary, Buyer to: (a) any material Tax, penalty or liability for
prohibited transactions under ERISA or the Code; (b) any material Tax under
Code Sections 4971, 4972, 4976, 4977, 4979 4980B or 4980D; or (c) a material
penalty under ERISA Sections 502(c) or 502(1). None of Stockholder, MDI or
any of their respective Subsidiaries, to the extent it is a fiduciary with
respect to any Pension Plan or Welfare Plan, has breached any of its
responsibilities or obligations imposed upon fiduciaries under ERISA or the
Code or which could result in any claim being made under, by or on behalf of
any Pension Plan or Welfare Plan or any participant or beneficiary thereof
other than benefit claims in the ordinary course, in any such event which
could give rise to material liability to MDI or any of its Subsidiaries.
Each Welfare Plan which is a group health plan within the meaning of Code
Section 5000(b)(1) complies in all material respects with and in each and
every case has complied in all material respects with the applicable
requirements of Code Section 4980B and 4980D and Parts 6 and 7 of Title I of
ERISA. Except as set forth in Schedule 4.17(d), no MDI Plan, other than an
MDI Plan which is an employeepension benefit plan (within the meaning of
Section 3(2)(A) of ERISA), provides benefits, including death, health or
medical benefits (whether or not insured), with respect to current or former
employees of MDI and any of its Subsidiaries beyond their retirement or other
termination of service with any of MDI and any of its Subsidiaries, other
than coverage mandated by applicable law.
Neither Stockholder nor any other member of the same controlled group of
organizations as Stockholder (within the meaning of Section 414(b), (c), (m) or
(o) of the Code), other than MDI and its Subsidiaries, has taken any action or
failed to take any action, nor has any event occurred which has resulted or
could result in MDI or any of its Subsidiaries becoming subject to liability
under Title IV of ERISA or the minimum funding requirements of Section 412 of
the Code or Part 3 of Title I of ERISA.
The execution and delivery of this Agreement and consummation of the
transactions contemplated herein shall not, either alone or upon the occurrence
of any additional event,
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require any payment, acceleration, vesting, forgiveness of indebtedness,
increase in benefits or obligation to fund benefits with respect to any
current or former employee or consultant of MDI or its Subsidiaries, or
preclude the amendment or termination of any MDI Plan or employment or
consulting agreement covering such employees or consultants, in each event
with respect to an MDI Plan sponsored by MDI.
IV.18 MATERIAL AGREEMENTS. Schedule 4.18 sets forth a list of all
written and oral Agreements, leases (whether capitalized or otherwise),
arrangements or commitments to which either MDI or any of its Subsidiaries is a
party or by which it or any of the assets it owns, leases or utilizes is bound
which are expected to result in the receipt or payment of $50,000 or more by MDI
or any of its Subsidiaries or which are material to the financial position,
results of operations or prospects of MDI and its Subsidiaries on a consolidated
basis or to the ability of MDI to consummate the Transactions (the "Material
Agreements"). MDI has provided Buyer access to true and complete copies of all
Material Agreements. To Stockholder's and MDI's knowledge, the Material
Agreements are each in full force and effect and are the valid and legally
binding obligations of MDI or the applicable Subsidiary which is a party to same
and, to Stockholder's and MDI's knowledge, are valid and legally binding
obligations of the other parties thereto; and neither MDI nor any of its
Subsidiaries is in material breach or in default under any Material Agreement to
which it is a party. Except as set forth on Schedule 4.18, neither MDI nor any
of its Subsidiaries: (a) has any agreement, contract or commitment which
requires the making of any charitable contributions; (b) has any agreement,
contract or commitment which is not terminable without penalty, liability or
premium upon notice of 30 days or less; (c) has any agreement, contract or
commitment containing any severance, termination or similar provisions; (d) has
any outstanding obligation for borrowed money; (e) has any outstanding loan or
advance to any Person; (f) has any power of attorney outstanding; (g) has any
agreement, contract or commitment relating to joint ventures, partnerships or
debt or equity investments; (h) has any agreements, contracts or commitments
relating to non-competition or, non-disclosure, non-solicitation or other
similar restrictive covenants; (i) has any agreements, contracts or commitments
relating to the registration of any of MDI's securities; (j) has any agreement,
contract or commitment relating to the voting or other rights with respect to
any securities of MDI or any of its Subsidiaries; and (k) has any contract,
commitment or arrangement with any hospital, hospital management company, health
maintenance organization, insurance company:, third party payor or managed care
provider or company.
IV.19 LIST OF ACCOUNTS. Schedule 4.19 sets forth, as of the date
hereof: (a) the name and address of each bank or other institution in which MDI
or any of its Subsidiaries maintains an account (cash, securities or other) or
safe deposit box; (b) the name and phone number of MDI's contact person at such
bank or institution; (c) the account number of the relevant account and a
description of the type of account; and (d) the persons authorized to transact
business in such accounts.
IV.20 MAJOR CUSTOMERS. Set forth on Schedule 4.20 is a list of the 10
largest customers (measured by dollar volume) of MDI and its Subsidiaries for
the year ended September 30, 1997, and with respect to each, the name and
address, dollar volume involved and nature of the
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relationship. None of such customers of MDI and its Subsidiaries has: (a)
modified in any material respect, cancelled, suspended or otherwise
terminated its relationship with MDI or any of its Subsidiaries; or (b)
advised MDI or any of its Subsidiaries of its intention to modify in any
material respect, cancel, suspend or terminate its relationship with MDI or
any of its Subsidiaries, to significantly decrease its purchase of services
from MDI or any of its Subsidiaries, to change the nature of its business
relationship with MDI or any of its Subsidiaries or to change adversely the
terms upon which it purchases services from MDI or any of its Subsidiaries.
IV.21 TAXES. Except as set forth in Schedule 4.21: (a) there have been
timely filed (or shall timely be filed prior to the Closing Date) all Tax
Returns with respect to MDI and its Subsidiaries required to be filed with any
taxing authority with respect to Taxes for any period ending on or before the
Closing Date, taking into account any extension of time to file granted to or
obtained on behalf of MDI and its Subsidiaries; (b) all Taxes shown to be
payable on such returns or reports that are due prior to the Closing Date have
been paid or shall be paid (prior to the Closing Date), and all such returns or
reports accurately reflect the proper amount of Taxes payable for the applicable
periods; (c) no deficiency for any Tax has been asserted or assessed by a taxing
authority against or with respect to MDI or any of its Subsidiaries; (d) MDI and
each of its Subsidiaries have provided adequate reserves in the Latest Balance
Sheet for any Taxes that have not been paid, whether or not shown as being due
on any returns; (e) the income Tax Returns of MDI and each of its Subsidiaries
have never been audited and there are no pending actions or proceedings
regarding Taxes relating to MDI or any of its Subsidiaries; (f) none of MDI or
its Subsidiaries has waived any restrictions on assessment or collection of
Taxes or consented to the extension of any statute of limitations relating to
Taxes; and (g) neither MDI nor any of its Subsidiaries is a party to any
agreement, contract, arrangement or plan that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Code Section 280G (or any comparable provision of state, local or foreign
law). As used in this Agreement, "Taxes" shall mean any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind (together with
any and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto) imposed by any government or taxing authority, including
taxes or other charges on or withrespect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation or
net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs and similar charges.
IV.22 GUARANTEES: POWERS OF ATTORNEY. Except as set forth on Schedule
4.22, neither MDI nor any of its Subsidiaries is a party to any Guaranty, and
none of them has executed any power of attorney or similar agreement.
IV.23 ENVIRONMENTAL MATTERS.
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(a) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Hazardous Substances" means: (1) those
substances defined in or regulated under the following federal statutes and
their state counterparts, as each may be amended from time to time, and all
regulations thereunder, the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide
Act, the Toxic Substances Control Act and the Clean Air Act; (2) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (3) natural gas, synthetic gas, and any mixtures thereof;
(4) polychlorinated biphenyls; (5) any other chemicals, materials or substances
defined or regulated as toxic or hazardous or as a pollutant or contaminant or
as a waste under any applicable Environmental Law; and (6) any substance with
respect to which a federal, state or local agency requires environmental
investigation, monitoring, reporting or remediation; and (ii) "Environmental
Laws" means any federal, state, foreign, or local law, rule or regulation now or
hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to pollution or protection of the environment,
health, safety or natural resources, including those relating to (1) releases or
threatened releases of Hazardous Substances or materials containing Hazardous
Substances or (2) the manufacture, handling, transport, use, treatment, storage
or disposal of Hazardous Substances or materials containing Hazardous
Substances.
