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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 2, 1997 (April 17, 1997)
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DIAGNOSTIC HEALTH SERVICES, INC.
Delaware 0-21758 22-2960048
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(State or other (Commission File (IRS Employer ID
jurisdiction of No.) No.)
incorporation)
2777 Stemmons Freeway, Suite 1525, Dallas, Texas 75207
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(Address of principal executive offices)
(214) 634-0403
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
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On April 17, 1997 (effective as of March 1, 1997), Diagnostic Health
Services, Inc. (the "Company"), through a subsidiary, purchased from Diagnostic
Imaging Services, Inc., a Delaware corporation (the "Seller"), all of the issued
and outstanding capital stock of Diagnostic Imaging Services, Inc., a California
corporation ("DIS", and together with its wholly-owned subsidiaries, Diagnostic
Imaging Services, Inc. I and Santa Monica Imaging Center Limited Partnership,
collectively referred to herein as the "Acquired Companies"). The Business of
the Acquired Companies (the "Business") consists primarily of the ownership and
operation of four (4) hospital-based magnetic resonance imaging (MRI) centers
located in Southern California.
The purchase included $15,130,620 of various assets (including goodwill),
including approximately $7,218,842 of equipment, furniture and fixtures, and
$7,911,778 of goodwill. The purchase price paid to the Seller was $9,083,865
(subject to post-closing adjustment), of which $7,583,865 was paid in cash, and
the remaining $1,500,000 of which is payable either in cash or (at the Seller's
option) in common stock of the Company (valued at $7.615 per share) in three
equal annual installments of $500,000 each on April 17 of each of 1998, 1999 and
2000. In addition, the Acquired Companies were acquired subject to capital
lease obligations, financing agreements and other commitments in respect of
fixed assets of the Business in the aggregate principal amount of $6,046,755.
The amount of consideration paid in the transaction was based upon management's
estimates of the future earning capacity of the Business under the Company's
ownership and management (including potential expansion of the existing hospital
relationships of the Business), anticipated reductions of overhead expenses in
the Business through elimination of duplicative administrative functions, and
anticipated efficiencies and economies to be achieved by further absorption of
existing overhead and fixed costs of the Company's operations.
The Company intends to continue the Business in substantially the manner
heretofore conducted, utilizing the assets (including furniture, equipment and
leasehold improvements) acquired in the transaction, as well as additional
equipment and working capital to be provided by the Company from time to time in
its discretion.
As part of the acquisition, the Company and the Acquired Companies obtained
a 10-year non-competition agreement, pursuant to which the Seller and its
corporate parent have agreed not to engage or participate in any business
enterprise providing magnetic resonance imaging services at any location within
a seven (7) mile radius of any of the imaging centers currently operated by the
Acquired Companies, subject to certain exceptions for existing facilities owned
or operated by the Seller at the time of closing.
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In consideration of such non-competition agreement, the Company paid, at the
time of closing, the aggregate cash sum of $1,000,000 to the Seller and its
corporate parent.
The funds utilized to pay the cash portion of the purchase price were
obtained through the Company's issuance and sale to The Prudential Insurance
Company of America ("Prudential") of $20,000,000 in principal amount of senior
subordinated promissory notes (the "Notes"). The Notes bear interest at a fixed
rate of 10.5% per annum, and mature as to principal in equal one-third
installments on April 17 of each of 2003, 2004 and 2005. The Notes may be
prepaid by the Company under certain circumstances (including the requirement of
certain "make-whole" prepayment premiums), and the Company may be required (at
the Noteholders' option) to purchase the Notes in the event of a change in
control of the Company. The Notes also require the Company and its subsidiaries
to comply with certain financial covenants, including limitations on certain
other indebtedness.
In addition to the use of a portion of the proceeds of the Notes to pay the
cash portion of the purchase price to the Seller, an additional $5,500,000 of
such proceeds have been utilized to repay the Company's borrowing in such amount
from Texas Commerce Bank National Association incurred in connection with the
Company's March 21, 1997 acquisition of the ultrasound division of DIS. The
remaining proceeds from the sale of the Notes will be utilized to pay certain
other debt (in the Company's discretion) and for working capital.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statements: [to be filed by Amendment].
(b) Pro forma financial information: [to be filed by Amendment].
(c) The following Exhibits are filed as part of this Form 8-K:
1. Stock Purchase Agreement, dated March 21, 1997, by and among the
Company, DHS Management Services, Inc., and the Seller.
2. Note Agreement dated as of April 16, 1997 between the Company and
Prudential.
3. Consent of Simonton, Kutac & Barnidge, L.L.P. [to be filed by
Amendment].
It is impractical to provide the financial statements and pro forma
financial information referred to in subparagraphs (a) and (b) and the consent
referred to in item 3 of subparagraph (c) of this Item 7. It is anticipated
that such items and information
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will be filed by Amendment to this Form 8-K on or before July 1, 1997.
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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 hereto duly authorized.
DIAGNOSTIC HEALTH SERVICES, INC.
(Registrant)
Dated: May 2, 1997 By: /s/ Max W. Batzer
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Max W. Batzer, Chairman and
Chief Executive Officer
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STOCK PURCHASE AGREEMENT Exhibit 1
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STOCK PURCHASE AGREEMENT (this "Agreement"), entered into this 21st day of
March, 1997, by and among DIAGNOSTIC HEALTH SERVICES, INC., a Delaware
corporation ("DHS"), DHS MANAGEMENT SERVICES, INC., a Texas corporation and a
wholly-owned subsidiary of DHS (the "Buyer"), and DIAGNOSTIC IMAGING SERVICES,
INC., a Delaware corporation (the "Stockholder");
W I T N E S S E T H:
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WHEREAS, Diagnostic Imaging Services, Inc., a California corporation (the
"Company"), itself and through its subsidiaries, is engaged, among other things,
in the ownership and operation of four (4) magnetic resonance imaging (MRI)
centers consisting of the Chino Valley MRI Center, the San Gabriel Valley MRI
Center, the Tarzana Regional Medical Center and the Santa Monica Imaging Center
(collectively referred to as the "Imaging Centers" and/or the "Business"); and
WHEREAS, the Stockholder is the record and beneficial owner of all of the
issued and outstanding capital stock of the Company (the "Stock"); and
WHEREAS, the Buyer desires to purchase from the Stockholder and the
Stockholder desires to sell to the Buyer, all upon and subject to the terms and
conditions of this Agreement, all (and not less than all) of the Stock, and the
Business as a going concern;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereby covenant and agree
as follows:
1. ACQUISITION OF THE STOCK.
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1.1 Purchase and Sale. Subject to the terms and conditions of this
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Agreement, on the Closing Date (as such term is hereinafter defined), the Buyer
shall purchase and acquire from the Stockholder, and the Stockholder shall sell
and transfer to the Buyer, all (and not less than all) of the Stock, against
payment of the Consideration set forth in Section 2.1 below. In furtherance
thereof, the Stockholder shall, on the Closing Date, deliver to the Buyer the
certificates representing all of the Stock, duly endorsed for transfer or
accompanied by stock powers executed in blank for transfer, against payment of
the Consideration pursuant to Section 2.1 below.
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2. PURCHASE PRICE.
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2.1 Closing Date Payment. On the Closing Date, against delivery of
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the certificates representing the Stock (endorsed or with executed stock powers
as hereinabove provided), the Buyer shall pay to the Stockholder, by wire
transfer of immediately available funds to the Stockholder's designated account
or, at the Stockholder's option, by certified or bank cashier's check, an amount
equal to the sum of (a) the difference of (i) $13,500,000, minus (ii) an amount
equal to the aggregate outstanding balance (principal, accrued interest and any
other charges) as of and through the Closing Date of all capital lease
obligations and other liabilities of the Companies (as defined in Section 4.5(b)
below) determined in accordance with generally accepted accounting principles
(collectively, the "Debt"), plus (b) simple interest on the amount calculated
under clause (a) of this Section 2.1 at the rate of 12% per annum from March 1,
1997 through and including the Closing Date. In furtherance hereof, the parties
will cooperate to prepare a schedule of the Debt as of the Closing Date, so as
to enable the calculation and payment of the amount payable pursuant to this
Section 2.1.
2.2 Post-Closing Payments.
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(a) On each of the first, second and third anniversaries of the
Closing Date, as additional consideration for the Stock, the Buyer shall pay to
the Stockholder, or shall cause DHS to issue to the Stockholder (as the case may
be), the sum of $500,000 payable either in the form of immediately available
funds or, at the Stockholder's option (which must be exercised, if at all, by
written notice given to DHS not later than five (5) days prior to the subject
anniversary of the Closing Date), in the form of common stock of DHS ("Common
Stock") valued, for purposes hereof, at the mean average of the reported closing
price of such Common Stock as reported on the NASDAQ National Market for the
five (5) consecutive trading days ending on the third day immediately prior to
the Closing Date (the "Agreed Value"). On the Closing Date, the parties shall
execute and deliver a valuation letter in respect of the Common Stock, setting
forth the calculation of the Agreed Value, in substantially the form of Exhibit
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A annexed hereto (the "Valuation Letter"). Unless, in any instance, the
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Stockholder affirmatively elects to receive payment under this Section 2.2(a) in
the form of Common Stock by means of timely notice of such election as provided
herein, the Buyer shall make the required payment hereunder on the subject
anniversary of the Closing Date in the form of immediately available funds. In
the event that the Stockholder elects, in any instance, to be paid in the form
of Common Stock, then DHS shall cause the certificate representing such Common
Stock to be delivered to the Stockholder within five (5) business days following
the subject anniversary of the Closing Date.
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(b) In the event that, at any time and from to time from and after the
Closing Date, there shall occur any stock split, recapitalization or other
subdivision of the outstanding Common Stock, or the payment of a stock dividend
in respect of the outstanding Common Stock, or any combination, consolidation,
reverse stock split or other such event relating to the outstanding Common
Stock, then the Agreed Value as in effect immediately prior to such event shall
be proportionately adjusted (on an arithmetic basis) to correspond to the
increase or decrease in the number of outstanding shares of Common Stock arising
by reason of such event. Further, in the event of any merger, consolidation or
other such transaction in which DHS (or any successor thereto) is not the
surviving corporation, the Stockholder shall thereafter be entitled to receive,
in the event of any election to be paid under this Section 2.2 other than in
immediately available funds, the amount of securities or other property which
the Stockholder would have been entitled to receive upon such merger,
consolidation or other such transaction had the Stockholder been paid in Common
Stock hereunder immediately prior to the effective date of such merger,
consolidation or other transaction.
2.3 Total Consideration. The consideration payable pursuant to
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Sections 2.1 and 2.2 above is hereinafter collectively referred to as the
"Consideration".
3. BOOKS AND RECORDS.
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3.1 Delivery of Records. On the Closing Date, in addition to the
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delivery and transfer of the Stock to the Buyer, the Stockholder shall deliver,
and shall cause the Company and its subsidiaries to deliver, to the Buyer all of
the stock books, records and minute books of the Company and its subsidiaries,
all financial and accounting books and records of the Company and its
subsidiaries, and all referral, client, customer and sales records of the
Company and its subsidiaries, all after giving effect to the transactions
contemplated by Section 7.3 below.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
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In connection with the sale of the Stock to the Buyer, the Stockholder
hereby represents and warrants to the Buyer as follows:
4.1 Title to the Stock. The Stockholder is the valid and lawful
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record and beneficial owner of all of the Stock, all of which has been duly
authorized and validly issued and is fully paid and non-assessable, and is free
and clear of all pledges, liens, claims, charges, options, calls, encumbrances,
restrictions and assessments whatsoever (except any restrictions which may be
created by operation of state or federal securities laws). On the Closing Date,
the Buyer shall receive from the Stockholder good, valid and marketable title to
all of the Stock, free and clear of
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all pledges, liens, claims, charges, options, calls, encumbrances, restrictions
and assessments whatsoever (except any restrictions which may be created by
operation of state or federal securities laws).
4.2 Valid and Binding Agreement; No Breach.
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(a) The Stockholder has full legal right, power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and, when executed and delivered by the
Stockholder, the Non-Competition Agreement (as such term is hereinafter
defined), constitute and will constitute the legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except to the extent that such
enforceability may be limited by bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights generally, and except that the remedy of
specific performance or similar equitable relief is available only at the
discretion of the court before which enforcement is sought.
(b) Neither the execution and delivery of this Agreement or the Non-
Competition Agreement by the Stockholder, nor compliance with the terms and
provisions of this Agreement or the Non-Competition Agreement on the part of the
Stockholder, will: (i) violate any statute or regulation of any governmental
authority, domestic or foreign, affecting the Company, any of its subsidiaries
or the Stockholder; (ii) require the issuance of any authorization, license,
consent or approval of any federal or state governmental agency; or (iii)
conflict with or result in a breach of any of the terms, conditions or
provisions of the Articles of Incorporation or By-Laws of the Company, any of
its subsidiaries or the Stockholder, or any judgment, order, injunction, decree,
note, indenture, loan agreement, lease or other agreement or instrument to which
the Company, any of its subsidiaries or the Stockholder is a party, or by which
the Company, any of its subsidiaries or the Stockholder is bound, or constitute
a default thereunder.
4.3 Organization, Good Standing and Qualification. The Stockholder
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is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to own
its assets and conduct its business, and to sell and transfer the Stock to the
Buyer hereunder. Each of the Company and the Corporate Subsidiary (as such term
is hereinafter defined) is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, with full corporate
power and authority to own its assets and conduct its business as owned and
conducted on the date hereof. Neither the Company nor the Corporate Subsidiary
is required to be qualified as a foreign corporation under the laws of any
jurisdiction. True and complete copies of the Articles of Incorporation and By-
Laws of the Company and the Corporate
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Subsidiary (including all amendments thereto), and a correct and complete list
of the officers and directors of the Company and the Corporate Subsidiary, are
annexed hereto as Schedule 4.3.
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4.4 Capital Structure; Equity Ownership.