(b) ENVIRONMENTAL STATUS. Except as described in Schedule 4.23: (i)
MDI and each of its Subsidiaries are and have been in compliance with all
applicable Environmental Laws; (ii) MDI and each of its Subsidiaries have
obtained all permits, approvals, identification numbers, licenses or other
authorizations required under any applicable Environmental Laws ("Environmental
Permits") and are and have been in compliance with their requirements; (iii)
such Environmental Permits do not, in connection with the Transactions, require
the consent or approval of, or any filing with or notice to, any governmental
authority; (iv) there are no underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Substances are being or have been treated, stored or disposed of on any owned or
leased real property or on any real property formerly owned, leased or occupied
by, MDI or any of its Subsidiaries; (v) there is no asbestos or
asbestos-containing material on any owned or leased real property in violation
of applicable Environmental Laws; (vi) MDI and its Subsidiaries have not
released, discharged or disposed of Hazardous Substances at any real property
owned by any third party except in compliance with Environmental Laws or any
real property owned or leased or on any real property formerly owned or leased
by MDI or any of its subsidiaries and none of such property is contaminated with
any Hazardous Substances; (vii) neither MDI nor any of its Subsidiaries is
undertaking, and neither MDI nor any of its Subsidiaries has completed, any
investigation or assessment or remedial or response action relating to any such
release, discharge or disposal of or contamination with Hazardous Substances at
any site, location or operation, either voluntarily or pursuant to the order of
any governmental authority or the requirements of any Environmental Law; and
(viii) there are no past or pending or, to the knowledge of the Stockholder or
MDI, threatened actions, suits,
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demands, demand letters, claims, Liens,notices of non-compliance or
violation, notices of liability or potential liability, investigations,
proceedings, consent orders or consent agreements relating in any way to
Environmental Laws, any Environmental Permits or any Hazardous Substances
against MDI or any of its Subsidiaries or any of their property which are
outstanding or have been outstanding during the past two years, and there are
no circumstances that could be expected to form the basis for any of the
foregoing, MDI and its Subsidiaries have made available to Buyer copies of
any environmental reports, studies or analyses in its possession relating to
owned or leased real property or the operations of MDI or its Subsidiaries.
IV.24 1997 MERGER AGREEMENT. Without limiting the generality of any
representation, warranty, covenant or agreement set forth herein or made in
connection herewith, except as set forth on Schedule 4.24, Stockholder and MDI
each represent and warrant that they do not have knowledge that any of the
representations, warranties, covenants and agreements of any party set forth in
the Agreement and Plan of Merger, dated as of January 20, 1997, among
Stockholder, MDI Acquisition Corporation, MDI and Advanced NMR Systems, Inc.
(the "1997 Merger Agreement") were not true and correct in all respects as of
the date thereof or as of the Effective Time, as defined therein. Stockholder
and MDI represent and warrant that they do not have knowledge that any party to
the 1997 Merger Agreement has violated, or will violate as a result of the
execution, delivery and performance of this Agreement, any term, provision or
agreement set forth in the 1997 Merger Agreement or any agreement executed in
connection therewith. This Section 4.24 does not waive or affect any rights or
remedies that Stockholder has or may have against any Person under the 1997
Merger Agreement. All consideration payable to Persons who were stockholders of
record of MDI immediately prior to the Effective Time under the 1997 Merger
Agreement has been finally paid, and no dissenters' or appraisal rights were
asserted in connection with such transaction.
IV.25 DISCLOSURE. No representation or warranty of Stockholder
contained in this Agreement or the Schedules, and no certificate or notice
furnished by or on behalf of Stockholder or MDI to Buyer or its agents pursuant
to this Agreement, contains or will contain any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
IV.26 CERTAIN ADDITIONAL REGULATORY MATTERS. (a) None of MDI, any
Subsidiary of MDI, any Affiliate of MDI or any Subsidiary of MDI or the
officers, directors, or employees or agents of MDI, any Subsidiary of MDI, any
Affiliate of MDI or any Subsidiary of MDI (or Person having a direct or indirect
ownership interest in MDI or any MDI Subsidiary within the meaning of 42 U.S.
Section (S)1320a-7(b)(8)), and none of the Persons who provide professional
services under Agreements with MDI or any Subsidiary of MDI or any Affiliate of
MDI or any Subsidiary of MDI as agents of MDI or any Subsidiary of MDI, to the
knowledge of each such Person, have engaged in any activities which constitute
violations of, or are cause for imposition of civil penalties upon MDI or any
Subsidiary of MDI for mandatory or permissive exclusion of MDI or any Subsidiary
of MDI from Medicare or Medicaid, under (S) 1320a-7, 1320a-7b, or 1395m of Title
42 of the United States Code, the Federal Civilian Health and Medical Plan of
the Uniformed Services state ("CHAMPUS"), or the regulations promulgated
pursuant to such
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statutes or regulations or related state or local statutes or which
constitute violations of or deficiencies under the standards of any private
accrediting organization from which MDI or any Subsidiary of MDI is
accredited or seeks accreditation:
(i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(ii) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(iii) 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 (A) for an item or service that
the Person presenting or causing to be presented knows or should know was not
provided as claimed, or (B) for an item or service where the Person presenting
knows or should know that the claim is false or fraudulent;
(iv) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (i) in return for
referring, or to induce the referral of, an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or any
other State Health Care Program or any Federal Health Care Program, or (iii) in
return for, or ti 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 w hole or in party by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health Care
Program; or
(v) knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading) of
a material fact with respect to (i) the conditions or operations of a facility
in order that the facility may qualify for CHAMPUS, Medicare, Medicaid or any
other State Health Care Program certification or any Federal Health Care Program
certification, or (ii) information required to be provided under (S), 1124(A) of
the Social Security Act ("SSA") (42 U.S.C.(S) 132a-3).
(b) MDI has a Medicare provider number, and a participating provider
agreement in force with a Medicare Part B carrier, in each locale, as
applicable, in which MDI bills directly to Medicare for services furnished by
MDI and the Subsidiaries of MDI.
(c) MDI has a Medicaid number and a participating provide agreement
in each state, as applicable, in which MDI bills directly to such states,
Medicaid agency for services provided by MDI and the Subsidiaries of MDI.
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IV.27 MEDICARE/MEDICAID PARTICIPATION. None of MDI, any Subsidiary of
MDI, any Affiliate of MDI or any Subsidiary of MDI, or the officers or directors
of MDI or any Subsidiary of MDI who is expected to be an office, director, agent
(as defined in 42 C.F.R. (S) 1001.1001(a)(2)), or managing employee (as defined
in SSA (S) 1126(b) or any regulations promulgated thereunder) of MDI, any
Subsidiary of MDI or any Affiliate of MDI or any Subsidiary of MDI, to the
knowledge of each such Person: (1) has had a civil monetary penalty assessed
against him, her or it under (S) 1128A of the SSA or any regulations promulgated
hereunder; (2) has been excluded from participation under the Medicare program
or a state health care program as defined in SSA (S) 1128(h) or any regulations
promulgated thereunder ("STATE HEALTH CARE PROGRAM") or a federal health care
program as defined in SSA (S) 1128B(f) ("FEDERAL HEALTH CARE PROGRAM"); or (3)
has been convicted (as that term is defined in 42 C.F.R. (S) 1001.2) of any of
the following categories of offenses as described in SSA (S) 1128(a) and (b)(1),
(2), (3) or any regulations promulgated thereunder:
(i) criminal offenses relating to the delivery of an item or
service under Medicare or any State Health Care Program or any Federal Health
Care Program;
(ii) criminal offenses under federal or state law relating to
patient neglect or abuse in connection with the delivery of a health care item
or service;
(iii) criminal offenses under federal or state law relating
to fraud, theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care item or
service or with respect to any act or omission in a program operated by or
financed in whole or in party by any federal, state or local governmental
agency;
(iv) federal or state laws relating to the interference with or
obstruction of any investigation into any criminal offense; or
(v) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a controlled
substance.
IV.28 PHYSICIAN RELATIONSHIPS. Except as set forth in SCHEDULE 4.28.
neither MDI nor any Subsidiary of MDI has any "financial relationship" with any
"referring physician" or an immediate family member of such physician, within
those terms' meanings under 42 U.S.C. Section 1395nn.
IV.29 OTHER HOSPITAL RELATIONSHIPS. Except as set forth in SCHEDULE
4.29, other than with respect to reading radiologists, neither MDI nor any
Subsidiary of MDI has any lease or other arrangement with any hospital or other
Person whereby MDI or any Subsidiary of MDI pays to or receives from the
hospital or other Person rent or any other fee the amount of which is dependent
in whole or in part on the gross or net revenues, net income, or cash flow of
MDI or any Subsidiary of MDI.