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(a) The authorized capital stock of the Company is as set forth in its
Articles of Incorporation as included in Schedule 4.3, and the Stock (consisting
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of 1,000 shares of common stock) constitutes and represents all of the
outstanding capital stock of the Company.
(b) The authorized capital stock of the Corporate Subsidiary is as set
forth in its Articles of Incorporation as included in Schedule 4.3, and the
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outstanding capital stock of the Corporate Subsidiary consists of 1,000 shares
of common stock, all of which are owned beneficially and of record by the
Company and all of which has been duly authorized and validly issued and is
fully paid and non-assessable, and is free and clear of all pledges, liens,
claims, charges, options, calls, encumbrances, restrictions and assessments
whatsoever (except any restrictions which may be created by operation of state
or federal securities laws).
(c) There are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or calls, demands or commitments
obligating the Company or the Corporate Subsidiary to issue, transfer or
purchase any shares of its capital stock, or obligating the Stockholder to
transfer any shares of the Stock, or obligating the Company to transfer any
shares of capital stock of the Corporate Subsidiary. No shares are held in the
Company's or the Corporate Subsidiary's treasury, and no shares of capital stock
of the Company or the Corporate Subsidiary are reserved for issuance pursuant to
stock options, warrants, agreements or other rights to purchase capital stock.
4.5 Subsidiaries and Investments.
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(a) Except for (i) the Company's ownership of all of the issued and
outstanding capital stock of Diagnostic Imaging Services, Inc. I, a California
corporation (the "Corporate Subsidiary"), and (ii) the Company's and the
Corporate Subsidiary's interest in the general and limited partnership interests
in the Santa Monica Imaging Center (including an option in favor of the Company
to acquire the remaining equity interests not presently owned by the Company or
the Corporate Subsidiary, which option shall remain with the Company after
giving effect to the transactions contemplated by Section 7.3 below), and
subject to the transactions contemplated by Section 7.3 below, neither the
Company nor the Corporate Subsidiary owns, directly or indirectly, any stock or
other equity securities of any corporation or entity, or
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has any direct or indirect equity or ownership interest in any person, firm,
partnership, corporation, venture or business other than the business conducted
by such entity.
(b) The limited partnership which owns and operates the Santa Monica
Imaging Center is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of California, with full power and
authority to own its assets and conduct its business as presently conducted.
True and complete copies of all limited partnership documents and option
agreements relating to the Santa Monica Imaging Center, and a list of all equity
owners therein (including the percentage ownership of each such person), are
annexed hereto as Schedule 4.5. With respect to the further representations and
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warranties in this Section 4 (other than with respect to the financial
statements provided pursuant to Section 4.6(a) below, as to which the disclosure
and presentation regarding the Company's and the Corporate Subsidiary's interest
in the Santa Monica Imaging Center is made in accordance with generally accepted
accounting principles), and with respect to Sections 6, 7, 8, 11, 12, 13.2, 13.3
and 13.4 below, except as the context may otherwise require, all references to
the "Company" or "Companies" shall include the Corporate Subsidiary and shall
also be deemed to include the Santa Monica Imaging Center and the Company's and
the Corporate Subsidiary's interest therein.
4.6 Financial Information.
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(a) Annexed hereto as Schedule 4.6(a) are: (i) the audited financial
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statements of the Chino Valley MRI Center (f/k/a Inland Community MRI Center),
the San Gabriel Valley MRI Center and the Tarzana Regional Medical Center
(collectively, the "Three Centers") as of December 31, 1993 and for the fiscal
year then ended, including balance sheets, statements of operations, statements
of partners' equity, and statements of cash flow, as reported on by Coopers &
Lybrand (the "Three Centers Audited Financial Statements"), (ii) the unaudited
statements of operations and general ledgers of the Three Centers as of December
31, 1994, December 31, 1995 and December 31, 1996, and for each of the fiscal
years then ended, as prepared by management of the Companies (the "Three Centers
Unaudited Financial Statements"), and (iii) the unaudited financial statements
of the Santa Monica Imaging Center as of December 31, 1995 and for the ten
months then ended, and as of December 31, 1996 and for the fiscal year then
ended, including balance sheets and statements of operations (the "Santa Monica
Unaudited Financial Statements"). The Three Centers Audited Financial
Statements, the Three Centers Unaudited Financial Statements and the Santa
Monica Unaudited Financial Statements are herein collectively referred to as the
"Imaging Centers Financial Statements".
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(b) The Imaging Centers Financial Statements are true, complete and
accurate in all material respects, and fairly present the financial condition
and results of operations of each of the Imaging Centers as of the dates thereof
and for the periods covered thereby, in accordance with generally accepted
accounting principles consistently applied (subject, in the case of unaudited
financial statements, to the absence of full footnote disclosures, and to normal
audit adjustments which will not, individually or in the aggregate, be
material). The Imaging Centers Financial Statements were prepared from the
books and records of the Imaging Centers, which accurately and consistently
reflect all transactions to which the Imaging Centers were and are a party. The
foregoing representation and warranty is qualified by noting that the Santa
Monica Unaudited Financial Statements for all periods through the second quarter
of 1996 include the operations of the Santa Monica Imaging Center while such
facility operated all modalities including MRI, CT, mammography, ultrasound and
x-ray, and that, since the second quarter of 1996, the Santa Monica Imaging
Center has operated only MRI.
(c) Except as expressly set forth in the Imaging Centers Financial
Statements as of December 31, 1996 (collectively, the "1996 Financial
Statements") and/or in the Schedules to this Agreement, or arising in the normal
course of the Business since December 31, 1996, there are, as at the date
hereof, no liabilities or obligations (including, without limitation, any tax
liabilities or accruals) of the Business, including any contingent liabilities,
that are, in the aggregate, material.
(d) Schedule 4.6(d) annexed hereto contains: (i) an aging schedule of
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the accounts receivable of the Three Centers as of December 31, 1996 and an
aging schedule of the accounts receivable of the Santa Monica Imaging Center as
of February 28, 1997, in summary form; (ii) an accrued payables listing (unaged)
as of December 31, 1996 for the Three Centers and the Santa Monica Imaging
Center, and an accounts payable distribution report for the six months ending
February 28, 1997 for the Three Centers and the Santa Monica Imaging Center;
(iii) a list of the outstanding principal balance of and approximate accrued
interest on all indebtedness (other than accounts payable), loans and/or notes
payable of the Companies as of December 31, 1996; (iv) a list of any leasehold
or other contractual obligations of the Companies to the Stockholder and/or any
of its Affiliates on the date hereof; (v) a list of all obligations of the
Business guaranteed by the Stockholder and/or any of its Affiliates on the date
hereof, and the terms of such guarantees; (vi) a list reflecting the nature and
amount of all obligations owed to the Companies on the date hereof by the
Stockholder and/or any of its Affiliates; and (vii) a list reflecting the nature
and amount of all obligations owed by the Companies on the date hereof to the
Stockholder and/or any of its Affiliates. Wherever used in this Agreement, the
term "Affiliate" means, as respects any person or
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entity, any other person or entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control with
the first person or entity.
4.7 No Material Changes. Except as and to the extent described in
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Schedule 4.7 annexed hereto (which Schedule may make reference to any other
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Schedule hereto) and/or in the 1996 Financial Statements, since December 31,
1996, the Business has been operated only in the ordinary course, and there has
not been:
(a) any material change in the financial condition, operations or
business of the Business from that shown in the 1996 Financial Statements and
for the period then ended, any material acquisition or disposition of assets in
the Business, or any other material transaction or commitment effected or
entered into outside of the normal course of the Business;
(b) any damage, destruction or loss, whether covered by insurance or
not, materially and adversely affecting the business, operations, assets,
properties, financial condition or prospects of the Business taken as a whole;
(c) any declaration, payment or setting aside of any dividend or other
distribution (other than in cash) of any assets or property of any Company to
the Stockholder or any of its Affiliates;
(d) any material increase in the rate of salary or compensation paid
or payable to any employee, consultant or other person performing services in
the Business; or
(e) any other event or condition arising from or out of the operation
of the Companies or the Stockholder which has or will materially and adversely
affect the business, financial condition, results of operations or prospects of
the Business.
4.8 Tax Returns and Tax Audits.
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(a) Except as and to the extent disclosed in Schedule 4.8(a) annexed
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hereto: (i) on the date hereof and on the Closing Date, all federal, state and
local tax returns and tax reports required to be filed by any of the Companies
on or before the date of this Agreement or the Closing Date, as the case may be,
have been and will have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed; (ii) all federal, state and local income, franchise, sales, use,
property, excise, unemployment, payroll withholding and other taxes (including
interest and penalties and including estimated tax installments where required
to be filed and paid) due from or with respect to any of the Companies as of the
date hereof and as of the Closing Date have been and will have been fully paid,
and appropriate
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accruals shall have been made on the Companies' books for taxes not yet due and
payable; (iii) as of the Closing Date, all taxes and other assessments and
levies which any of the Companies is required by law to withhold or to collect
on or before the Closing Date will have been duly withheld and collected, and
will have been paid over to the proper governmental authorities to the extent
due and payable on or before the Closing Date; and (iv) there are no outstanding
or pending claims, deficiencies or assessments for taxes, interest or penalties
with respect to any taxable period of any of the Companies.
(b) Except as set forth in Schedule 4.8(b) annexed hereto, there are
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no audits pending with respect to any federal, state or local tax returns of any
of the Companies, and no waivers of statutes of limitations have been given or
requested with respect to any tax years or tax filings of any of the Companies.
4.9 Personal Property; Liens. The Companies have and own good and
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indefeasible title to all of the personal property utilized in the Business
(subject to any required transfer of assets pursuant to Section 7.3 below), free
and clear of all liens, pledges, claims, security interests and encumbrances
whatsoever, except for: (a) rights of lessors in respect of any fixed assets
which are leased by any of the Companies; (b) liens which solely secure the
deferred purchase price of machinery, equipment, vehicles and/or other fixed
assets, as indicated on Schedule 4.9; (c) liens for current taxes of the
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Companies which are not yet due and payable or which are being contested in good
faith by appropriate proceedings and for which proper reserves have been
established by the Companies; and (d) liens, pledges, claims, security
interests, encumbrances, conditions or restrictions which are not, individually
or in the aggregate, material in character or amount and do not interfere with
the use made or presently proposed to be made of any such property
(collectively, "Permitted Liens"). All material items of machinery, equipment,
vehicles and other fixed assets owned or leased by the Companies and utilized in
the Business are listed in Schedule 4.9 annexed hereto, and, except as and to
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the extent disclosed in Schedule 4.9, all of such fixed assets are in good
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operating condition and repair (reasonable wear and tear excepted) and are
adequate for their use in the Business as presently conducted, and are
sufficient for the continued conduct of the Business.
4.10 Real Property.
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(a) None of the Companies owns or has any interest of any kind
(whether ownership, lease or otherwise) in any real property except (i) the
Companies' ownership interests in certain of the land and buildings on which or
in which the Business is presently conducted as set forth and described in
Schedule 4.10 annexed hereto, and (ii) the Companies' leasehold interests under
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leases for business premises occupied by the Companies, true and
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complete copies of which are included within Schedule 4.10 (the "Leases").
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(b) The Companies (and, to the best of the Stockholder's knowledge,
the landlords thereunder) are presently in compliance with all of their
obligations under the Leases, and the premises leased thereunder are in good
condition (reasonable wear and tear excepted) and are adequate for the operation
of the Business as presently conducted therefrom.
(c) None of the Leases will be voided, revoked or terminated, or will
be voidable, revocable or terminable, upon and by reason of the change of
ownership of the Companies pursuant to this Agreement.
4.11 Inventories. All supplies and other inventories shown on the
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balance sheets included in the 1996 Financial Statements, and all inventories
thereafter acquired in the Business, have been and are valued at cost, and
consisted or consist of items which are of a quality and quantity which are
usable in the ordinary course of the Business.
4.12 Insurance Policies. Schedule 4.12 annexed hereto contains a
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true and correct schedule of all insurance coverages held by the Companies
concerning the Business and the Companies' assets and properties (including but
not limited to professional liability insurance and a statement, as to all
professional liability insurance, of whether such insurance is on an
"occurrence" or a "claims made" basis). Each Company has paid all premiums due
and payable to the date hereof in respect of such insurance coverages, and all
of such coverages are presently in full force and effect. The Stockholder is
not aware of any grounds upon which any insurer might properly cancel or refuse
to renew any of the Companies' existing insurance coverages. Nothing herein
contained shall be deemed to constitute a representation, warranty or assurance
as to the transference with the Companies of any of the insurance coverages
listed on Schedule 4.12, except as and to the extent provided in Section 13.4
-------------
below.
4.13 Permits and Licenses. Each Company possesses all required
--------------------
permits, licenses and/or franchises, from whatever governmental authorities or
agencies (domestic and/or foreign) requiring the same and having jurisdiction
over such Company, necessary in order to operate the Business in the manner
presently conducted, all of which permits, licenses and/or franchises are valid,
current and in full force and effect, except where the failure to have or
maintain any such permit, license and/or franchise would not have a material
adverse effect on the subject Company or the Business. Each Company has
heretofore conducted the Business in compliance with the requirements of such
permits, licenses and/or franchises, and none of the Companies has received
written notice of any default or violation in respect of or under
- 10 -
<PAGE>
any of such permits, licenses and/or franchises except where such default would
not have a material adverse effect on the subject Company or the Business. None
of such permits, franchises or licenses will be voided, revoked or terminated,
or be voidable, revocable or terminable, upon and by reason of the change of
ownership of the Companies pursuant to this Agreement.
4.14 Contracts and Commitments.
-------------------------
(a) Schedule 4.14 annexed hereto lists all material contracts, leases,
-------------
commitments, indentures and other agreements relating to the Business to which
any Company is a party (collectively, "Material Contracts"), except that
Schedule 4.14 need not list any such agreement that is listed on any other
- -------------
Schedule hereto, or was entered into in the ordinary course of the Business and
that, in any case: (i) is for the purchase of supplies or other inventory items
in the ordinary course of the Business; (ii) is related to the purchase or lease
of any capital asset involving aggregate payments of less than $25,000 per
annum; or (iii) may be terminated by the subject Company without penalty,
premium or liability on not more than thirty (30) days' prior written notice;
provided, however, that Schedule 4.14 shall list any agreement or arrangement
- -------- ------- -------------
(written or verbal) between any Company (on the one hand) and any physicians or
persons known to any Company or the Stockholder to be Affiliates of any
physicians (on the other hand), regardless of the amount of payments called for,
required or made thereunder.
(b) To the best of the Stockholder's knowledge, except as set forth in
Schedule 4.14: (i) all Material Contracts are in full force and effect; (ii)
- -------------
the subject Company is in compliance in all material respects with all of its
obligations under the Material Contracts, and has not received any written
notice that any party to any Material Contract is in material breach or default
of such Material Contract or is now subject to any condition or event which has
occurred and which, after notice or lapse of time or both, would constitute a
material default by any party under any such contract, lease, agreement or
commitment; and (iii) none of the Material Contracts will be voided, revoked or
terminated, or voidable, revocable or terminable, upon and by reason of the
change of ownership of the Companies pursuant to this Agreement.
(c) To the best of the Stockholder's knowledge, no outstanding
purchase commitment relating to the Business is materially in excess of the
normal, ordinary and usual requirements of the Business.
- 11 -
<PAGE>
(d) Except as set forth in Schedule 4.14, none of the Companies has
-------------
any outstanding contracts with or commitments to officers, employees,
physicians, technicians, agents, consultants or advisors relating to the
Business that are not cancelable by such Company without penalty, premium or
liability (for severance or otherwise) on less than thirty (30) days' prior
written notice.
4.15 Customers and Suppliers. None of the Companies or the
-----------------------
Stockholder (a) has received any written notice of any existing, announced or
anticipated changes in the policies of any material clients, customers, referral
sources or suppliers of any of the Companies which will materially adversely
affect the Business as presently conducted, or (b) has actual knowledge of any
bankruptcy, insolvency or other such proceeding or condition relating to any
material clients or customers of the Business.
4.16 Labor, Benefit and Employment
-----------------------------
Agreements.
(a) Except as set forth in Schedule 4.16 annexed hereto, none of the
-------------
Companies is a party to or has any commitment or obligation in respect of (i)
any collective bargaining agreement or other labor agreement, or (ii) any
agreement with respect to the employment or compensation of any non-hourly
and/or non-union employee(s) of the Business. Schedule 4.16 sets forth the
-------------
amount of all compensation or remuneration (including any discretionary bonuses)
paid by the Companies during the 1996 calendar year to employees or consultants
of the Business who then received or presently receive aggregate compensation or
remuneration at an annual rate in excess of $35,000.
(b) No union is now certified or, to the best of the Stockholder's
knowledge, claims to be certified as a collective bargaining agent to represent
any employees of the Business, and there are no labor disputes existing or, to
the best of the Stockholder's knowledge, threatened, involving strikes,
slowdowns, work stoppages, job actions or lockouts of any employees of the
Business.
(c) There are no unfair labor practice charges or petitions for
election pending or being litigated before the National Labor Relations Board or
any other federal or state labor commission relating to any employees of the
Business. None of the Companies or the Stockholder has received any written
notice of any actual or alleged violation by any Company of any law, regulation,
order or contract term affecting the collective bargaining rights of employees,
equal opportunity in employment, or employee health, safety, welfare, or wages
and hours.
(d) With respect to any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) to which any Company or any of its Affiliates has at any time been
required to make contributions,
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<PAGE>
none of the Companies nor any of its Affiliates has, at any time on or after
April 29, 1980, suffered or caused any "complete withdrawal" or "partial
withdrawal" (as such terms are respectively defined in Sections 4203 and 4205 of
ERISA) therefrom on its part.
(e) Except as disclosed in Schedule 4.16, none of the Companies
-------------
maintains, or has any liabilities or obligations of any kind with respect to,
any bonus, deferred compensation, pension, profit sharing, retirement or other
such benefit plan, or any potential or contingent liability in respect of any
actions or transactions relating to any such plan other than to make
contributions thereto if, as and when due in respect of periods subsequent to
the date hereof. Without limitation of the foregoing, (i) each Company has made
all required contributions to or in respect of any and all such benefit plans,
(ii) no "accumulated funding deficiency" (as defined in Section 412 of the
Internal Revenue Code of 1986, as amended (the "Code")) has been incurred in
respect of any of such benefit plans, and the present value of all vested
accrued benefits thereunder does not, on the date hereof, exceed the assets of
any such plan allocable to the vested accrued benefits thereunder, (iii) there
has been no "prohibited transaction" (as defined in Section 4975 of the Code)
with respect to any such plan, and no transaction which could give rise to any
tax or penalty under Section 4975 of the Code or Section 502 of ERISA, and (iv)
there has been no "reportable event" (within the meaning of Section 4043(b) of
ERISA) with respect to any such plan. All of such plans which constitute, are
intended to constitute, or have been treated by any of the Companies as
"employee pension benefit plans" or other plans within Section 3 of ERISA have
been determined by the Internal Revenue Service to be "qualified" under Section
401(a) of the Code, and have been administered and are in compliance with ERISA
and the Code; and none of the Companies or the Stockholder has any knowledge of
any state of facts, conditions or occurrences such as would impair the
"qualified" status of any of such plans.
(f) Except for the group insurance programs listed in Schedule 4.16,
-------------
none of the Companies maintains any medical, health, life or other employee
benefit insurance programs or any welfare plans (within the meaning of Section
3(1) of ERISA) for the benefit of any current or former employees, and, except
as required by statutory law, none of the Companies has any liability, fixed or
contingent, for health or medical benefits to any former employee.
- 13 -
<PAGE>
4.17 Compliance with Laws.
--------------------
(a) Each of the Companies is in compliance in all material respects
with all laws, statutes, regulations, rules and ordinances applicable to the
conduct of its business as presently constituted; and none of the Companies or
the Stockholder has received written notice of any default or violation under or
in respect of any of the foregoing. None of the Companies is presently in
material violation of any requirements of any its insurance carriers.
(b) Without limitation of Section 4.17(a) above, none of the Companies
has, at any time during the three (3) year period prior to the date hereof, (i)
handled, stored, generated, processed, released or disposed of any hazardous
substances in violation of any federal, state or local environmental laws or
regulations, or (ii) otherwise committed any material violation of any federal,
state or local environmental laws or regulations (including, without limitation,
the provisions of the Environmental Protection Act, the Comprehensive
Environmental Responsibility and Cleanup Act, and other applicable environmental
statutes and regulations) or any material violation of the Occupational Safety
and Health Act.
(c) None of the Companies or, to the best of Stockholder's knowledge,
any of the Companies' respective directors, officers or employees has received
any written notice of default or violation, nor, to the best of the
Stockholder's knowledge, is any of the Companies or any of their respective
directors, officers or employees in default or violation, with respect to any
judgment, order, writ, injunction, decree, demand or assessment issued by any
court or any federal, state, local, municipal or other governmental agency,
board, commission, bureau, instrumentality or department, domestic or foreign,
relating to any aspect of such Company's business, affairs, properties or
assets. None of the Companies or, to the best of the Stockholder's knowledge,
any of the Companies or any of their respective directors, officers or
employees, has received written notice of, been charged with, or is under
investigation with respect to, any violation of any provision of any federal,
state, local, municipal or other law or administrative rule or regulation,
domestic or foreign, relating to any aspect of any Company's business, affairs,
properties or assets, which violation would have a material adverse effect on
any Company or the Business.
(d) Schedule 4.17 sets forth the date(s) of the last known audits or
-------------
inspections (if any) of any of the Companies conducted by or on behalf of the
Environmental Protection Agency, the Occupational Safety and Health
Administration, the federal Department of Health and Human Services and/or any
agency thereof (including, without limitation, the Healthcare Financing
Administration) or intermediary acting on its behalf, any
- 14 -
<PAGE>
corresponding or comparable state or local governmental department, agency or
authority, and any other governmental and/or quasi-governmental agency (federal,
state and/or local).
4.18 Litigation. Except as disclosed in Schedule 4.18 annexed
---------- -------------
hereto, there is no suit, action, arbitration, or legal, administrative or other
proceeding, or governmental investigation (including, without limitation, any
claim alleging the invalidity, infringement or interference of any patent,
patent application, or rights thereunder owned or licensed by any of the
Companies) pending, or to the best knowledge of the Stockholder, threatened, by
or against any of the Companies. The Stockholder is not aware of any state of
facts, events, conditions or occurrences which might properly constitute grounds
for or the basis of any suit, action, arbitration, proceeding or investigation
against or with respect to any of the Companies which, if adversely determined,
would have a material adverse effect on any of the Companies or on the Business.
4.19 Patents, Licenses and Trademarks. Schedule 4.19 annexed hereto
-------------------------------- -------------
correctly sets forth a list and brief description of the nature and ownership
of: (a) all patents, patent applications, copyright registrations and
applications, registered trade names, and trademark registrations and
applications, both domestic and foreign, which are presently owned, filed or
held by any of the Companies, any of their Affiliates, and/or any of their
respective directors, officers or employees and which in any way relate to or
are used in the Business; (b) all licenses, both domestic and foreign, which are
owned or controlled by any of the Companies, any of their Affiliates, and/or any
of their respective directors, officers or employees and which in any way relate
to or are used in the Business; and (c) all franchises, licenses and/or similar
arrangements granted to any Company by others and/or to others by any Company.
None of the patents, patent applications, copyright registrations or
applications, registered trade names, trademark registrations or applications,
franchises, licenses or other arrangements set forth or required to be set forth
in Schedule 4.19 is subject to any pending challenge known to the Stockholder.
-------------
Each of the Companies has the valid right to utilize all trade names and other
intellectual property utilized in the Business, and none of the Companies has
received any written notice of any claimed infringement of any such intellectual
property with the right or property of any other person.
4.20 Transactions with Affiliates. Except for the provision by
----------------------------
Primedex Health Systems, Inc. ("Primedex") to the Companies of services of the
type contemplated by the Facilities Services Agreement (as such term is
hereinafter defined), no material asset utilized in the Business is owned by,
leased from or leased to the Stockholder or any of its Affiliates (other than
the Companies).
- 15 -
<PAGE>
4.21 Sensitive Payments. None of the Companies has any reason to
------------------
believe that any of them has (a) made any contributions, payments or gifts to or
for the private use of any governmental official, employee or agent where either
the payment or the purpose of such contribution, payment or gift is illegal
under the laws of the United States or the jurisdiction in which made, (b)
established or maintained any unrecorded fund or asset for any purpose or made
any false or artificial entries on its or their books, (c) given or received any
payments or other forms of remuneration in connection with the referral of
patients which would violate the Medicare/Medicaid Anti-Kickback Law, Section
1128(b) of the Social Security Act, 42 U.S.C. (S) 1320a-7b(b), or any analogous
state statute, or (d) made any payments to any person with the intention that
any part of such payment was to be used for any purpose other than that
described in the documents supporting the payment.
4.22 Going Concern. The Stockholder does not have any knowledge of
-------------
any fact, event, circumstance or condition (including, without limitation, any
announced or anticipated changes in the policies of any material client or
customer) that would materially impair the ability of the Companies, from and
after the Closing, to continue the Business in substantially the manner
heretofore conducted, other than general, industry-wide conditions.
4.23 Restricted Securities. The Stockholder is an "accredited
---------------------
investor" within the meaning thereof under Rule 506 promulgated under the
Securities Act of 1933, as amended. The Stockholder acknowledges that any and
all shares of Common Stock or other securities which may be issued pursuant to
Section 2.2 above will constitute "restricted securities" within the meaning of
federal and state securities laws, which the Stockholder will acquire for its
own account for investment (and not with a view to the resale or distribution
thereof in violation of any applicable securities laws), and which the
Stockholder may be required to hold indefinitely or until an exemption from
registration requirements is available for the resale or disposition thereof.
4.24 Hart-Scott-Rodino. Primedex is the "ultimate parent entity" of
-----------------
the Stockholder and the Companies within the meaning of such term as set forth
in the regulations promulgated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the "net sales" of
Primedex, within the meaning of the regulations under the HSR Act, were less
than $100,000,000 in the fiscal year of Primedex ended October 31, 1996.
4.25 Disclosure and Duty of Inquiry. Neither DHS nor the Buyer is or
------------------------------
will be required to undertake any independent investigation to determine the
truth, accuracy and completeness of the representations and warranties made by
the Stockholder in this Agreement.
- 16 -
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND DHS.
---------------------------------------------------
In connection with the purchase of the Stock from the Stockholder
hereunder, the Buyer and DHS hereby jointly and severally represent and warrant
to the Stockholder as follows:
5.1 Organization, Good Standing and Qualification. The Buyer is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and DHS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, each with all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder, and to consummate the transactions contemplated
hereby.
5.2 Authorization of Agreement. The execution, delivery and
--------------------------
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Buyer and DHS have been duly and validly authorized
by the Board of Directors and sole stockholder of the Buyer, and by the Board of
Directors of DHS; and the Buyer and DHS have the full legal right, power and
authority to execute and deliver this Agreement, to perform their respective
obligations hereunder, and to consummate the transactions contemplated hereby.
No further corporate authorization is necessary on the part of the Buyer or DHS
to consummate the transactions contemplated hereby.
5.3 Valid and Binding Agreement. This Agreement and, when executed
---------------------------
and delivered, the Non-Competition Agreement (as such term is hereinafter
defined), constitutes and will constitute the legal, valid and binding
obligations of the Buyer and DHS (to the extent a party thereto), enforceable
against the Buyer and DHS in accordance with their respective terms, except, in
each case, to the extent limited by bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights generally, and except that the remedy of
specific performance or similar equitable relief is available only at the
discretion of the court before which enforcement is sought.