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ARTICLE V
COVENANTS
During the period from the date of this Agreement to the Closing Date or
the Termination Date, Stockholder agrees to cause MDI to perform all of MDI's
covenants and agreements in this Article V and Buyer agrees to perform all of
their covenants and agreements in this Article V, all as follows:
V.1 INTERIM OPERATIONS OF MDI. MDI shall operate its business only in the
ordinary and usual course consistent with past practices and shall use its best
efforts to preserve intact its business organization and the goodwill of its
customers, suppliers, employees and others having business relations with it and
to continuously maintain insurance coverage substantially equivalent to the
insurance coverage in existence on the date hereof. In addition, without
limiting the foregoing, except as may be contemplated in, or disclosed in
Schedule 5.1 or any other Schedule, without the written consent of Buyer, which
shall not be unreasonably withheld, MDI and each of its Subsidiaries shall not:
(a) amend its articles or certificate of incorporation or bylaws or other
organizational documents; (b) issue, sell or authorize for issuance or sale,
shares of any class of its securities (including by way of stock split or
dividend) or other equity interests or any subscriptions, options, warrants,
rights or convertible securities, or enter into any agreements or commitments of
any character obligating it to issue or sell any such securities or other equity
interests; (c) redeem, purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock or other equity interests or any option, warrant
or other right to purchase or acquire any such shares or equity interests; (d)
declare or pay any dividend or other distribution (whether in cash, stock or
other property) with respect to its capital stock or other equity interests
except that cash dividends and cash distributions may be made to the extent of
cash on hand; (e) voluntarily sell, transfer, surrender, abandon or dispose of
any of its assets or property rights (tangible or intangible), other than
dispositions in the ordinary course of business consistent with past practices,
which could not have a Material Adverse Effect on MDI, (f) grant or make any
mortgage or pledge or subject itself or any of its properties or assets to any
Lien, except Liens for taxes not currently due or Liens nt exceeding $50,000 in
the aggregate; (g) create, incur or assume any liability or any Obligations, or
become obligated in respect of any operating leases, in each event except as
disclosed on Schedule 5.1, or cancel any debts or waive any claims or rights in
an aggregate amount in excess of $50,000; (h) make or commit to make any capital
expenditures in excess of $50,000 in the aggregate; (i) grant any increase in
the compensation payable or to become payable to directors, officers or
employees (including any such increase pursuant to any MDI Plan or otherwise),
other than merit increases to officers and employees in the ordinary course of
business and consistent with past practices, but in no event to exceed $50,000
in the aggregate; (j) enter into any agreement, arrangement or commitment that,
if it existed on the date hereof, would be a Material Agreement, or amend or
terminate any of same or any existing Material Agreement, or enter into,
terminate or modify any contract, agreement or arrangement with Stockholder or
any Affiliate thereof (except to the extent expressly contemplated hereby); (k)
alter the manner of keeping its books, accounts or records,
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or change in any manner the accounting practices (including those relating to
amortization and depreciation) therein reflected; (1) enter into any material
commitment or transaction other than in the ordinary course of business
consistent with past practices; (m) intentionally breach any representation,
warranty or consent; (n) write off the value of any inventory or accounts
receivable or increase the reserve for uncollectible receivables or obsolete,
damaged or otherwise unsalable inventory, except as required by GAAP
consistently applied or by law, or discount, factor, sell or otherwise
transfer any account receivable; (o) approve any increase in the benefits
payable under, or establish any new MDI Plan; (p) take any action which is
reasonably likely to have a Material Adverse Effect on MDI, or materially
hinder MDI in consummating the Transactions on or pior to the Termination
Date, or reduce or downsize its operations, reduce its work force or
eliminate any operations; (q) make any Guaranty; (r) apply any of its assets
to the direct or indirect payment, discharge, satisfaction or reduction of
any amount payable directly or indirectly (i) to or for the benefit of any
Affiliate of MDI or any of its Subsidiaries (except for salary and benefits
as currently in effect and except in accordance with existing agreements and
arrangements) or (ii) to any Person, except in the ordinary course of
business consistent with past practices; (s) not (i) delay or postpone the
payment of accounts payable, accrued expenses or other obligations or
liabilities for a period of in excess of 45 days after their contractually
stated due date, (ii) accelerate (whether by the offer of discounts, rebates
or otherwise) the collection of any accounts receivable, or (iii) make any
payments for the benefit of Stockholder or any of its Subsidiaries (other
than MDI) or (iv) make any payments in respect of transaction expenses
incurred in connection with the negotiation, execution and delivery of this
Agreement and documents and agreements executed in connection herewith and
the transactions contemplated hereby and thereby (including in connection
with satisfying the conditions precedent in Article VII hereof); or (t)
agree, whether in writing or otherwise, to do any of the foregoing.
Stockholder shall use its best efforts not take or omit to take any action
which would render any of its representations or warranties herein untrue or
misleading or which would be a breach of any of any of its covenants herein.
V.2 ACCESS. MDI shall: (a) afford to Buyer and its agents and
representatives reasonable access to the properties, books, records and other
information of MDI and its Subsidiaries, provided that such access shall be
granted upon reasonable notice and at reasonable times during normal business
hours; (b) use its reasonable efforts to cause MDI's personnel to assist Buyer
in its investigation of MDI and its Subsidiaries pursuant to this Section 5.2;
and (c) furnish promptly to Buyer all information and documents concerning the
business, assets, liabilities, properties and personnel of MDI and its
Subsidiaries as Buyer may from time to time reasonably request. In addition,
from the date of this Agreement until the Closing Date, MDI shall cause one or
more of its officers to confer on a regular basis with officers of Buyer and to
report on the general status of the ongoing operations of MDI and its
Subsidiaries.
V.3 CONFIDENTIALITY. Except as otherwise required by law or in the
performance of obligations under this Agreement, any nonpublic information
received by a party or its advisors, agents or representatives from the other
party shall be kept confidential and shall not be used or disclosed for any
purpose other than in furtherance of the Transactions. The obligation of
confidentiality shall not extend to information which: (a) is or becomes
generally, available to
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the public other than as a result of a disclosure by a party in violation of
this Agreement; (b) was in the lawful possession of a party prior to its
receipt from the other party; or (c) becomes available to a party on a
nonconfidential basis from a source other than a party to this Agreement,
provided such source is not known to be in violation of a confidentiality
agreement. Upon termination of this Agreement, each party shall, upon
request, promptly return or destroy any confidential information received
from the other party. The covenants of the parties contained in this Section
5.3 shall survive any termination of this Agreement but shall terminate at
the Closing, if it occurs, with respect to information concerning MDI and its
Subsidiaries.
V.4 NOTIFICATION. Stockholder and MDI shall promptly notify Buyer in
writing of the occurrence, or threatened occurrence, of its obtaining knowledge
of: (a) any event that would constitute a breach of this Agreement by
Stockholder or MDI or could be expected to have a Material Adverse Effect on
Stockholder and MDI or on their ability to consummate the Transactions on or
prior to the Termination Date; (b) any event that would cause any representation
or warranty made by Stockholder and MDI in this Agreement to be false or
misleading in any material respect; (c) any other matter which occurs after the
date of this Agreement which, if existing on the date of this Agreement, would
have been required to be disclosed herein; PROVIDED, HOWEVER, that the delivery
of any notice under this Section 5.4 shall not cure any breach of any provision
of this Agreement or otherwise limit or affect the remedies available to the
Buyer; (d) any notice from any governmental or regulatory authority relating to
the Transactions; and (e) any notice or communication from any Person suggesting
that any notice, consent, filing or similar item is necessary to consummate the
Transactions. Buyer shall promptly notify Stockholder in writing of the
occurrence or threatened occurrence, of its obtaining knowledge of: (a) any
event that would constitute a breach of this Agreement by Buyer or could be
expected to have a Material Adverse Effect on Buyer or on its ability to
consummate the Transactions on or prior to the Termination Date; (b) any event
that would cause any representation or warranty made by Buyer in this Agreement
to be false or misleading in any material respect; (c) any other matter which
occurs after the date of this Agreement which, if existing on the date of this
Agreement, would have been required to be disclosed herein; PROVIDED, HOWEVER,
that the delivery of any notice under this Section 5.4 shall not cure any breach
of any provision of this Agreement or otherwise limit or affect the remedies
available to the Stockholder; (d) any notice from any governmental or regulatory
authority relating to the Transactions; and (e) any notice or communication from
any Person suggesting that any notice, consent, filing or similar item is
necessary to consummate the Transactions. Buyer will provide to Stockholder
true and complete copies of all reports or notices to and other communications
with any governmental or regulatory authority relating to Buyer between the date
of this Agreement and the Closing Date. MDI will provide to Buyer true and
complete copies of all reports or notices to and other communications with any
governmental or regulatory authority relating to MDI between the date of this
Agreement and the Closing Date.