5.4 No Breach of Statute or Contract. Neither the execution and
--------------------------------
delivery of this Agreement or the Non-Competition Agreement by the Buyer or DHS
nor compliance with the terms and provisions of this Agreement or the Non-
Competition Agreement on the part of the Buyer or DHS, will: (a) violate any
statute or regulation of any governmental authority, domestic or foreign,
affecting the Buyer or DHS; (b) require the issuance to the Buyer or DHS of any
authorization, license, consent or approval of any federal or state governmental
agency; or (c) except for the required consent of DHS' lender contemplated by
Section 8.12 below, conflict with or result in a breach of any of the terms,
conditions or provisions of any judgment, order, injunction, decree, note,
indenture, loan agreement or other agreement or instrument to which
- 17 -
<PAGE>
the Buyer or DHS is a party, or by which the Buyer or DHS is bound, or
constitute a default thereunder.
5.5 Investment. The Buyer will be purchasing the Stock for its own
----------
account for investment, and not with a view to the resale or distribution
thereof in violation of any applicable securities laws.
5.6 DHS Shares. If, as and when issued and delivered pursuant to
----------
Section 2.2 above, all shares of Common Stock so issued shall have been duly
authorized and validly issued, and shall be fully paid and non-assessable.
5.7 Disclosure and Duty of Inquiry. The Stockholder is not and will
------------------------------
not be required to undertake any independent investigation to determine the
truth, accuracy and completeness of the representations and warranties made by
the Buyer and DHS in this Agreement.
6. THE STOCKHOLDER'S OBLIGATIONS BEFORE THE CLOSING DATE.
-----------------------------------------------------
The Stockholder covenants and agrees that, from the date hereof until
the Closing Date:
6.1 Access to Information.
---------------------
(a) In addition to the rights of DHS and the Buyer under Section 6.6
below, the Stockholder shall permit DHS, the Buyer and their counsel,
accountants and other representatives, and DHS' lenders and their
representatives, upon reasonable advance notice to the Companies, during normal
business hours and without undue disruption of the business of the Companies, to
have reasonable access to all properties, books, accounts, records, contracts,
documents and information relating to the Business and, to the extent reasonably
required by the Buyer for its due diligence, the Companies. DHS, the Buyer and
their representatives shall also be permitted to freely consult with the
Companies' counsel and accountants concerning the Business.
(b) The Stockholder will make available to the Buyer and its
accountants, and DHS' lenders and their representatives, all financial records
relating to the Companies and the Business, and shall cause the Companies'
accountants to cooperate with the Buyer's accountants and make available to the
Buyer's accountants all work papers and other materials developed by or in the
possession of the Companies' accountants, for the purpose of assisting the
Buyer's accountants in the performance of an audit of the Business for all
periods subsequent to January 1, 1994.
- 18 -
<PAGE>
6.2 Conduct of Business in Normal Course. The Stockholder shall
------------------------------------
cause the Companies to carry on their business activities in substantially the
same manner as heretofore conducted, and shall not permit any Company, except as
otherwise required or permitted by Section 7.3 below, to make or institute any
unusual or novel methods of service, sale, purchase, lease, management,
accounting or operation that will vary materially from those methods used by the
Companies as of the date hereof, without in each instance obtaining the prior
written consent of DHS.
6.3 Preservation of Business and Relationships. The Stockholder
------------------------------------------
shall cause the Companies, without making or incurring any unusual commitments
or expenditures, to use all reasonable efforts to preserve their business
organization intact, and preserve their present relationships with referral
sources, clients, customers, suppliers and others having business relationships
with the Companies.
6.4 Maintenance of Insurance. The Stockholder shall cause each
------------------------
Company to continue to carry its existing insurance, to the extent obtainable
upon reasonable terms.
6.5 Corporate Matters. The Stockholder shall not permit any Company,
-----------------
without the prior written consent of DHS, to:
(a) amend its Articles of Incorporation or By-Laws or its limited
partnership agreement or certificate of limited partnership, or issue any shares
of its capital stock, or issue or create any warrants, commitments, obligations,
subscriptions, options, convertible securities or other arrangements under which
any additional shares of its capital stock or equity interests might be directly
or indirectly issued;
(b) amend, cancel or modify any Material Contract or enter into any
material new agreement, commitment or transaction except, in each instance, in
the ordinary course of business;
(c) pay, grant or authorize any material salary increases or bonuses
except in the ordinary course of business and consistent with past practice, or
enter into any employment, consulting or management agreements;
(d) modify in any material respect any material agreement relating to
the Business to which such Company is a party or by which it may be bound,
except in the ordinary course of business, and except to the extent necessary to
implement the transactions contemplated by Section 7.3 below;
(e) make any change in management personnel;
(f) except pursuant to commitments in effect on the date hereof (to
the extent disclosed in this Agreement or in any
- 19 -
<PAGE>
Schedule hereto), make any capital expenditure(s) or commitment(s), whether by
means of purchase, lease or otherwise, or any operating lease commitment(s), in
excess of $50,000 in the aggregate;
(g) except as otherwise permitted pursuant to Section 7.3 below,
dispose of or transfer any asset outside of the ordinary course of business, or
sell, assign or dispose of any capital asset(s) with a net book value in excess
of $10,000 as to any one item or $25,000 in the aggregate;
(h) materially change its method of collection of accounts or notes
receivable, accelerate or slow in any material respect its payment of accounts
payable, or prepay any of its obligations or liabilities, other than prepayments
to take advantage of trade discounts not otherwise inconsistent with or in
excess of historical prepayment practices;
(i) declare, pay, set aside or make any dividend or other distribution
(other than in cash) of any assets or property; or, except as otherwise
permitted pursuant to Section 7.3 below, make any other transfer of any assets
or property to the Stockholder or any of its Affiliates;
(j) incur any material liability or indebtedness except, in each
instance, in the ordinary course of business;
(k) subject any of the assets or properties of the Business to any
further material liens or encumbrances, other than Permitted Liens; or
(l) agree to do, or take any action in furtherance of, any of the
foregoing.
6.6 Management Participation. The parties hereby confirm that
------------------------
representatives of DHS and the Buyer have been actively involved in the
management of the Business at all times since March 1, 1997, and DHS and the
Buyer (through their employees working in the Business) will have the right to
continue to manage and participate in all aspects of the Business at all times
from the date hereof through the Closing or any termination of this Agreement.
Such participation shall include matters of the type described in Section 6.5
above, as well as all other material decisions relating to the business and
affairs of the Business.
7. ADDITIONAL AGREEMENTS OF THE PARTIES.
------------------------------------
7.1 Confidentiality. Notwithstanding anything to the contrary
---------------
contained in this Agreement, and subject only to any disclosure requirements
which may be imposed upon any party under applicable state or federal securities
or antitrust laws, it is expressly understood and agreed by the parties that,
except with respect to matters or information which are publicly available
- 20 -
<PAGE>
other than by reason of a breach of this Section 7.1, (i) this Agreement, the
Schedules hereto, and the conversations, negotiations and transactions relating
hereto and/or contemplated hereby, and (ii) all financial information, business
records and other non-public information concerning either party which the other
party or its representatives has received or may hereafter receive, shall be
maintained in the strictest confidence by the recipient and its representatives,
and shall not be disclosed to any person that is not associated or affiliated
with the recipient and involved in the transactions contemplated hereby, without
the prior written approval of the party which provided the information. The
parties hereto shall use their best efforts to avoid disclosure of any of the
foregoing or undue disruption of any of the business operations or personnel of
the parties, and no party shall issue any press release or other public
announcement regarding the transactions contemplated hereby without the prior
approval of each other party (such approval not to be unreasonably withheld or
delayed) unless compelled to do so upon advice of counsel and there is
insufficient time to practicably obtain approval hereunder. In the event that
the transactions contemplated hereby shall not be consummated for any reason,
each party covenants and agrees that neither it nor any of its representatives
shall retain (other than information which is publicly available other than by
reason of a breach of this Section 7.1) any documents, lists or other writings
of any other party which it may have received or obtained in connection herewith
or any documents incorporating any of the information contained in any of the
same (all of which, and all copies thereof in the possession or control of the
recipient or its representatives, shall be returned to the party which provided
the information).
7.2 Exclusivity. From the date hereof through any termination of
-----------
this Agreement in accordance with Section 11 below, the Stockholder shall not
(and shall not permit any of its stockholders, directors, officers or Affiliates
to) negotiate with or enter into any other commitments, agreements or
understandings with any person, firm or corporation (other than DHS and its
Affiliates) in respect of any sale of capital stock or any material portion of
the assets of any of the Companies, any merger, consolidation or corporate
reorganization, or any other such transaction relating to the Companies or the
Business.
7.3 Reconfiguration.
---------------
(a) To the extent that any of the Companies owns any tangible assets
that are not utilized in the Business, or owns or holds any cash (other than
----------
amounts representing payment for goods sold and/or services rendered in the
Business from and after March 1, 1997) or accounts receivable (other than
----------
accounts receivable in respect of goods sold and/or services rendered in the
Business from and after March 1, 1997), or is obligated in respect of any
accounts payable, or any liabilities or obligations
- 21 -
<PAGE>
(including, without limitation, accruals and contractual commitments and
obligations, but expressly excluding liabilities or obligations for goods or
services acquired in the Business from and after March 1, 1997) that were not
incurred in the ordinary course of the Business, the Stockholder shall cause the
subject Company to (i) transfer all such cash (other than amounts representing
----------
payment for goods sold and/or services rendered in the Business from and after
March 1, 1997), accounts receivable (other than accounts receivable in respect
----------
of goods sold and/or services rendered in the Business from and after March 1,
1997) and non-Business assets to the Stockholder or an Affiliate of the
Stockholder (other than another Company), and (ii) assign to the Stockholder or
an Affiliate of the Stockholder (other than another Company), and cause to be
assumed by the Stockholder or such Affiliate, all of such accounts payable and
non-Business liabilities and obligations (including, without limitation,
accruals and contractual commitments and obligations, but excluding liabilities
and obligations for goods or services acquired in the Business from and after
March 31, 1997); provided, however, that the assets transferred hereunder shall
-------- -------
not include the outstanding option in favor of the Company to purchase limited
partnership interests in the Santa Monica Imaging Center. Such transfers of
assets and assumptions of liabilities shall take place prior to the Closing,
without payment or receipt (or requirement of future payment or receipt) by any
Company of any consideration in respect thereof, and as a result thereof, on the
Closing Date, (A) the Companies shall have no accounts receivable or accounts
payable (except for post-March 1, 1997 items as herein provided), (B) none of
the Companies shall be indebted to the Stockholder or any of its Affiliates in
any manner whatsoever, and (C) neither the Stockholder nor any of its affiliates
shall be indebted to any of the Companies in any manner whatsoever.
(b) To the extent that, on the Closing Date, any assets utilized in
the Business are owned or leased by the Stockholder or any of its Affiliates
(other than the Companies), and/or any contract rights relating to the Business
are in the name of or held by the Stockholder or any of its Affiliates (other
than the Companies), then, immediately prior to the Closing, title to such
assets (or the leases therefor, as the case may be) and contract rights shall be
transferred to the Company utilizing such assets and contract rights, without
requirement of any payment or other consideration by either Company to effect
such transfer. To the extent that any contracts are included in such transfer,
all obligations of the Business thereunder shall be current as of the time of
transfer, and without any continuing default thereunder.
(c) At the time of the Closing, the Stockholder shall deliver to the
Buyer (i) a true and complete copy of the General Instrument of Conveyance,
Transfer and Assignment (which shall include a general description of the
subject assets, liabilities and obligations in sufficient detail to permit the
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<PAGE>
Buyer to identify or quantify same) whereby all assets, liabilities and
obligations were transferred or assigned by the Companies to and assumed by the
Stockholder and its Affiliates pursuant to this Section 7.3, subject to the
Buyer's rights to verify and otherwise be satisfied with such asset and
liability transfer and assumption and the compliance thereof with the
requirements of this Section 7.3, and (ii) true and complete copies of all
instruments of assignment (which shall include reasonably specific detail as
aforesaid) of all assets and contract rights transferred to the Companies in
accordance with Section 7.3(b) above, subject to the Buyer's rights to verify
and otherwise be satisfied with such transfers and the Stockholder's compliance
with the requirements of Section 7.3(b) above.
7.4 Non-Competition Agreement. On the Closing Date, Primedex, the
-------------------------
Stockholder, the Buyer, DHS, the Company and the Corporate Subsidiary shall
execute and deliver to one another a non-competition and non-disclosure
agreement in substantially the form of Exhibit B annexed hereto (the "Non-
---------
Competition Agreement").
7.5 Valuation Letter. On the Closing Date, the Stockholder, the
----------------
Buyer and DHS shall execute and deliver to one another the Valuation Letter in
respect of the Common Stock (as contemplated by Section 2.2 above) in
substantially the form of Exhibit A annexed hereto.
---------
7.6 Facilities Services Agreement. On the Closing Date, Primedex,
-----------------------------
the Company and the Corporate Subsidiary shall execute and deliver to one
another a Facilities Services Agreement in substantially the form of Exhibit C
---------
annexed hereto (the "Facilities Services Agreement").
7.7 Company Name Changes. On the Closing Date, each of the Company
--------------------
and the Corporate Subsidiary shall execute and deliver for filing with the
California Secretary of State a certificate of amendment pursuant to which the
corporate name of such Company will be changed to a name not confusingly similar
to "Diagnostic Imaging Services" (the "Articles of Amendment").
7.8 Additional Agreements and Instruments. On or before the Closing
-------------------------------------
Date, the Stockholder, the Companies, the Buyer and DHS shall execute, deliver
and file all exhibits, agreements, certificates, instruments and other
documents, not inconsistent with the provisions of this Agreement, which, in the
opinion of counsel to the parties hereto, shall reasonably be required to be
executed, delivered and filed in order to consummate the transactions
contemplated by this Agreement.