V.5 CONSENT OF GOVERNMENTAL AUTHORITIES AND OTHERS. Each of Buyer,
Stockholder and MDI agrees to file, submit or request promptly after the date of
this Agreement and to prosecute diligently any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and notices
appropriate for filing or submission to any governmental
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authorities, as provided in Sections 3.4 and 4.4. Each of Buyer, MDI and
Stockholder agrees to file, submit or request promptly after the date of this
Agreement and to prosecute diligently any and all consents, approvals,
authorizations, registrations, qualifications, filings, applications and
notices appropriate for filing or submission to the Persons which are
required for, or otherwise in furtherance of; the consummation of
Transactions. Each of Buyer, MDI and Stockholder shall promptly make
available to the other such information as each of them may reasonably
request relating to its business, assets, liabilities, properties and
personnel as may be required by each of them to prepare and file or submit
such applications and notices and any additional information requested by any
governmental authority, and shall update by amendment or supplement any such
information given in writing. Each of Buyer, MDI and Stockholder represents
and warrants to the other that such information, as amended or supplemented,
shall be true, correct and complete and not misleading.
V.6 ACQUISITION PROPOSALS; NO SOLICITATION. Stockholder shall not, nor
will it permit MDI or any of their respective directors, officers, employees or
agents to, directly or indirectly: (a) solicit, initiate, encourage or
participate in any negotiations or discussions with respect to any offer or
proposal to, directly or indirectly, acquire all or a substantial portion of the
business or properties, or any of the capital stock or securities, of MDI or any
of its Subsidiaries, whether by merger, consolidation, share exchange, business
combination, purchase of assets, lease of assets, exchange of assets, pledge of
assets, other disposition of assets or otherwise (an "Acquisition Transaction");
or (b) except as required by law, disclose to any Person, other than Buyer or
its agents, any information not customarily disclosed concerning the business,
assets, liabilities, properties and personnel of MDI and its Subsidiaries, or
afford to any Person other than Buyer and its agents access to the properties,
books or records of MDI and its Subsidiaries. If Stockholder or MDI receives
any offer or proposal, written or otherwise, of the type referred to above,
Stockholder shall promptly inform Buyer of such offer or proposal and furnish
Buyer with a copy thereof if such offer or proposal is in writing.
V.7 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and conditions
of this Agreement, each of Stockholder, MDI and Buyer shall use commercially
reasonable efforts in good faith to take or cause to be taken as promptly as
practicable all reasonable actions that are within its control to cause to be
fulfilled: (a) those conditions precedent to its obligations to consummate the
Transactions; and (b) those actions upon which the conditions precedent to the
other party's obligations to consummate the Transactions are dependent. Without
limiting the generality of the foregoing, the parties shall in good faith
vigorously defend any action seeking to enjoin, prohibit or materially, restrict
the Transactions. Notwithstanding the foregoing, the parties shall each make
the appropriate filing under the HSR Act on or prior to April 10, 1998.
V.8 PUBLICITY. Stockholder and Buyer agree to cooperate in issuing any
press release or other public announcement (including any filings made with the
Commission) concerning this Agreement or the Transactions. Nothing contained
herein shall prevent any party from at any time furnishing any information to
any governmental authority which it is by law or otherwise so obligated to
disclose or from making any disclosure which its counsel deems necessary or
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advisable to fulfill such party s disclosure obligations under applicable law or
the rules of NASDAQ.
V.9 INTERCOMPANY RECEIVABLES. At the Closing Date, (a) all obligations of
Stockholder and its Subsidiaries (except MDI and its Subsidiaries) to MDI and
its Subsidiaries shall be satisfied in accordance with their terms and (b) all
obligations of MDI and its Subsidiaries to Stockholder shall be eliminated or
otherwise canceled in a manner which does not and will not have any adverse Tax
consequences on MDI or any of its Subsidiaries. Each of the obligations
described in clauses (a) and (b) of this Section 5.9 as of the date of this
Agreement are set forth on Schedule 5.9.
V.10 GUARANTIES. The Stockholder or one of its Subsidiaries is the
guarantor of certain obligations of MDI and/or its Subsidiaries, as set forth on
Schedule 5.10. The parties shall use commercially reasonable efforts to cause
such guarantees to be released prior to the Closing; PROVIDED, HOWEVER, that
neither party shall be obligated to pay any monies in satisfaction of its
obligations as a result of this Section 5.10.
V.11 INSURANCE MATTERS. On or prior to the tenth day after this Agreement
is executed, Stockholder shall use its commercially reasonable efforts to
deliver to Buyer a list of MDI's and its Subsidiaries' premiums and losses by
year and the type of coverage for the past five years.
V.12 CONFIDENTIALITY ARRANGEMENTS. As of the Closing, Stockholder hereby
assigns to Buyer its entire right, title and interest in and to all of the
confidentiality provisions of the letter of intent, dated March 6, 1998, and the
confidentiality agreement, dated December 8, 1997, between Stockholder and
InSight Health Services Corp.
ARTICLE VI
ADDITIONAL AGREEMENTS
VI.1 [INTENTIONALLY OMITTED.]
VI.2 SCHEDULES. Any item disclosed in any schedule shall be deemed
disclosed in all schedules; the inclusion of any item in any schedule shall
not, in and of itself, be indicia that such item is "material."
VI.3 SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except as otherwise provided therein, the covenants and
agreements of Buyer, Stockholder and MDI contained in this Agreement shall
survive the Closing Date without limitation. Notwithstanding any right of
Buyer fully to investigate the affairs of MDI and its Subsidiaries and
notwithstanding any knowledge of facts determined or determinable by Buyer
pursuant to such investigation or right of investigation, all representations
and warranties of Buyer, Stockholder and MDI contained in this Agreement
shall survive the Closing until 18 months after the Closing Date except for
the representations and warranties (a) contained in Sections 3.2, 4.2,
4.6(d), 4.8,
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4.9, 4.12, 4.13 and 4.22 which shall survive the Closing Date without
limitation as to time, and (b) relating to Taxes of any kind or to Tax
related matters, including, in respect of Section 4.21 and contained in
Section 4.17 to the extent arising out of, in connection with or incident to
liabilities or obligations of Stockholder or its Affiliates (other than MDI
and its Subsidiaries) (the "Employment Amounts"), which in each case shall
survive the Closing Date under the date which is thirty (30) days after the
date the applicable statute of limitations for the payment, collection or
assessment of any such Tax has expired.
VI.4 INDEMNIFICATION.
VI.4.1 Subject to the limitations set forth in Section 6.4.4,
Stockholder agrees to indemnify and hold harmless Buyer and if the Closing
occurs, MDI and its Subsidiaries and their assigns from, against and in respect
of, the full amount of any and all liabilities, damages, claims, deficiencies,
settlements, fines, assessments, losses, Taxes, penalties, interest, costs and
expenses, including reasonable fees and disbursements of counsel, in each event
net of tax benefits related thereto (collectively, "Losses") arising from, in
connection with, or incident to: (a) any breach or violation of any of the
representations, warranties, covenants or agreements of Stockholder or MDI
contained in this Agreement or in any document or certificate delivered by
Stockholder or MDI at or prior to the Closing; (b) any legal, administrative or
other proceeding, arbitration or investigation set forth on Schedule 4.8; (c)
any Guaranty by MDI or any of its Subsidiaries of the Indebtedness of any other
Person other than MDI or any of its Subsidiaries; and (d) any and all actions,
suits, proceedings, demands, assessments, judgments, costs and expenses
incidental to any of the foregoing. Buyer agrees to reimburse Stockholder
and/or any of its Subsidiaries for any payment or expense made under any
guarantee referenced in Section 5.10, without regard to any cap, basket or
other limitation on indemnity contained herein. Buyer shall at all times
cooperate with Stockholder in obtaining the release of such guarantees,
including, but not limited to, making available relevant information to the
beneficiaries of such guarantees, offering substitute guarantees and providing
letters of credit or other security. Notwithstanding anything to the contrary
set forth herein, Losses shall not be deemed to include any consequential
incidental, special, exemplary, punitive or similar damages, and no party shall
be liable to any other party in connection herewith with respect to any such
damages. Stockholder shall, at the reasonable request of Buyer and at Buer's
expense, prosecute claims for indemnity under the 1997 Merger Agreement, or in
the alternative, Buyer may prosecute such claims, at its expense, in the name of
Stockholder. The parties will cooperate in connection therewith. Any claim for
indemnity must state with reasonable particularity, the provision of this
Agreement giving rise thereto, the facts giving rise to the alleged basis for
the claim and, if then determinable, an estimate of the amount of Losses
resulting therefrom.
VI.4.2 Subject to the limitations set forth in Section 6.4.4, Buyer
agree, jointly and severally, to indemnify and hold harmless Stockholder from,
against and in respect of, the full amount of any and all Losses arising from,
in connection with, or incident to: (a) any breach or violation of any of the
representations, warranties, covenants or agreements of Buyer contained in this
Agreement or in any document or certificate delivered by Buyer at or prior to
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the Closing; and (b) any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incidental to any of the foregoing.
VI.4.3 A party or parties hereto agreeing to be responsible for or
to indemnify, against any matter pursuant to this Section 6.4 is referred to
herein as the "Indemnifying Party" and the other party or parties claiming
indemnity is referred to as the "Indemnified Party." An Indemnified Party under
this Agreement shall, with respect to claims asserted against such party by any
third party, give written notice to each Indemnifying Party of any liability
which might give rise to a claim for indemnity under this Agreement within ten
(10) business days of the receipt of any written claim from any such third
party, and with respect to other matters for which the Indemnified Party may
seek indemnification, give prompt written notice to each Indemnifying Party;
provided, however, that any failure to give such notice will not waive any
rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced. The Indemnifying Party shall, in
the name of the Indemnified Party or the Indemnifying Party, in good faith and
at its sole cost and expense prosecute, contest and defend, by all appropriate
legal proceedings with counsel reasonably satisfactory to the Indemnified Party,
all such claims. The Indemnified Party shall have the right, at its own
expense, to participate in such proceedings and to be represented by, separate
attorneys of its choice. If the Indemnifying Party has not been notified of a
claim as provided herein or is directing the defense in connection with a claim,
the Indemnified Party shall not admit liability with respect to any claim or
settle, compromise, pay or discharge the same without the prior written consent
of the Indemnifying Party, and Indemnified Party shall enter into any settlement
so long as the Indemnifying Party agrees to pay the entire amount of such
settlement. The Indemnifying Party shall have no indemnification obligations
with respect to or in connection with a claim if the Indemnified Party fails to
strictly comply with the immediately preceding sentence. The Indemnified Party
shall not otherwise unreasonably object to any settlement proposed by the
Indemnifying Party. The Indemnified Party and the Indemniying Party agree to
afford one another the opportunity to be present at, and to participate in,
conferences with all Persons asserting claims for which indemnification is
sought hereunder. The Indemnified Party and the Indemnifying Party shall
actively cooperate with and assist each other to the extent lawful and
reasonably possible. The Indemnified Party shall be kept fully informed of the
defense of any such claim at all stages thereof. If the Indemnifying Party
fails to timely and in good faith defend against any such claim, the Indemnified
Party shall, after providing 10 days prior written notice to the Indemnifying
Party, have the right, but not the obligation, to defend the same and may make
any compromise or settlement thereof and recover and be indemnified for the
entire cost thereof from the Indemnifying Party. If, in good faith, the
Indemnified Party concludes that there are specific defenses or counterclaims
available to the Indemnified Party which are different from or in addition to
those available to the Indemnifying Party then the Indemnified Party shall have
the right to direct the defense of any such claim if not doing so would
materially prejudice the Indemnified Party due to the difference of such
defenses or counterclaims, and the Indemnifying Party shall bear the expenses
thereof. If the Indemnified Party is, directly or indirectly, conducting a
defense against any such claim, the Indemnifying Party shall (i) cooperate with
the Indemnified Party in any such defense and make available to it all such
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witnesses, records, materials and information in its possession or under its
control and (ii) be entitled to participate in such defense as its own cost and
expense.
VI.4.4 (a) Stockholder shall not be liable to Buyer hereunder
unless and until and only to the extent the cumulative aggregate claims of Buyer
against Stockholder exceed $750,000 (the "Threshold Amount"), and (b) Buyer
shall not be liable to Stockholder hereunder unless and until and only to the
extent the cumulative aggregate claims of Stockholder against Buyer and the
Threshold Amount. Notwithstanding the foregoing, the Threshold Amount and the
Stockholder Cap Amount and the Buyer Cap Amount shall be inapplicable with
respect to indemnification obligations of a party arising in connection with the
breach of any provision of Sections 4.6(d), 4.12, 4.13 and 4.22 or Articles II,
V (except Section 5.1 or 5.4), VI (except Section 6.4.1 as it relates to
breaches of representations and warranties other than with respect to Sections
4.6(d), 4.12, 4.13 and 4.22) or VII. Notwithstanding the foregoing, the
Stockholder Cap Amount shall be inapplicable with respect to Section 4.8. For
purposes of the calculation under this Section 6, there shall be an offset
against claims of an amount equal to the amount of any cash payment actually
received by an Indemnified Party after the Closing Date covering any such claim
from any insurance policy. Notwithstanding anything to the contrary set forth
herein, Stockholder shall not be liable to Buyer for matters arising hereunder
or in connection herewith in an amount in excess of (i) the Purchase Price with
respect to (A) Taxes, (B) Employment Amounts and (C) the representations and
warranties of Stockholder and MDI set forth in Sections 4.1, 4.2, 4.3, 4.4 and
4.9, and (ii) $15,000,000 with respect to all other representations and
warranties of Stockholder and MDI set forth in this Agreement (the "Stockholder
Cap Amount"). Notwithstanding anything to the contrary set forth herein, Buyer
shall not be liable to Stockholder for matters arising hereunder or in
connection herewith in an amount in excess of $15,000,000 ("Buyer Cap Amount").
VI.4.5 The parties hereto agree that indemnification pursuant to
this Section 6.4 is the sole and exclusive monetary remedy of the parties for
breach of contract for the breach of any representation, warranty, covenant or
agreement of any party hereto under this Agreement or for any other claim
arising hereunder or in connection herewith; PROVIDED, HOWEVER, that the
foregoing shall be inapplicable to intentional and willful breaches or
violations and shall not preclude any party from pursuing any equitable remedies
available to it.
VI.5 GENERAL RELEASE. As a material inducement for Buyer to enter into
this Agreement, effective as the Closing Date, except for claims in connection
herewith and except as expressly set forth on Schedule 6.5, Stockholder, on
behalf of itself and its Subsidiaries, hereby unconditionally and irrevocably,
releases and forever discharges, effective as of the Closing Date, MDI and its
respective Subsidiaries from any and all rights, claims, demands, judgments,
obligations, liabilities and damages, whether accrued or unaccrued, asserted or
unasserted, and whether known or unknown, suspected or unsuspected, relating to
MDI and/or any of its Subsidiaries which ever existed, now exist, or may
hereafter exist, by reason of any tort, breach of contract, violation of law or
other act or failure to act which shall have occurred at or prior to the Closing
Date. Stockholder expressly intends that the foregoing release shall be
effective
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regardless of whether the basis for any claim or right hereby released
shall have been known to or anticipated by Stockholder.
VI.6 ASSIGNMENT OF RIGHTS OF STOCKHOLDER UNDER 1997 MERGER AGREEMENT.
Effective as of the Closing Date, Stockholder shall, to the extent permitted by
the 1997 Merger Agreement, be deemed to have assigned, without recourse, to
Buyer all of Stockholder's right, title and interest in and to, and all of its
benefits and privileges, if any, under the 1997 Merger Agreement, including
those relating to indemnification, if any, it being understood that such rights,
by their terms, are not assignable.
VI.7 POST-CLOSING ACCESS AND COOPERATION. After the Closing, MDI and
Buyer shall permit the Seller reasonable access to all books and records and
employees and agents of MDI and its Subsidiaries as may be necessary or
advisable in connection with the preparation of tax returns or the prosecution
or defense of any audits or third-party claims or otherwise reasonably requested
by Stockholder for proper business purposes; and MDI and Buyer shall cooperate
in connection with the foregoing. This Section shall survive the Closing.
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VI.8 RESTRICTIVE COVENANTS.