7.9 Non-Interference. Neither the Buyer, DHS nor the Stockholder
----------------
shall cause to occur any act, event or condition which would cause any of their
respective representations and warranties made in this Agreement to be or become
untrue or incorrect in any
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<PAGE>
material respect as of the Closing Date, or would interfere with, frustrate or
render unreasonably expensive the satisfaction by the other party or parties of
any of the conditions precedent set forth in Sections 8 and 9 below.
8. CONDITIONS PRECEDENT TO THE BUYER'S AND DHS' PERFORMANCE.
--------------------------------------------------------
In addition to the fulfillment of the parties' agreements in Section 7
above, the obligations of the Buyer and DHS to consummate the transactions
contemplated by this Agreement are further subject to the satisfaction, at or
before the Closing Date, of all the following conditions, any one or more of
which may be waived in writing by the Buyer and DHS:
8.1 Accuracy of Representations and Warranties. All representations
------------------------------------------
and warranties made by the Stockholder in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
8.2 Performance. The Stockholder shall have performed, satisfied and
-----------
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Stockholder on or before the Closing Date.
8.3 Certification. The Buyer and DHS shall have received a
-------------
certificate, dated the Closing Date, signed by the Stockholder, certifying, in
such detail as the Buyer, DHS and their counsel may reasonably request, that the
conditions specified in Sections 8.1 and 8.2 above have been fulfilled.
8.4 Opinion of Counsel. The Buyer and DHS shall have received an
------------------
opinion, dated the Closing Date, of Jeffrey L. Linden, Esq., inside general
counsel to the Stockholder and the Companies, with respect to such matters
incident to the transactions contemplated hereby as shall reasonably be
requested by the Buyer, DHS and their counsel.
8.5 Resolutions. The Buyer and DHS shall have received certified
-----------
resolutions of the Board of Directors of the Stockholder, in form reasonably
satisfactory to counsel for the Buyer and DHS, authorizing the Stockholder's
execution, delivery and performance of this Agreement and all actions to be
taken by the Stockholder hereunder.
8.6 Good Standing Certificates. DHS and the Buyer shall have
--------------------------
received good standing certificates issued by the Secretary of State of Delaware
with respect to the Stockholder, and the California Secretary of State in
respect of the Companies (including the Corporate Subsidiary and the Santa
Monica Imaging
- 24 -
<PAGE>
Center limited partnership), each dated as of a date reasonably prior to the
Closing Date.
8.7 Resignations. The Stockholder shall have delivered to the Buyer
------------
the written resignations, dated and effective on the Closing Date, of all of the
officers and directors of the Companies.
8.8 Absence of Litigation. No action, suit or proceeding by or
---------------------
before any court or any governmental body or authority, against any of the
Companies or the Stockholder or pertaining to the transactions contemplated by
this Agreement or their consummation, shall have been instituted on or before
the Closing Date, which action, suit or proceeding would, if determined
adversely, have a material adverse effect on the Business.
8.9 Condition of Property. Between the date of this Agreement and
---------------------
the Closing Date, assets of the Companies having an aggregate fair market value
of $50,000 or more shall not have been lost, destroyed or irreparably damaged by
fire, flood, explosion, theft or any other cause, whether or not covered by
insurance.
8.10 No Material Adverse Change. On the Closing Date, there shall
--------------------------
not have occurred any event or condition materially and adversely affecting the
financial condition, results of operations or business prospects of the Business
from those reflected in the 1996 Financial Statements or disclosed in this
Agreement or the Schedules hereto, except for matters resulting from adverse
changes in economic conditions affecting businesses generally.
8.11 Financing. DHS and the Buyer shall have entered into binding
---------
agreements for, and shall have received the full proceeds of, debt and/or equity
financing in a principal amount equal to not less than the sum of $10,000,000
plus the amount of the Debt, on terms and conditions satisfactory to DHS and the
Buyer in their sole and absolute discretion; and the lenders or equity
purchasers (as the case may be) shall have consented to the use of the proceeds
of such debt and/or equity financing in furtherance of the consummation of the
transactions contemplated by this Agreement.
8.12 Consents.
--------
(a) All necessary and legally required disclosures to and agreements
and consents of (i) any parties to any Material Contracts, any landlords under
any of the Leases, and/or any licensing authorities which are material to the
Business, and (ii) any governmental authorities or agencies to the extent
required to be obtained prior to the Closing in connection with the transactions
contemplated by this Agreement, shall have been obtained and true and complete
copies thereof delivered to the Buyer. Any such consents must be obtained
without imposing any
- 25 -
<PAGE>
unreasonable burden or obligation on DHS, the Buyer or the Business from and
after the Closing Date.
(b) DHS and the Buyer shall have obtained, and there shall be in full
force and effect, the consent of DHS' existing lender (i) for the use of up to
$2,500,000 in principal amount of loans under DHS' loan agreement with such
lender in respect of the Consideration pursuant to Section 2.1 above, (ii) with
respect to the subordination provisions to be applicable to any debt financing
pursuant to Section 8.11 above, and (iii) with respect to the consummation of
the transactions contemplated hereby.
8.13 Completion of Audit. DHS' accountants shall have completed
-------------------
their audit of the Business as contemplated by Section 6.1(b) above.
8.14 Execution and Delivery of Exhibits. On or before the Closing
----------------------------------
Date, (a) Primedex and the Stockholder shall have executed and delivered the
Non-Competition Agreement to the Buyer, DHS, the Company and the Corporate
Subsidiary, (b) the Stockholder shall have executed and delivered to the Buyer
and DHS the Valuation Letter, and (c) Primedex shall have executed and delivered
to the Company and the Corporate Subsidiary the Facilities Services Agreement.
8.15 Proceedings and Instruments Satisfactory. All proceedings,
----------------------------------------
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to the Buyer, DHS and their counsel. The
Stockholder shall have submitted to the Buyer or its representatives for
examination the originals or true and correct copies of all records and
documents relating to the Business which the Buyer may have requested in
connection with said transactions.
8.16 Non-Abandonment. The Buyer and DHS shall not have elected to
---------------
abandon the transactions contemplated by this Agreement (any such abandonment to
be evidenced by written notice thereof to the Stockholder).
9. CONDITIONS PRECEDENT TO THE STOCKHOLDER'S
-----------------------------------------
PERFORMANCE.
-----------
In addition to the fulfillment of the parties' agreements in Section 7
above, the obligations of the Stockholder to consummate the transactions
contemplated by this Agreement are further subject to the satisfaction, at or
before the Closing Date, of all of the following conditions, any one or more of
which may be waived in writing by the Stockholder:
- 26 -
<PAGE>
9.1 Accuracy of Representations and Warranties. All representations
------------------------------------------
and warranties made by the Buyer and DHS in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
9.2 Performance. The Buyer and DHS shall have performed, satisfied
-----------
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer and DHS on or before the Closing Date.
9.3 Certification. The Stockholder shall have received a
-------------
certificate, dated the Closing Date, signed by the Buyer and DHS, certifying, in
such detail as the Stockholder and its counsel may reasonably request, that the
conditions specified in Sections 9.1 and 9.2 above have been fulfilled.
9.4 Opinion of Counsel. The Stockholder shall have received an
------------------
opinion, dated the Closing Date, of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, counsel to the Buyer and DHS, with respect to such matters incident to
the transactions contemplated hereby as shall reasonably be requested by the
Stockholder and its counsel.
9.5 Resolutions. The Stockholder shall have received certified
-----------
resolutions of the Board of Directors and sole stockholder of the Buyer and of
the Board of Directors of DHS, in form reasonably satisfactory to counsel for
the Stockholder, authorizing the Buyer's and DHS' execution, delivery and
performance of this Agreement and all actions to be taken by the Buyer and DHS
hereunder.
9.6 Good Standing Certificates. The Stockholder shall have received
--------------------------
good standing certificates issued by the Secretary of State of Delaware with
respect to DHS and the Secretary of State of Texas with respect to the Buyer,
each dated as of a date reasonably prior to the Closing Date.
9.7 Consents. The Stockholder shall have received any and all
--------
agreements and consents of any governmental authorities and agencies, and any
parties to any material contracts or agreements of the Stockholder, to the
extent required in connection with the transactions contemplated by this
Agreement.
9.8 Execution and Delivery of Exhibits. On or before the Closing
----------------------------------
Date, (a) the Buyer, DHS, the Company and the Corporate Subsidiary shall have
executed and delivered to the Stockholder and Primedex the Non-Competition
Agreement, (b) the Buyer and DHS shall have executed and delivered to the
Stockholder the Valuation Letter, (c) the Company and the Corporate Subsidiary
shall have executed and delivered to Primedex the Facilities Services
- 27 -
<PAGE>
Agreement, and (d) the Company and the Corporate Subsidiary shall have executed
and delivered for filing with the California Secretary of State the Articles of
Amendment.
9.9 Proceedings and Instruments Satisfactory. All proceedings to be
----------------------------------------
taken in connection with the transactions contemplated by this Agreement, and
all documents incidental thereto, shall be reasonably satisfactory in form and
substance to the Stockholder and its counsel.
10. CLOSING.
-------
10.1 Place and Date of Closing. Unless this Agreement shall be
-------------------------
terminated pursuant to Section 11 below, the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of the Stockholder located at 1516 Cotner Avenue, Los Angeles, California
90025-3303, or such other location as is agreed to between the parties or as may
be required by the Buyer's financing sources, at 9:00 A.M. local time on March
31, 1997 or such later date (not later than April 30, 1997) as may be reasonably
agreeable to all parties (the date of the Closing being referred to in this
Agreement as the "Closing Date").
10.2 Actions at Closing. At the Closing, there shall be made, by
------------------
all necessary and appropriate persons, all payments and deliveries stated in
this Agreement to be made at the Closing and/or on or prior to the Closing Date.
11. TERMINATION OF AGREEMENT.
------------------------
11.1 General. This Agreement may be terminated and the transactions
-------
contemplated hereby may be abandoned at any time prior to the Closing: (a) by
the mutual written consent of the Stockholder, the Buyer and DHS; (b) by the
Buyer and DHS, or the Stockholder, if: (i) a material breach shall exist with
respect to the written representations and warranties made by the other party or
parties, as the case may be, (ii) the other party or parties, as the case may
be, shall take any action prohibited by this Agreement, if such actions shall or
may have a material adverse effect on the Business and/or the transactions
contemplated hereby, (iii) the other party or parties, as the case may be, shall
not have furnished, upon reasonable notice therefor, such certificates and
documents required in connection with the transactions contemplated hereby and
matters incidental thereto as it or they shall have agreed to furnish, and it is
reasonably unlikely that the other party or parties will be able to furnish such
item(s) prior to the Outside Closing Date specified below, or (iv) any consent
of any third party to the transactions contemplated hereby (whether or not the
necessity of which is disclosed herein or in any Schedule hereto) is reasonably
necessary to prevent a default under any outstanding material obligation of the
Buyer, DHS, the Stockholder or the Companies, and such consent is not obtainable
- 28 -
<PAGE>
without material cost or penalty (unless the party or parties not seeking to
terminate this Agreement agrees or agree to pay such cost or penalty); (c) by
the Buyer and DHS by means of notice of abandonment pursuant to Section 8.16
above; or (d) by the Buyer and DHS, or by the Stockholder, at any time on or
after April 30, 1997 (the "Outside Closing Date"), if the transactions
contemplated hereby shall not have been consummated prior thereto, and the party
directing termination shall not then be in breach or default of any obligations
imposed upon such party by this Agreement.
11.2 Effect of Termination. In the event of termination by either
---------------------
party as above provided in this Section 11, prompt written notice shall be given
to the other party. Termination of this Agreement shall not relieve any party
of any of its obligations pursuant to Section 7.1 above, and shall not relieve
any breaching party from liability for any breach of this Agreement.
Abandonment of this Agreement by the Buyer and DHS shall not be deemed a breach
of this Agreement (provided that such abandonment shall not constitute a release
of the Buyer or DHS in respect of any other action constituting a breach of this
Agreement).
12. INDEMNIFICATION.
---------------
12.1 General.
-------
(a) From and after the Closing Date, the Stockholder shall defend,
indemnify and hold harmless the Buyer and DHS from, against and in respect of
any and all claims, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorneys' fees, that the Buyer and/or DHS may incur, sustain or suffer
("Losses") as a result of (i) any breach of, or failure by the Stockholder to
perform, any of the representations, warranties, covenants or agreements of the
Stockholder contained in this Agreement, (ii) any liabilities or obligations of
the Companies incurred prior to the Closing Date which are not reflected in the
schedule of the Debt pursuant to Section 2.1 above but which should have been so
reflected in accordance with generally accepted accounting principles
("Unscheduled Liabilities"), (iii) any failure by the Stockholder and/or its
Affiliates to pay or perform when due any of the liabilities and obligations
transferred to the Stockholder and/or any of such Affiliates pursuant to Section
7.3 above ("Transferred Liabilities"), and/or (iv) any pending or threatened
litigation or proceedings against any of the Companies, whether or not disclosed
in Schedule 4.18 ("Litigation").
-------------
(b) From and after the Closing Date, the Buyer and DHS shall jointly
and severally defend, indemnify and hold harmless the Stockholder from, against
and in respect of any and all claims, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and
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<PAGE>
reasonable attorneys' fees, that the Stockholder may incur, sustain or suffer as
a result of any breach of, or failure by the Buyer or DHS to perform, any of the
representations, warranties, covenants or agreements of the Buyer or DHS
contained in this Agreement.