VI.8.1 NONCOMPETITION. Stockholder recognizes that to assure
Buyer that Buyer will retain the value of MDI as a "going concern," it is
necessary, upon the terms and subject to the conditions hereof, that
Stockholder undertakes not to utilize its special knowledge of the business
of MDI and its Subsidiaries and their relationships with customers and
suppliers of MDI and its Subsidiaries to compete with Buyer or MDI or its
Subsidiaries. Stockholder hereby agrees that it shall, for a period from the
Closing Date until the third anniversary thereof (such aggregate period being
hereinafter referred to as the "Covenant Period") refrain from, anywhere
within a 30-mile radius of any fixed site or any stop on any mobile route at
which MDI conducts business as of the date of this Agreement, or has
conducted business prior to the Closing Date, directly or indirectly, owning,
managing, operating, controlling or financing, or participating in the
ownership, management, operation, control or financing of, or being connected
with or having any interest in, or otherwise taking any part as a
stockholder, director, officer, employee, consultant, independent contractor,
partner or otherwise in any mobile or fixed diagnostic imaging business
competitive with that engaged in by MDI as of the Closing Date, including
providing mobile radiology, MRI, CT or other mobile or fixed diagnostic
imaging services (the "Competitive Business"); provided, however, that the
foregoing shall not apply solely to the ownership of not more than two
percent (2%) of the outstanding capital stock of any company listed by a
national securities exchange or an over-the-counter stock listed by the
National Association of Securities Dealers; and, provided, further, that the
foregoing shall not restrict Stockholder from acquiring, owning, managing,
operating, financing and controlling a Competing Business to the extent the
Competing Business (A) is part of (or a subsidiary of) an entity acquired by
Stockholder which (i) on a consolidated basis derives less than 20% of its
revenue from a Competing Business or (ii) on a consolidated basis derives
less than half of its revenues from a Competing Business, so long as such
Competing Business is disposed of within one year of its acquisition and does
not increase the number of units operated by such Competing Business and (B)
does not in any manner solicit or accept referrals from radiologists who
refer business to MDI and its Subsidiaries; and, provided, further, that the
foregoing shall not restrict the activities of any entity or its Affiliates
which may acquire the whole or any part of Stockholder or any of its
Subsidiaries provided that such entity or its Affiliates (x) is a Competing
Business at the time of such acquisition, (y) does not use in any manner any
confidential or proprietary information of MDI or any of its Affiliates and
(z) does not use any assets or other resources of Stockholder or any of its
Affiliates in connection with any Competing Business.
VI.8.2 CONFIDENTIAL INFORMATION. Stockholder agrees not to at any
time subsequent to the Closing Date, disclose, directly or indirectly, to any
Person, or use or cause or authorize any Person to use any confidential
information relating to MDI or any of its Subsidiaries, including information
concerning financial condition, results of operations, customers, suppliers,
services, inventions, sources, leads or methods of obtaining new products,
services or business, intangible property or methods of operating their
businesses or any other information relating to MDI or any of its Subsidiaries
which Stockholder knows or should know is actually confidential and valuable and
proprietary to MDI; PROVIDED, HOWEVER, that this Section
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6.8.2 shall not restrict the disclosure of confidential information (a) to
any governmental entity to the extent required by law or (b) which is
publicly known and available through no wrongful act of Stockholder or its
Affiliates.
6.8.3 SOLICITATION OF BUSINESS. During the Covenant Period,
Stockholder agrees that it will not, directly or indirectly, at any time solicit
or cause or authorize directly or indirectly to be solicited, or accept or cause
or authorize directly or indirectly to be accepted, for or on behalf of itself
or other Persons, any Competitive Business of MDI or any of its Subsidiaries
from Persons who were customers of MDI or any of its Subsidiaries at any time
within one year prior to the Closing Date.
6.8.4 SOLICITATION OF PERSONNEL. During the Covenant Period,
Stockholder agrees that it will not solicit or cause or authorize, directly or
indirectly, to be solicited for employment or employ or cause or authorize,
directly or indirectly, to be employed or engaged as an employee, independent
contractor or sales agent, for or on behalf of itself or any other Person, any
Person who was an employee, independent contractor or sales agent of MDI or any
of its Subsidiaries at the Closing Date or whose employment was terminated
within 90 days prior to or within 183 days after the Closing Date by Buyer, MDI
or any of its Subsidiaries; PROVIDED that the foregoing shall not apply, to an
employee of both MDI or any of its Subsidiaries and also of Stockholder or any
of its Subsidiaries, all of whom are set forth on Schedule 6.8.4.
6.8.5 USE OF SYMBOLS. Stockholder agrees not to at any time after
the Closing Date, directly, or indirectly, use or authorize any Person (i) to
use any name, mark, logo or other identifying words or images (collectively,
"Symbols") which are similar to those used br MDI or any of its Subsidiaries in
connection with any business product or service, whether or not competitive with
any business then being carried on by MDI or any of its Subsidiaries or any
product or service then being sold or provided by MDI or any of its
Subsidiaries, except to the extent that any such Symbols primarily relate to
Stockholder.
6.8.6 INJUNCTIVE RELIEF. Stockholder acknowledges that it would
be very difficult or impossible to measure the damages resulting from the breach
of any provision of this Section 6.8. Stockholder further acknowledges that the
restrictions herein are reasonable and reasonably necessary for the protection
of the legitimate business interests and goodwill of MDI and Buyer, and that a
violation by Stockholder of any such covenant will cause irreparable damage to
MDI and Buyer. Therefore, Stockholder hereby agrees that any breach or
threatened breach by it of any provision of this Section 6.8 shall entitle MDI
and Buyer, in addition to any other legal remedies available to them, to a
temporary and permanent injunction or any other appropriate decree of specific
performance (without any bond or security being required) in order to enjoin
such breach or threatened breach. It is the desire and intent of the parties
that the provisions of this Section 6.8 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular subparagraph or
portion of this Section 6.8 shall be adjudicated to be invalid or unenforceable,
this Section 6.8 shall not be deemed null and void and shall be deemed amended
to delete therefrom the portion thus adjudicated to be invalid or unenforceable,
such deletion to
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apply only with respect to the operation of this Section 6.8 in that
particular jurisdiction in which such adjudication is made. If any
provisions of this Section 6.8 relating to the time period, scope of
activities or areas of restrictions shall be declared by a court of competent
jurisdiction to exceed the maximum time period, scope of activities or area
such court deems reasonable and enforceable, the time period, scope of
activities or areas of restrictions shall thereafter be deemed the maximum
which such court deems reasonable and enforceable.
VI.9 TAX MATTERS.
VI.9.1 TAX AND OTHER FILINGS. Upon the request of any party, each
other party shall on and after the Closing Date cooperate with the requesting
party and provide the requesting party with such information and execute and
deliver such documents as the requesting party may reasonably request with
respect to the filing and auditing of Tax Returns and financial statements with
respect to any required filings with any government agencies or related claims
with respect to MDI and its Subsidiaries for all periods prior to the Closing
Date. Buyer further agrees to maintain the records of MDI and its Subsidiaries
received by reason of the Closing relating to the period prior to or after the
Closing Date for a period of seven years, provided that should Buyer decide to
dispose of any such records prior to the end of such seven-year period it shall
give prior written notice to the Stockholder so that the Stockholder may
determine to take possession of any of the records sought to be disposed of.
VI.9.2 Stockholder and Buyer shall make timely and valid elections
pursuant to Code Section 338(h)(10) (and any analogous state and local tax
provisions) (the "Section 338(h)(10) Elections") regarding the sale and purchase
of the stock of MDI and the MDI Subsidiaries under this Agreement. Neither the
Seller nor the Purchaser will take any action, including, without limitation,
any action in connection with the filing of federal, state or local income Tax
returns of any Person, which would be inconsistent with or prejudice the Section
338(h)(10) Elections. Stockholder and buyer shall use their best efforts to
agree, on or prior to the Closing Date, to an allocation of the Purchase Price
(together with liabilities assumed hereunder and other relevant items) among the
assets of MDI and the MDI Subsidiaries (the "PURCHASED ASSETS"). such
allocation will comply with the requirements of Code Section 338(h)(10) and the
regulations thereunder. Stockholder and Buyer shall, to the extent permitted by
applicable law, file all Tax Returns in accordance with that allocation and they
will not take, nor will they permit any Affiliate to take, any position
inconsistent with that allocation unless otherwise required by applicable law.
VI.9.3 RETURNS FOR TAX PERIODS ENDING ON OR BEFORE THE CLOSING
DATE. Stockholder shall file (or cause to be filed) any Tax Returns of MDI and
its Subsidiaries for Tax periods ending on or before the Closing Date which are
to be filed after the Closing Date. (including Tax Returns relating to the
Section 338(h)(10) Elections). Such Tax Returns shall be prepared on a basis
consistent with past practice to the extent such past practice is consistent
with all state, local and foreign Tax laws, rules and regulations. Stockholder
shall be responsible for all Taxes of MDI, its Subsidiaries and any person with
which MDI, or its Subsidiaries files or has filed a consolidated or combined Tax
Return for all Tax periods ending on or prior to the
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Closing Date but after the Acquisition Date, including all Taxes relating to
the Section 338(h)(10) Elections, and Stockholder shall indemnify Buyer and
its Affiliates and assigns against, and hold them harmless from, any and all
such Taxes and any liabilities with respect thereto.
VI.9.4 CONTEST. Stockholder shall be responsible for conducting
any Tax audit or contest relating to Taxes that are the responsibility of the
Stockholder hereunder, PROVIDED, HOWEVER, that Buyer shall have the right to
participate in such audit or contest and to employ counsel of its own choice at
its own expense for purposes of such participation; provided further, that
Stockholder (or any affiliate) may not settle such audit or contest, or
otherwise conduct such audit or contest, in a manner that would have an adverse
effect on Buyer, MDI or its Subsidiaries after the Closing Date, without the
prior written consent of Buyer, which consent shall not be unreasonably
withheld.
VI.9.5 RETURNS FOR TAX PERIODS BEGINNING BEFORE AND ENDING AFTER
THE CLOSING DATE. Buyer shall file (or cause to be filed) any Tax Returns of
MDI and its Subsidiaries for Tax periods which begin before the Closing Date and
end after the Closing Date. Such Tax Returns shall be prepared on a basis
consistent with past practice to the extent such past practice is consistent
with all state, local and foreign Tax laws, rules and regulations. Buyer shall
send copies of such Tax Returns to Stockholder. Stockholder shall pay to Buyer
within ten days of the date on which Taxes are paid with respect to such periods
an amount equal to the Tax liability of MDI and its Subsidiaries for the portion
of such period ending on the Closing Date. Such Tax liability shall be computed
as if the Tax periods of MDI and its Subsidiaries ended on the Closing Date and
included an allocable share of the income, deductions and other Tax items of MDI
and its Subsidiaries. The income, deductions and other Tax items of MDI and its
Subsidiaries for such Tax periods shall be allocated to the portion of the
period ending on the Closing Date and the portion of the period beginning after
the Closing Date by closing the books of MDI and its Subsidiaries as of the end
of the Closing Date. Stockholder shall be entitled to a pro rata share of any
refunds relating to such pre-closing periods.
Without regard to the foregoing, the parties hereto agree that in view of
the closing of MDI's tax year, for federal and state income tax purposes, on the
Closing Date in accordance with Section 6.9.3 hereof, this Section 6.9.5 shall
be inapplicable to the federal and state income tax returns of MDI and its
Subsidiaries.
VI.10 STOCKHOLDER'S OBLIGATIONS. Except with respect to Taxes, after
the Closing, Buyer and MDI shall cause the discharge in accordance with their
terms of all obligations of MDI and/or any of its Subsidiaries for which
Stockholder and/or any of its other Subsidiaries may be liable, by way of
guarantee or otherwise. Buyer and MDI shall use their best efforts to cause all
guarantees referenced in Section 5.11 to be released by, among other things,
offering substitute guarantees, providing information to the beneficiaries of
such guarantees and providing letters of credit. Without regard to any
limitation on liability or indemnification, Buyer and MDI shall immediately
reimburse Stockholder and any other guarantor listed on Schedule 5.11 for any
payments made pursuant to any such guarantee. This Section shall survive the
Closing.
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VI.11 LETTER OF CREDIT. At the Closing, Buyer shall deliver one or
more letters of credit issued for its account by its principal bank to The Chase
Manhattan Bank ("Chase") to collateralize letters of credit currently issued for
the account of MDI, and MDI shall be deemed to have irrevocably assigned and
transferred to Stockholder the $700,000 of cash currently collateralizing such
letters of credit; and if all or any part of such cash collateral is delivered
to MDI or Buyer the same shall forthwith be delivered to Stockholder; PROVIDED,
HOWEVER, if Chase does not accept such letters of credit as collateral on such
MDI letters of credit on or prior to the Closing, Buyer shall be obligated to
deliver to Stockholder at the Closing, in lieu of $700,000, an amount equal to
the present value of $700,000 discounted back to the Closing Date at the rate of
ten percent (10%) per annum from the date of maturity of the Indebtedness which
the MDI letters of credit secure. The parties shall use commercially reasonable
efforts to cause Chase to accept such substituted letters of credit. The
adjustments contemplated by this Section 6.11 shall be deemed upward purchase
price adjustments.
VI.12 CLIFTON, NEW YORK PROJECT. At the Closing, Buyer shall reimburse
Stockholder for all expenditures made and all indebtedness incurred in
furtherance of the Clifton, New York project up to a maximum aggregate amount of
$2,025,000; and such reimbursement shall be deemed a purchase price adjustment.
ARTICLE VII
CLOSING; CONDITIONS PRECEDENT; TERMINATION
VII.1 CLOSING. At the Closing, the parties shall deliver to each other
such documents as may be specified, or required to satisfy the conditions set
forth, in Sections 7.2, 7.3 and 7.4, and such other documents and instruments as
each party may reasonably request from the other party. All proceedings to be
taken and all documents to be executed at the Closing shall be deemed to have
been taken, delivered and executed simultaneously, and no proceeding shall be
deemed taken nor documents deemed executed or delivered until all have been
taken, delivered and executed.
VII.2 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties to consummate the Transactions are subject to the satisfaction at or
prior to the Closing of the following conditions.
(a GOVERNMENTAL CONSENTS. All consents and approvals required by
governmental authorities for the consummation of the Transactions shall have
been obtained, except where the failure to obtain such consent or approval would
not have a Material Adverse Effect on Stockholder or MDI, including the
expiration or termination of any notice and waiting period under the HSR Act,
provided that Buyer shall be entitled to indemnification under Section 6.4 for
any and all Losses incurred by Buyer arising from, in connection with, or
incident to any such failure.
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(b NO LITIGATION. No litigation, arbitration or other proceeding
shall be pending or, to the knowledge of the parties, threatened by or before
any court, arbitration panel or governmental authority; no law or regulation
shall have been enacted after the date of this Agreement and no judicial or
administrative decision shall have been rendered; in each case, which enjoins,
prohibits or materially restricts the consummation of the Transactions.
VII.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer to consummate the Transactions are subject to the
satisfaction at or prior to the Closing of the following conditions.
(a REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Stockholder and MDI contained in this Agreement and in any
certificate or notice delivered pursuant to this Agreement shall be true and
correct in all material respects (except for representations and warranties
which are by their terms qualified by materiality, which shall be true and
correct in a11 respects after giving effect to the materiality qualification
contained in such representations and warranties) as of the Closing Date with
the same force and effect as though made on and as of such date, except to the
extent that such representations and warranties by their terms are specifically
made as of an earlier date.
(b COVENANTS PERFORMED. The covenants of Stockholder and MDI
contained in this Agreement to be performed or complied with on or prior to the
Closing Date shall have been duly performed or complied with in all material
respects.
(c CONSENTS. Stockholder shall have obtained all consents and
approvals required to effectuate the Transactions on behalf of MDI and its
Subsidiaries, all of which shall have been obtained without the imposition of
any materially adverse terms or condition, except where the failure to obtain
the same would not have a Material Adverse Effect on MDI.
(d CERTIFICATE OF STOCKHOLDER. Stockholder shall have delivered to
Buyer a certificate executed by its Chief Executive Officer and Chief Financial
Officer, dated the Closing Date, certifying that the conditions specified in
Sections 7.3(a) and (b) have been fulfilled.
(e INTERCOMPANY RECEIVABLES. All obligations of Stockholder and its
Subsidiaries (except MDI and its Subsidiaries) to MDI and its Subsidiaries shall
have been satisfied in accordance with their terms.
(f RESIGNATIONS. Stockholder shall have delivered such resignations
of officers and directors of MDI and its Subsidiaries as Buyer shall have
requested.
(g LEGAL OPINION. Buyer shall have been furnished with an opinion
of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., counsel for
Stockholder, dated the Closing Date, in substantially the form attached hereto
as Exhibit 7.3(g).
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VII.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STOCKHOLDER AND MDI.
The obligations of Stockholder and MDI to consummate the Transactions are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Buyer contained in this Agreement or in any certificate or notice
delivered pursuant to this Agreement shall be true and correct in all material
respects (except for representations and warranties which are by their terms
qualified by materiality, which shall be true and correct in all respects after
giving effect to the materiality qualifications contained in such
representations and warranties) as of the Closing Date with the same force and
effect as though made on and as of such date, except to the extent such
representations and warranties by their terms are specifically made as of an
earlier date.
(b COVENANTS PERFORMED. The covenants of Buyer contained in this
Agreement to be performed or complied with on or prior to the Closing Date shall
have been duly performed or complied with in all material respects.
(c BUYER CERTIFICATE. Buyer shall have delivered to Stockholder a
certificate executed by its President or a Vice President, dated the Closing
Date, certifying that the conditions specified in Sections 7.4(a) and (b) above
have been fulfilled.
(d INTERCOMPANY RECEIVABLES. All obligations of MDI and its
Subsidiaries to Stockholder for advances subsequent to the date hereof shall
have been satisfied.
VII.5 TERMINATION. This Agreement and the Transactions may be
terminated prior to the Closing:
(a at any time by mutual consent of the parties;
(b by either party if the Closing has not occurred on or prior to
June 30, 1998 (the "Termination Date"), provided the failure of the Closing to
occur by such date is not the result of the failure of the party seeking to
terminate this Agreement to perform or fulfill any of its obligations hereunder.