12.2 Limitations on Certain Indemnity.
--------------------------------
(a) Notwithstanding any other provision of this Agreement to the
contrary, except for (i) Losses arising out of claims for breach of any of the
warranties made under Sections 4.1, 4.2, 4.4, 4.5, 4.8 and/or 4.20 above, (ii)
Losses arising out of Unscheduled Liabilities, (iii) Losses arising out of
Transferred Liabilities, (iv) Losses arising out of Litigation, and/or (v)
Losses involving proven fraud by the Stockholder, the Stockholder shall not be
liable to the Buyer or DHS with respect to Losses unless and until, and then
only to the extent that, the aggregate amount of all Losses incurred by the
Buyer or DHS shall exceed the sum of $50,000 (the "Basket"). The Stockholder
shall thereafter be liable for all Losses in excess of the Basket, provided that
the Stockholder's maximum aggregate liability in respect of all Losses shall
not, in the absence of proven fraud by the Stockholder in respect of any
particular Losses, in any event exceed the limitations set forth in Section
12.2(b) below.
(b) Except with respect to any Losses involving proven fraud by the
Stockholder, the Stockholder shall only be required, in the aggregate, to pay
indemnification hereunder, after application of the Basket, up to a maximum
amount equal to the Consideration.
(c) Except with respect to (i) Losses arising under Section 4.1, 4.2,
4.4 or 4.5 above, (ii) Losses arising out of Unscheduled Liabilities,
Transferred Liabilities or Litigation, or (iii) any particular Losses the non-
discovery of which is attributable in whole or significant part to any proven
fraud by the Stockholder (as to which Losses claims may be made hereunder within
the applicable statute of limitations), the Buyer and DHS shall be entitled to
indemnification by the Stockholder for Losses only in respect of claims for
which notice of claim shall have been given to the Stockholder on or before
March 31, 1998, or, with respect to Losses relating to a breach of any
warranties under Section 4.8 above, the expiration of the final statute of
limitations for those tax returns covered by the warranties under Section 4.8
above; provided, however, that neither the Buyer nor DHS shall be entitled to
-------- -------
indemnification from the Stockholder in the event that the subject claim for
indemnification relates to a third-party claim and the Buyer or DHS (as the case
may be) delayed giving notice thereof to the Stockholder to such an extent as to
cause material prejudice to the defense of such third-party claim.
(d) In the event and to the extent that, on the scheduled payment date
for any payments pursuant to Section 2.2
- 30 -
<PAGE>
above, there shall be pending any claim for indemnification against the
Stockholder hereunder, DHS and/or the Buyer shall be entitled to (i) set off
against the payment due to the Stockholder hereunder the amount of such claim
for indemnification, to the extent that such claim has been established by an
arbitration award or a court judgment, and (ii) hold back from any payment
otherwise to be made under Section 2.2 above, the amount of any such pending
claim which has not been finally determined by arbitration award or court
judgment. With respect to any amounts held back pursuant to the foregoing
clause (ii), upon the final resolution of the subject claim, the Buyer or DHS
(as the case may be) shall promptly pay to the Stockholder any portion of the
amount held back hereunder to the extent that the subject claim is not
determined in favor of the Buyer or DHS, together with interest (at a rate equal
to the publicly announced prime rate of interest of Citibank, N.A. in New York,
New York as of the date the subject payment was originally due under Section 2.2
above) on the net amount required to be paid to the Stockholder hereunder
accrued from the date originally due under Section 2.2 above to the date finally
paid under this Section 12.2(d).
12.3 Claims for Indemnity. Whenever a claim shall arise for which
--------------------
any party shall be entitled to indemnification hereunder, the indemnified party
shall notify the indemnifying party in writing within ten (10) business days of
the indemnified party's first receipt of notice of, or the indemnified party's
obtaining actual knowledge of, such claim, and in any event within such shorter
period as may be necessary for the indemnifying party or parties to take
appropriate action to resist such claim. Such notice shall specify all facts
known to the indemnified party giving rise to such indemnity rights and shall
estimate (to the extent reasonably possible) the amount of potential liability
arising therefrom. If the indemnifying party shall be duly notified of such
dispute, the parties shall attempt to settle and compromise the same or may
agree to submit the same to arbitration or, if unable or unwilling to do any of
the foregoing, such dispute shall be settled by appropriate litigation, and any
rights of indemnification established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be paid and satisfied by
those indemnifying parties obligated to make indemnification hereunder.
12.4 Right to Defend. If the facts giving rise to any claim for
---------------
indemnification shall involve any actual or threatened action or demand by any
third party against the indemnified party or any of its Affiliates, the
indemnifying party or parties shall be entitled (without prejudice to the
indemnified party's right to participate at its own expense through counsel of
its own choosing), at their expense and through counsel of their own choosing,
to defend or prosecute such claim in the name of the indemnifying party or
parties, or any of them, or if necessary, in the name of the indemnified party.
In any event, the indemnified
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<PAGE>
party shall give the indemnifying party advance written notice of any proposed
compromise or settlement of any such claim. If the remedy sought in any such
action or demand is solely money damages, the indemnifying party shall have
fifteen (15) days after receipt of such notice of settlement to object to the
proposed compromise or settlement, and if it does so object, the indemnifying
party shall be required to undertake, conduct and control, though counsel of its
own choosing and at its sole expense, the settlement or defense thereof, and the
indemnified party shall cooperate with the indemnifying party in connection
therewith.
13. POST-CLOSING EVENTS.
-------------------
The parties hereby further agree that, from and after the Closing:
13.1 Books and Records. At any time and from time to time from and
-----------------
after the Closing Date, the Buyer shall permit the Stockholder to have access,
during normal business hours and without undue disruption of the Companies'
business, to those books and records of the Companies relating to periods prior
to the Closing Date, for purposes of preparing any tax filings or any other
legitimate purpose of the Stockholder. Such books and records may be made
available at any location where the subject Company maintains same, and all
costs and expenses relating to such access and inspection shall be the
responsibility of the Stockholder. In the event that, at any time and from time
to time after the Closing Date, the Buyer shall determine to destroy or dispose
of any such books and records, the Buyer shall give notice thereof to the
Stockholder not less than thirty (30) days prior to such disposition, and the
Stockholder shall have the right, at its own cost and expense, to take
possession of such books and records prior to their disposition.
13.2 Employee Matters; Benefit Plan Matters.
--------------------------------------
(a) The Buyer shall cause the Companies to honor all accrued benefits
owed to employees of the Business, to the extent reflected in the schedule of
the Debt pursuant to Section 2.1 above. In the event that any of the Companies
shall determine to terminate the employment of any such employees subsequent to
the Closing Date, then all severance payments (if any) arising from such
termination shall be the responsibility of the subject Company, except to the
extent that any such benefits relate to accruals that should, in accordance with
Section 2.1 above, have been reflected in the schedule of the Debt thereunder.
Nothing contained in this Section 13.2(a) shall be deemed to constitute any
assurance or guaranty of employment to any employees of the Business.
(b) Except with respect to any employees of the Business who do not
remain employed with the Companies from and
- 32 -
<PAGE>
after the Closing Date, the Stockholder shall comply with all requirements of
law in order to permit the employees of the Companies to withdraw the amounts in
their respective accounts in the Stockholder's 401(k) plan and any other
employee benefit plan(s) covering employees of one or more Stockholder-
affiliated or Primedex-affiliated entities in addition to the Companies.
(c) Nothing contained in this Agreement shall be deemed to abrogate or
impair the right of the Buyer to determine which employees will be retained by
the Companies from and after the Closing Date, and/or the compensation and
benefits to be paid from and after the Closing Date to those employees retained
in the Companies; provided, however, that, subject to any required waiting
-------- -------
periods and eligibility criteria, the Buyer will cause all employees retained in
the Companies on and after the Closing Date to be offered the opportunity to
participate in the group health programs generally offered to employees of DHS
and its subsidiaries.
13.3 Accounts Receivable. In the event and to the extent that any of
-------------------
the Companies shall, from and after the Closing Date, receive payment of any
accounts receivable transferred to the Stockholder or its Affiliates in
accordance with Section 7.3 above, the subject Company shall be deemed to have
received such payment in trust for the benefit of the Stockholder or its
Affiliate, and the Buyer shall cause such Company to immediately turn over any
payments so received in the form received (subject to any necessary
endorsement).
13.4 Professional Liability Insurance. To the extent that any of the
--------------------------------
professional liability insurance currently maintained by or for the benefit of
the Companies shall be on a "claims made" basis, and the Buyer is unable to
obtain professional liability insurance covering claims made against any Company
subsequent to the Closing Date but in respect of events or occurrences which
took place on or prior to the Closing Date, the Stockholder shall obtain for the
Buyer, subject to the Buyer's payment of the applicable premium therefor, "tail"
coverage in respect of any such claims.
13.5 Interim Period Collections and Expenditures. The parties hereby
-------------------------------------------
confirm their intention that, subject to the Closing, all revenues and expenses
of the Business shall be accounted for and treated separate and apart from all
other businesses of the Company and the Stockholder. In order to give effect
thereto, the parties hereby agree as follows:
(a) All collections made in respect of goods sold and/or services
rendered in the Business from and after March 1, 1997 shall be retained in the
Company (and not distributed or transferred under Section 7.3 above or
otherwise), and shall be
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<PAGE>
utilized solely to pay expenses or current obligations of the Business in
respect of periods from and after March 1, 1997.
(b) Within sixty (60) days after the Closing Date, the Stockholder and
the Buyer shall reconcile in good faith the amount (if any) by which the cash
expenditures in the Business for periods from and after March 1, 1997 exceeded
the cash receipts of the Business in respect of goods sold and/or services
rendered in the Business from and after March 1, 1997; and to the extent of any
such excess of payments over receipts, the Company shall reimburse the
Stockholder therefor within sixty (60) days after the Closing Date.
(c) To the extent that any taxes shall be payable on or in respect of
the net income of the Business for periods from and after March 1, 1997, (i)
such taxes shall, subject to the Closing, constitute the sole responsibility of
the Company (subject to any consolidation effected by DHS), and (ii) subject to
the Closing, such net income and taxes thereon shall not be reported or payable
by the Stockholder or any member of its consolidated tax group.
13.6 Further Assurances. From time to time from and after the
------------------
Closing Date, the parties will take any and all such action and execute and
deliver to one another any and all further agreements, instruments, certificates
and other documents, as may reasonably be requested by any other party in order
more fully to consummate the transactions contemplated hereby, and to effect an
orderly transition of the ownership and operations of the Business.
14. COSTS.
-----
14.1 Finder's or Broker's Fees. Each of the Buyer and DHS (on the
-------------------------
one hand) and the Stockholder (on the other hand) represents and warrants that
neither they nor any of their respective Affiliates have dealt with any broker
or finder in connection with any of the transactions contemplated by this
Agreement, and no broker or other person is entitled to any commission or
finder's fee in connection with any of these transactions.
14.2 Expenses. The Buyer, DHS and the Stockholder shall each pay
--------
all of their own respective costs and expenses incurred or to be incurred by
them, respectively, in negotiating and preparing this Agreement and in closing
and carrying out the transactions contemplated by this Agreement.
15. FORM OF AGREEMENT.
-----------------
15.1 Effect of Headings. The Section headings used in this
------------------
Agreement and the titles of the Schedules hereto are included for purposes of
convenience only, and shall not affect the
- 34 -
<PAGE>
construction or interpretation of any of the provisions hereof or of the
information set forth in such Schedules.
15.2 Entire Agreement; Waivers. This Agreement (including the
-------------------------
Schedules and Exhibits hereto) constitutes the entire agreement between the
parties pertaining to the subject matter hereof, and supersedes all prior
agreements or understandings as to such subject matter. No party hereto has
made any representation or warranty or given any covenant to the other except as
set forth in this Agreement and the Schedules and Exhibits hereto. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
15.3 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.
16. PARTIES.
-------
16.1 Parties in Interest. Nothing in this Agreement, whether
-------------------
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective successors and permitted assigns, nor is anything in this Agreement
intended to relieve or discharge the obligations or liability of any third
persons to any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party to this
Agreement.
16.2 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on or
telecopied to the party to whom notice is to be given, one day after being
deposited for overnight delivery with a recognized overnight courier service in
a properly addressed package with all charges prepaid or billed to the account
of the sender, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
(a) If to the Stockholder:
Diagnostic Imaging Services, Inc.
1516 Cotner Avenue
Los Angeles, California 90025-3303
Attn: Howard G. Berger, M.D.
Fax No. (310) 478-5810
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<PAGE>
(b) If to the Buyer or DHS:
Diagnostic Health Services, Inc.
2777 Stemmons Freeway, Suite 1525
Dallas Texas 75207
Attn: Mr. Brad A. Hummel
Fax No. (214) 689-6459
with a copy sent concurrently to:
Greenberg Traurig Hoffman et al.
153 East 53rd Street, 35th Floor
New York, New York 10022
Attn: Shahe Sinanian, Esq.
Fax No. (212) 223-7161
or to such other address or telecopier number as any party shall have specified
by notice in writing given to all other parties.
17. MISCELLANEOUS.
-------------
17.1 Amendments and Modifications. No amendment or modification of
----------------------------
this Agreement or any Exhibit or Schedule hereto shall be valid unless made in
writing and signed by the party to be charged therewith.
17.2 Non-Assignability; Binding Effect. Neither this Agreement, nor
---------------------------------
any of the rights or obligations of the parties hereunder, shall be assignable
by any party hereto without the prior written consent of all other parties
hereto, except that (a) the Buyer may, at the time of the Closing, assign its
rights to acquire the Stock to SoCal Diagnostic Services, Inc. ("SoCal")
(provided that any such assignment shall not relieve DHS or the Buyer from any
of their obligations hereunder), and (b) DHS, the Buyer and SoCal may, without
requirement of any consent of the Stockholder, assign their rights to
indemnification hereunder to any secured lender to DHS, the Buyer and/or SoCal
from time to time. Otherwise, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
17.3 Governing Law; Jurisdiction. This Agreement shall be construed
---------------------------
and interpreted and the rights granted herein governed in accordance with the
laws of the State of Texas applicable to contracts made and to be performed
wholly within such State. Except as otherwise provided in Section 12.3 above,
any claim, dispute or controversy arising under or in connection with this
Agreement or any actual or alleged breach hereof shall be settled exclusively by
arbitration in Dallas, Texas in accordance with the commercial arbitration rules
of the American Arbitration Association then obtaining. As part of his or her
award, the arbitrator shall make a fair allocation of the fee of the American
- 36 -
<PAGE>
Arbitration Association, the cost of any transcript, and the parties' reasonable
attorneys' fees, taking into account the merits and good faith of the parties'
claims and defenses. Judgment may be entered on the award so rendered in any
court having jurisdiction. Any process or other papers hereunder may be served
by registered or certified mail, return receipt requested, or by personal
service, provided that a reasonable time for appearance or response is allowed.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the date first set forth above.