(c by Buyer at any time in its sole discretion if any of the
representations or warranties of Stockholder in this Agreement are not in all
material respects true and accurate or if Stockholder breaches in any material
respect any covenant contained in this Agreement, provided that if such
misrepresentation or breach is reasonably curable, it is not cured within 30
business days after written notice thereof specifying the nature of the breach,
but in any event prior to the Termination Date;
(d by, MDI or Stockholder at any time in its sole discretion if any
of the representations or warranties of Buyer in this Agreement are not in all
material respects true and accurate or if Buyer breaches in any material respect
any covenant contained in this Agreement,
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<PAGE>
provided that if such misrepresentation or breach is reasonably curable, it
is not cured within 30 business days after written notice thereof specifying
the nature of the breach, but in any event prior to the Termination Date.
If this Agreement is terminated pursuant to this Section 7.5, this
Agreement shall terminate and become void and of no force and effect, the
Transactions shall be abandoned without further action br any of the parties to
this Agreement, and no party to this Agreement shall have any liability or
further obligation under this Agreement, except for the agreements contained in
Sections 5.3 (Confidentiality), 8.7 (Fees and Expenses), 8.10 (Litigation;
Prevailing Parties), 8.12(Governing Law) and 8.13 (Jurisdiction and Venue);
provided that any termination of this Agreement pursuant to this Section 7.5
shall not relieve any party from any liability for the breach of any
representation, warranty or covenant contained in this Agreement or be deemed to
constitute a waiver of any remedy available for such breach and provided further
that in the event such breach is not willful or otherwise intentional the
breaching party's liability shall be limited to reimbursing the non-breaching
party its reasonable out-of-pocket costs and expenses (including reasonable fees
and disbursements of counsel) not to exceed $250,000 in the aggregate.
ARTICLE VIII
MISCELLANEOUS
VIII.1 NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by, prepaid overnight
courier to the parties at the addresses set forth below their names on the
signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice), to the attention of the President of
such party. Such notices, demands, claims and other communications shall be
deemed given when actually received or (a) in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery; or (b) in the case of registered U.S. mail, five days after
deposit in the U.S. mail.
VIII.2 ENTIRE AGREEMENT. This Agreement among the parties contain every
obligation and understanding be given the parties relating to the subject matter
hereof and merge all prior discussions, negotiations and agreements, if any,
between them and none of the parties shall be bound by any representations,
warranties, covenants, or other understandings, other than as expressly provided
or referred to herein.
VIII.3 ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto may not be assigned by any party without the written consent of
the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
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VIII.4 WAIVER AND AMENDMENT. Any representation, warranty, covenant,
term or condition of this Agreement which may legally be waived, may be waived,
or the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof may
be amended by the parties hereto at any time. Any such waiver, extension or
amendment shall be evidenced by an instrument in writing executed on behalf of
the appropriate party by a person who has been authorized by its board of
directors to execute waivers, extensions or amendments on its behalf. No waiver
by any party hereto, whether express or implied, of its rights under any
provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party hereto to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach of default by such other party.
VIII.5 NO THIRD PARTIES BENEFICIARY. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
Person other than the parties hereto and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
VIII.6 SEVERABILITY. If any one or more of the provisions contained in
this Agreement shall be declared invalid, void or unenforceable, the remainder
of the provisions of this Agreement shall remain in full force and effect, and
such invalid, void or unenforceable provision shall be interpreted as closely as
possible to the manner in which it was written.
VIII.7 EXPENSES. All expenses (including legal fees and expenses,
investment banking fees, fees and expenses of accountants) incurred by
Stockholder or MDI in connection with the Transactions will be borne by
Stockholder on behalf of MDI, and all expenses incurred Buyer in connection with
the Transactions will be borne by Buyer except that Buyer shall pay (i) $100,000
to Salomon Smith Barney and (ii) all filing fees payable with respect to filings
required by the HSR Act.
VIII.8 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only, and shall not affect the meaning or
interpretation of any provisions of this Agreement.
VIII.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Any telecopied
counterpart of a manually executed original shall be deemed a manually executed
original.
VIII.10 LITIGATION: PREVAILING PARTY. In the event of any litigation
with regard to this Agreement, the prevailing party with respect to a claim
shall be entitled to receive from the non-prevailing party with respect to such
claim and such non-prevailing party shall pay upon demand all reasonable fees
and expenses of counsel for such prevailing party.
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VIII.11 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, injunctive relief, specific performance or other equitable
remedies in addition to all other remedies provided hereunder or available to
the parties hereto at law or in equity.
VIII.12 GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Delaware,
without reference to the choice of law principles thereof.
VIII.13 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction of the courts of the State of Florida. The parties to
this Agreement agree that any breach of any term or condition of this Agreement
shall be deemed to be a breach occurring in the State of Florida by virtue of a
failure to perform an act required to be performed in the State of Florida and
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the State of Florida for the purpose of resolving any disputes among the parties
relating to this Agreement or the Transactions. The parties irrevocablv waive,
to the fullest extent permitted by, law, any objection which they made now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement, or any judgment entered by any court in
respect hereof brought in the State of Florida, and further irrevocably waive
any claim that any suit, action or proceeding brought in the State of Florida
has been brought in an inconvenient forum.
VIII.14 OBLIGATIONS OF MDI. Notwithstanding any provision to the
contrary set forth herein, after the Closing Date, Stockholder: (a) shall be
solely responsible for all representations, warranties, covenants and agreements
of MDI set forth herein, as if Stockholder (and not MDI) had made such
representations, warranties, covenants and agreements, and Stockholder shall
cause MDI not to breach any such representation or warranty or violate any such
covenant or agreement; and (b) irrevocably waives any right that it may have to
seek indernnity or contribution or any similar remedy from MDI with respect to
any such matter.
VIII.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
VIII.16 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.
All covenants hereunder shall be given independent effect so that if a certain
action or condition constitutes a default under a certain covenant, the fact
that such action or condition is permitted by another covenant shall not affect
the occurrence of such default, unless expressly permitted under an exception to
such initial covenant. In addition, all representations and warranties
hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached shall not affect the incorrectness of or a breach
of a representation and warranty hereunder.
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<PAGE>
VIII.17 INTERPRETATION; CONSTRUCTION. The term "Agreement" means this
Agreement together with all Schedules and Exhibits hereto, as the same may from
time to time be amended, modified, supplemented or restated in accordance with
the terms hereof. The use in this Agreement of the term "including" means
"including, without limitation," the words "herein," "hereof," "hereunder,"
"hereby," "hereto," "hereinafter," and other words of similar import refer to
this Agreement as a whole, including the Schedules and Exhibits, as the same may
from time to time be amended, modified, supplemented or restated, and not to any
particular Article, Section, subsection, paragraph, subparagraph or clause
contained in this Agreement. All reference to Articles, Sections, Subsections,
clauses, paragraphs, Schedules and Exhibits mean such provisions of this
Agreement and the Schedules and Exhibits attached to this Agreement, except
where otherwise stated. The title of and the Article, Section and paragraph
headings in this Agreement are for convenience of reference only and shall not
govern or affect the interpretation of any of the terms or provisions of this
Agreement; the use herein of the masculine, feminine or neuter forms shall also
denote the other forms, as in each case the context may require; where specific
language is used to clarify by example a general statement contained herein,
such specific language shall not be deemed to modify, limit or restrict in any
manner the construction of the general statement to which it relates. The
language used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied against any
party. Accounting terms used but not otherwise defined herein shall have the
meanings given to them under GAAP.
VIII.18 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT OR
AGREEMENT EXECUTED IN CONNECTION HEREWITH.
[SIGNATURES BEGIN ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
ALLIANCE IMAGING, INC.
By: /s/ Richard N. Zehner
--------------------------------------------
Name: Richard N. Zehner
------------------------------------------
Title: President & Chief Executive Officer
------------------------------------------
US DIAGNOSTIC INC.
By: /s/ Joseph A. Paul
--------------------------------------------
Name: Joseph A. Paul
------------------------------------------
Title: President
------------------------------------------
MEDICAL DIAGNOSTICS, INC.
By: /s/ Joseph A. Paul
--------------------------------------------
Name: Joseph A. Paul
------------------------------------------
Title: President
------------------------------------------
-43-
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,200
<SECURITIES> 0
<RECEIVABLES> 22,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,243
<PP&E> 251,814
<DEPRECIATION> 102,711
<TOTAL-ASSETS> 323,632
<CURRENT-LIABILITIES> 37,473
<BONDS> 339,886
0
14,997
<COMMON> 41
<OTHER-SE> (84,871)
<TOTAL-LIABILITY-AND-EQUITY> 323,632
<SALES> 0
<TOTAL-REVENUES> 31,241
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<TOTAL-COSTS> 15,235
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