DIAGNOSTIC HEALTH SERVICES, INC
By:____________________________
DHS MANAGEMENT SERVICES, INC.
By:____________________________
DIAGNOSTIC IMAGING SERVICES,
INC., A DELAWARE CORPORATION
By:___________________________
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<PAGE>
Exhibits
--------
A - Valuation Letter
B - Non-Competition Agreement
C - Facilities Services Agreement
- 38 -
<PAGE>
Exhibit 2
----------------------------------------------------------------------
----------------------------------------------------------------------
DIAGNOSTIC HEALTH SERVICES, INC.
$20,000,000
10.50% SENIOR SUBORDINATED NOTES DUE APRIL 17, 2005
_______________
NOTE AGREEMENT
_______________
Dated as of April 16, 1997
----------------------------------------------------------------------
----------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
1. AUTHORIZATION OF ISSUE OF NOTES............................1
2. PURCHASE AND SALE OF NOTES.................................1
3. CONDITIONS PRECEDENT.......................................2
3A. Certain Documents.....................................2
3B. Opinion of Purchaser's Special Counsel................3
3C. Representations and Warranties; No Default............3
3D. Purchase Permitted By Applicable Laws.................3
3E. Proceedings...........................................4
3F. Fees..................................................4
3G. Amendment of Loan Agreement...........................4
4. PREPAYMENTS................................................4
4A. Required Prepayments..................................4
4B. Optional Prepayment With Yield-Maintenance Amount.....4
4C. Notice of Optional Prepayment.........................5
4D. Change of Control.....................................5
4E. Partial Payments Pro Rata.............................6
4F. Retirement of Notes...................................6
5. AFFIRMATIVE COVENANTS......................................7
5A. Financial Statements..................................7
5B. Information Required by Rule 144A.....................9
5C. Inspection of Property................................9
5D. Covenant to Secure Notes Equally......................9
5E. Corporate Existence, Licenses and Permits;
Maintenance of Properties.............................9
5F. Maintenance of Insurance.............................10
5G. Payment of Taxes and Other Claims....................10
5H. Compliance with Laws.................................10
5I. Maintenance of Books of Record; Reserves.............11
5J. Nature of Business...................................11
5K. Assumption of the Subsidiary Guaranty by
After-Acquired Subsidiaries..........................11
i
<PAGE>
6. NEGATIVE COVENANTS........................................11
6A. Financial Covenants..................................11
6B. Limitation on Subsidiary Indebtedness................12
6C. Limitation on Asset Dispositions.....................12
6D. Consolidation, Merger or Transfer of Assets..........12
6E. Transactions with Affiliates.........................13
6F. Prohibition Against Layering; Subordination of
Seller Notes.........................................13
6G. Limitation on Liens..................................14
7. SUBORDINATION OF NOTES....................................15
7A. Subordination........................................15
7B. Obligation of the Company Unconditional..............17
7C. Subrogation..........................................17
7D. Rights of Holders of Senior Debt.....................17
7E. No Receipt of Payments During Subordinated Debt
Event of Default Notice Period.......................18
7F. Subordination Definitions............................18
8. EVENTS OF DEFAULT.........................................19
8A. Acceleration.........................................19
8B. Rescission of Acceleration...........................22
8C. Notice of Acceleration or Rescission.................23
8D. Other Remedies.......................................23
9. REPRESENTATIONS, COVENANTS AND WARRANTIES.................23
9A. Organization.........................................23
9B. Financial Statements.................................23
9C. Actions Pending......................................24
9D. Outstanding Debt.....................................24
9E. Title to Properties..................................24
9F. Taxes................................................24
9G. Conflicting Agreements and Other Matters.............24
9H. Offering of Notes and Warrants.......................25
9I. Use of Proceeds......................................25
9J. ERISA................................................26
9K. Governmental Consent.................................26
9L. Environmental Compliance.............................26
9M. Disclosure...........................................26
9N. Delivery of Loan Agreement and Related Documents.....27
ii
<PAGE>
9O. Sensitive Payments...................................27
9P. Delivery of Acquisition Documents....................27
9Q. Authorized Capital Stock.............................27
10. REPRESENTATIONS OF THE PURCHASER..........................28
10A. Nature of Purchase...................................28
10B. Source of Funds......................................28
11. DEFINITIONS...............................................28
11A. Yield-Maintenance Terms..............................28
11B. Other Terms..........................................30
11C. Accounting Principles, Terms and Determinations......40
12. MISCELLANEOUS.............................................40
12A. Note Payments........................................40
12B. Expenses.............................................41
12C. Consent to Amendments; Release of Subsidiary
Guaranty.............................................41
12D. Form, Registration, Transfer and Exchange of Notes;
Lost Notes...........................................42
12E. Persons Deemed Owners; Participations................42
12F. Survival of Representations and Warranties; Entire
Agreement............................................42
12G. Successors and Assigns...............................43
12H. Disclosure to Other Persons..........................43
12I. Notices..............................................43
12J. Payments Due on Non-Business Days....................44
12K. Satisfaction Requirement.............................44
12L. Governing Law........................................44
12M. Severability.........................................44
12N. Descriptive Headings.................................44
12O. Maximum Interest Payable.............................44
12P. Counterparts.........................................45
iii
<PAGE>
PURCHASER SCHEDULE
SCHEDULE 9A -- SUBSIDIARIES
SCHEDULE 9D -- OUTSTANDING DEBT AS OF DATE OF CLOSING
SCHEDULE 9G -- LIST OF AGREEMENTS RESTRICTING DEBT
EXHIBIT A -- FORM OF SENIOR SUBORDINATED NOTE
EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT C -- FORM OF SUBSIDIARY GUARANTY
EXHIBIT D -- FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E -- FORM OF REDEEMABLE COMMON STOCK PURCHASE
WARRANT AGREEMENT
EXHIBIT A -- FORM OF REDEEMABLE COMMON STOCK PURCHASE
WARRANT
EXHIBIT F -- FORM OF ASSUMPTION OF SUBSIDIARY GUARANTY
EXHIBIT G -- FORM OF OPINION RELATING TO FUTURE SUBSIDIARY'S
ASSUMPTION OF SUBSIDIARY GUARANTY
iv
<PAGE>
DIAGNOSTIC HEALTH SERVICES, INC.
2777 STEMMONS FREEWAY, SUITE 1525
DALLAS, TEXAS 75207
As of April 16, 1997
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
$20,000,000 10.50% SENIOR SUBORDINATED NOTES DUE 2005
Ladies and Gentlemen:
The undersigned, Diagnostic Health Services, Inc. (the "COMPANY"),
hereby agrees with you as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES.
The Company will authorize the issue of its senior subordinated
promissory notes in the aggregate principal amount of $20,000,000, to be dated
the date of issue thereof, to mature April 17, 2005, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due and payable at the rate of 10.50% per annum and on overdue
payments at the rate specified therein, and to be substantially in the form of
Exhibit A attached hereto. The term "NOTES" as used herein shall include each
- ---------
such senior subordinated promissory note delivered pursuant to any provision of
this Agreement and each such senior subordinated promissory note delivered in
substitution or exchange for any other Note pursuant to any such provision.
Capitalized terms used herein have the meanings specified in paragraph
11.
PARAGRAPH 2. PURCHASE AND SALE OF NOTES.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
you and, subject to the terms and conditions herein set forth, you agree to
purchase from the Company Notes in the aggregate principal amount of $20,000,000
at 100% of such aggregate principal amount.
<PAGE>
The Company will deliver to you, at the offices of Baker & Botts,
L.L.P. at 2001 Ross Avenue, Dallas, Texas, one or more Notes registered in your
name, evidencing the aggregate principal amount of Notes to be purchased by you
and in the denomination or denominations specified in the Purchaser Schedule
attached hereto, against payment of the purchase price for the Notes by transfer
of immediately available funds for credit to the Company's account #08805145537
at Texas Commerce Bank National Association, Dallas, Texas, on the date of
closing, which shall be April 17, 1997 or any other date on or before April 30,
1997 upon which the Company and you may mutually agree (the "CLOSING or the
"DATE OF CLOSING").
PARAGRAPH 3. CONDITIONS PRECEDENT.
3. CONDITIONS TO CLOSING. Your obligation to purchase and pay for
the Securities to be purchased by you hereunder is subject to the satisfaction,
on or before the Date of Closing, of the following conditions:
3A. CERTAIN DOCUMENTS. You shall have received the following, each
dated the Date of Closing unless otherwise indicated:
(i) The Notes to be purchased by you.
(ii) Certified copies of the resolutions of the Board of Directors of
the Company approving this Agreement, the Notes, the Warrant Purchase Agreement,
the Warrants and the Registration Rights Agreement and of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Agreement, the Notes, the Warrant Purchase Agreement, the
Warrants and the Registration Rights Agreement.
(iii) A certificate of the Secretary or an Assistant Secretary of the
Company certifying the names and true signatures of the officers of the Company
authorized to sign this Agreement, the Notes, the Warrant Purchase Agreement,
the Warrants, the Registration Rights Agreement and the other documents to be
delivered by the Company hereunder.
(iv) Certified copies of the Certificate of Incorporation and bylaws
of the Company.
(v) Certified copies of the resolutions of the Board of Directors of
each Subsidiary (or, in the case of the LP, its general partner) approving the
Subsidiary Guaranty and of all documents evidencing other necessary corporate or
other organizational action and governmental approvals, if any, with respect to
the Subsidiary Guaranty.
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<PAGE>
(vi) A certificate of the Secretary or an Assistant Secretary of each
Subsidiary (or, in the case of the LP, its general partner) certifying the names
and true signatures of the officers of each Subsidiary (or, in the case of the
LP, its general partner) authorized to sign the Subsidiary Guaranty and the
other documents to be delivered by such Subsidiary hereunder.
(vii) Certified copies of the Certificate or Articles of
Incorporation or the Certificate of Limited Partnership, and of the bylaws or
limited partnership agreement, as the case may be, of each Subsidiary and of the
general partner of the LP.
(viii) A favorable opinion of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, special counsel to the Company, satisfactory to you and
substantially in the form of Exhibit B attached hereto and as to such other
---------
matters as you may reasonably request.
(ix) Certified copies of Requests for Information or Copies (Form UCC-
11), or equivalent reports, dated not earlier than 10 Business Days prior to the
Date of Closing, listing all effective financing statements which name the
Company or any Subsidiary (under its present name and any previous name)
transacting business in the State of Texas as debtor and which are filed in the
Office of the Secretary of State of the State of Texas, together with copies of
such financing statements.
(x) The Subsidiary Guaranty, duly executed and delivered by each
Subsidiary, in the form of Exhibit C attached hereto.
---------
(xi) The Registration Rights Agreement, duly executed and delivered by
the Company, in the form of Exhibit D attached hereto.
---------
3B. OPINION OF PURCHASER'S SPECIAL COUNSEL. You shall have received
from Baker & Botts, L.L.P., who are acting as special counsel for you in
connection with this transaction, a favorable opinion satisfactory to you as to
such matters incident to the matters herein contemplated as you may reasonably
request.
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 9 shall be true on and as of the Date of
Closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the Date of Closing no Event of Default or
Default; and the Company shall have delivered to you an Officer's Certificate,
dated the Date of Closing, to both such effects.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the Company
of, and the purchase of and payment for the Securities to be purchased by you on
the Date of Closing on the terms and conditions herein provided (including the
use of the proceeds of such Securities by the Company) shall not violate any
applicable law or governmental regulation (including, without limitation,
section 5 of the Securities Act or Regulation T, G or X of the Board of
Governors of the
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<PAGE>
Federal Reserve System) and shall not subject you to any tax, penalty, liability
or other onerous condition under or pursuant to any applicable law or
governmental regulation, and you shall have received such certificates or other
evidence as you may reasonably request to establish compliance with this
condition.
3E. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to you, and you
shall have received all such counterpart originals or certified or other copies
of such documents as you may reasonably request.
3F. FEES. (a) You shall have received (i) a structuring fee in the
amount of $54,590, (ii) the Warrant Purchase Agreement, duly executed and
delivered by the Company, in the form of Exhibit E attached hereto, (iii) the
---------
Warrants to be purchased by you pursuant to the Warrant Purchase Agreement, and
(iv) all other fees which are due and payable on or before the Date of Closing
pursuant to any written agreement between the Company and you, and (b) without
limiting the provisions of paragraph 12B, your special counsel shall have
received its reasonable fees, charges and disbursements to the extent reflected
in a statement of such special counsel rendered to the Company prior to the
Closing.
3G. AMENDMENT OF LOAN AGREEMENT. You shall have received evidence
satisfactory to you that the Loan Agreement has been amended so as to permit the
issuance of the Notes, the execution and delivery of the Subsidiary Guaranty and
the consummation of the other transactions contemplated hereby.
PARAGRAPH 4. PREPAYMENTS.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with
respect to the required prepayments specified in paragraph 4A and the optional
prepayments permitted by paragraph 4B.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the principal of the Notes, without
premium, the aggregate amount of $6,666,667 on April 17 in each of the years
2003 and 2004 and such aggregate principal amount of the Notes, together with
interest thereon to the prepayment dates, shall become due on each such
prepayment date. The remaining outstanding principal amount of the Notes,
together with interest accrued thereon, shall become due on the maturity date of
the Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes
shall be subject to prepayment in whole at any time or at any time or from time
to time in part (in multiples of $500,000), at the option of the Company, at
100% of the principal amount so prepaid plus interest thereon to the prepayment
date and the Yield-Maintenance Amount, if any, with respect to the principal
amount(s) prepaid. Any partial prepayment of the Notes pursuant to this
paragraph 4B
-4-
<PAGE>
shall be applied in satisfaction of required payments of principal in inverse
order of their scheduled due dates.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder
of each Note irrevocable written notice of any prepayment pursuant to paragraph
4B not less than 10 Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes held by
such holder, to be prepaid on such date and stating that such prepayment is to
be made pursuant to paragraph 4B. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the Yield-
Maintenance Amount, if any, with respect thereto, shall become due and payable
on such prepayment date. The Company shall, on or before the day on which it
gives written notice of any prepayment pursuant to paragraph 4B, give telephonic
notice of the principal amount of the Notes to be prepaid and the prepayment
date to each holder which shall have designated a recipient of such notices in
the Purchaser Schedule attached hereto or by notice in writing to the Company.
4D. CHANGE OF CONTROL.
(i) Notice of Occurrence of Change in Control. The Company will,
-----------------------------------------
within five Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control, give written notice of such Change in
Control to each holder of Notes. If a Change in Control has occurred, such
notice shall contain and constitute an offer to purchase Notes as described in
clause (iii) of this paragraph 4D and shall be accompanied by the certificate
described in clause (vi) hereof.
(ii) Notice of Impending Change in Control. The Company will not take
-------------------------------------
any action that consummates or finalizes a Change in Control unless at least 30
days prior to such action it shall have given to each holder of Notes written
notice of such impending Change in Control.
(iii) Offer to Purchase Notes. The offer to purchase Notes
-----------------------
contemplated by the foregoing clause (i) shall be an offer to purchase, in
accordance with and subject to this paragraph 4D, all, but not less than all, of
the Notes held by each holder (in this case only, "holder" in respect of any
Note registered in the name of a nominee for a disclosed beneficial owner shall
mean such beneficial owner) on a date specified in such offer (the "PROPOSED
PURCHASE DATE"). Such Proposed Purchase Date shall be not less than 61 days
and not more than 150 days after the date such offer is received by the holders
of the Notes (if the Proposed Purchase Date shall not be specified in such
offer, the Proposed Purchase Date shall be the 150th day after the date of such
offer).
(iv) Rejection; Acceptance. A holder of Notes may accept the offer to
---------------------
purchase made pursuant to this paragraph 4D by causing a notice of such
acceptance to be delivered to the Company within 60 days after such holder
receives the notice of a Change of Control
-5-
<PAGE>
contemplated by clause (i) of this paragraph 4D. A failure by a holder of Notes
to respond to an offer to purchase made pursuant to this paragraph 4D shall be
deemed to constitute a rejection of such offer by such holder.
(v) Purchase Price. Purchase of the Notes to be purchased pursuant to
--------------
this paragraph 4D shall be at 100% of the principal amount of such Notes, plus
the Yield-Maintenance Amount, if any, determined for the date of purchase with
respect to such principal amount, together with interest on such Notes accrued
to the date of purchase. The purchase shall be made on the Proposed Purchase
Date.
(vi) Officer's Certificate. Each offer to purchase the Notes pursuant
---------------------
to this paragraph 4D shall be accompanied by a certificate, executed by a
Responsible Officer of the Company and dated the date of such offer, specifying:
(a) the Proposed Purchase Date; (b) that such offer is made pursuant to this
paragraph 4D; (c) the principal amount of each Note offered to be purchased; (d)
the estimated Yield-Maintenance Amount due in connection with such purchase
(calculated as if the date of such notice were the date of the purchase) and the
details of such calculation; (e) the interest that would be due on each Note
offered to be purchased, accrued to the Proposed Purchase Date; (f) that the
conditions of this paragraph 4D have been fulfilled; and (g) in reasonable
detail, the nature and date of the Change in Control.
4E. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the
Notes pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (including, for the purpose of
this paragraph 4E only, all Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates other
than by prepayment pursuant to paragraph 4A or 4B) in proportion to the
respective outstanding principal amounts thereof.
4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay, purchase or otherwise retire
in whole or in part prior to their stated final maturity (other than by
prepayment pursuant to paragraph 4A or 4B, purchase pursuant to paragraph 4D or
upon acceleration of such final maturity pursuant to paragraph 8A), or otherwise
acquire, directly or indirectly, Notes held by any holder unless the Company or
such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise acquire, as the case may be, the same proportion of the
aggregate principal amount of Notes held by each other holder of Notes at the
time outstanding upon the same terms and conditions. Any Notes so prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4E.
-6-
<PAGE>
PARAGRAPH 5. AFFIRMATIVE COVENANTS.
5. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid,
the Company covenants that
5A. FINANCIAL STATEMENTS. The Company will deliver to each holder in
duplicate:
(i) as soon as practicable and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year, consolidated and, if requested, consolidating, unaudited statements
of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for the period from the beginning of the current fiscal year to the
end of such quarterly period, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and satisfactory in form to the
Required Holder(s) and certified by an authorized financial officer of the
Company, subject to changes resulting from year-end adjustments; provided,
--------
however, that delivery pursuant to clause (iii) below of copies of the Quarterly
- -------
Report on Form 10-Q or Form 10-QSB, as the case may be, of the Company for such
quarterly period filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (i) with respect to
consolidated financial statements if such financial statements are included in
such report;
(ii) as soon as practicable and in any event within 90 days after the
end of each fiscal year, consolidated and, if requested, consolidating
statements of income, cash flows and stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case in
comparative form corresponding consolidated figures from the preceding annual
audit, all in reasonable detail and satisfactory in form to the Required
Holder(s) and, as to the consolidated statements and balance sheet, reported on
by independent public accountants, who are members in good standing of the SEC
Practice Section (or any successor group or section) of the American Institute
of Certified Public Accountants and who are selected by the Company, whose
report shall be without limitation as to the scope of the audit and satisfactory
in substance to the Required Holder(s); provided, however, that delivery
-------- -------
pursuant to clause (iii) below of copies of the Annual Report on Form 10-K or
Form 10-KSB, as the case may be, of the Company for such fiscal year filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (ii) with respect to consolidated financial
statements if such financial statements are included in such report;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall send to
its public stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the Securities
-7-
<PAGE>
and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the books
of the Company or any Subsidiary;
(v) as soon as practicable and in any event within five days after any
officer of the Company obtaining knowledge (a) of any condition or event which,
in the opinion of management of the Company, would have a material adverse
effect on the business, condition (financial or other), assets, properties,
operations or prospects of the Company and its Subsidiaries, (b) that any Person
has given any notice to the Company or any of its Subsidiaries or taken any
other action with respect to a claimed default or event or condition of the type
referred to in paragraph 8A(iii), (c) of the institution of any litigation
involving claims against the Company or any of its Subsidiaries equal to or
greater than $2,000,000 with respect to any single cause of action or of any
adverse determination in any court proceeding in any litigation involving a
potential liability to the Company or any of its Subsidiaries equal to or
greater than $2,000,000 with respect to any single cause of action which makes
the likelihood of an adverse determination in such litigation against the
Company or such Subsidiary substantially more probable, (d) of any regulatory
proceeding which may have a material adverse effect on the Company or any of its
Subsidiaries, an Officer's Certificate specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken by such Person and the nature of any such claimed default, event or
condition, or specifying the details of such proceeding, litigation or dispute
and what action the Company or any of its Subsidiaries has taken, is taking or
proposes to take with respect thereto;
(vi) promptly after the filing or receiving thereof, copies of all
reports and notices which the Company or any Subsidiary files under ERISA with
the Internal Revenue Service or the PBGC or the U.S. Department of Labor or
which the Company or any Subsidiary receives from such Person;
(vii) such other financial data and other information as the Company
or any Subsidiary regularly provides to any of its other commercial bank
lenders; and
(viii) with reasonable promptness, such other information respecting
the condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries as such holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder an Officer's Certificate
demonstrating (with computations in reasonable detail) compliance by the Company
and its Subsidiaries with the provisions of paragraphs 6A, 6B(v), 6C(ii) and
6G(vi) and stating that there exists no Event of Default or Default, or, if any
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<PAGE>
Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company is taking or proposes to take with
respect thereto. Together with each delivery of financial statements required
by clause (ii) above, the Company will deliver to each holder a certificate of
such accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards.
The Company also covenants that immediately after any Responsible
Officer obtains knowledge of an Event of Default or Default, it will deliver to
each holder an Officer's Certificate specifying the nature and period of
existence thereof and what action the Company is taking or proposes to take with
respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the
request of the holder of any Note or Warrant, provide such holder, and any
Qualified Institutional Buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of such Note or Warrant, except
at such times as the Company is subject to the reporting requirements of section
13 or 15(d) of the Exchange Act.
5C. INSPECTION OF PROPERTY. The Company will permit any Person
(other than a Competitor) designated by any holder in writing, at the Company's
expense during the continuance of a Default or Event of Default and otherwise at
such holder's expense, to visit and inspect any of the properties of the Company
and its Subsidiaries, to examine the corporate books and financial records of
the Company and its Subsidiaries and make copies thereof or extracts therefrom
and to discuss the affairs, finances and accounts of the Company and any of its
Subsidiaries with the principal officers of the Company and its independent
public accountants, all upon reasonable prior notice, at such reasonable times
and as often as such holder may reasonably request.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it or any
Subsidiary shall create or assume any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than Liens permitted by the
provisions of paragraph 6G (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 12C), make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Debt thereby secured so long as
any such other Debt shall be so secured.
5E. CORPORATE EXISTENCE, LICENSES AND PERMITS; MAINTENANCE OF
PROPERTIES. The Company will at all times do or cause to be done all things
necessary to maintain, preserve and renew its existence as a corporation
organized under the laws of a state of the United States of America, will
preserve and keep in force and effect, and cause each of its Subsidiaries to
preserve
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<PAGE>
and keep in force and effect, all licenses and permits necessary to the conduct
of its and their respective businesses and will maintain and keep, and will
cause each of its Subsidiaries to maintain and keep, its and their respective
properties in good repair, working order and condition (reasonable wear and tear
excepted), and from time to time make all necessary and proper repairs, renewals
and replacements, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times in the normal course of
business as conducted prior to the date of repair; provided, however, that
-------- -------
nothing contained in this paragraph 5E shall prevent the Company or any
Subsidiary from ceasing or omitting to exercise any right, license or permit or
to make any repair, renewal or replacement that (i) in the reasonable judgment
of the Company or such Subsidiary is no longer in the best interests of the
Company or such Subsidiary and (ii) such cessation or omission will not result
in a material adverse effect on the business, condition (financial or other),
assets, properties or operations of the Company and its Subsidiaries taken as a
whole.
5F. MAINTENANCE OF INSURANCE. The Company will maintain and will
cause each of its Subsidiaries to maintain, insurance with financially sound and
reputable insurance companies in such amounts and covering such risks as are
usually carried by business entities engaged in similar businesses and owning
similar properties in the same general areas in which the Company and its
Subsidiaries operate, provided that in any event the Company and its
Subsidiaries will maintain medical professional liability insurance coverage for
each Subsidiary of at least $1,000,000 per incident and $3,000,000 maximum
coverage.
5G. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will, and will
cause each of its Subsidiaries to, file all income tax or similar tax returns
required to be filed in any jurisdiction and to pay and discharge all taxes
shown to be due and payable on such returns and all other taxes, assessments,
governmental charges, levies, trade accounts payable and claims for work, labor
or materials (all the foregoing being referred to collectively as "CLAIMS")
payable by any of them, to the extent such Claims have become due and payable
and before they have become delinquent; provided, however, that neither the
-------- -------
Company nor any Subsidiary need pay any Claim if (i) the amount, applicability
or validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with
generally accepted accounting principles on the books of the Company or such
Subsidiary or (ii) the nonpayment of all such Claims in the aggregate would not
result in a material adverse change in the business, condition (financial or
other), assets, properties or operations of the Company and its Subsidiaries
taken as a whole.
5H. COMPLIANCE WITH LAWS. The Company will comply, and will cause
each of its Subsidiaries to comply, with all applicable laws, rules, regulations
and orders (including those relating to protection of the environment) except,
in any such case, where failure to comply would not have a material adverse
effect on the business, condition (financial or otherwise) or operations of the
Company and its Subsidiaries taken as a whole.
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<PAGE>
5I. MAINTENANCE OF BOOKS OF RECORD; RESERVES. The Company, both
individually and on a consolidated basis, will keep proper books of record and
account and set aside appropriate reserves, all in accordance with generally
accepted accounting principles.
5J. NATURE OF BUSINESS. The Company will, and will cause its
Subsidiaries to, continue to engage in substantially the same type of business
carried on as of the Date of Closing (including, without limitation, providing
outsource medical services to hospitals, physicians' offices and other
healthcare facilities and related or similar businesses).
5K. ASSUMPTION OF THE SUBSIDIARY GUARANTY BY AFTER-ACQUIRED
SUBSIDIARIES. The Company will, if it acquires the stock or other equity
interest of any Person which after giving effect to such acquisition is a
Subsidiary and which delivers or is required to deliver a Guarantee, or grants
or is required to grant a Lien, to any holder of Senior Debt (or a trustee,
collateral agent or similar Person on behalf of such holder), cause such
Subsidiary to deliver to you (i) an Assumption of Subsidiary Guaranty, in the
form of Exhibit F attached hereto, duly executed by such Subsidiary, (ii) a copy
---------
of a resolution of the board of directors of such Subsidiary, or other
appropriate organizational action if such Subsidiary is not a corporation,
approving the Assumption of Subsidiary Guaranty and the execution and delivery
thereof, which copy shall be certified to be a true copy by the Secretary or an
Assistant Secretary of such Subsidiary or other appropriate person if such
Subsidiary is not a corporation, and (iii) an opinion, in the form of Exhibit G
---------
attached hereto, from counsel to the Company addressing such Subsidiary and such
Assumption of Subsidiary Guaranty.
PARAGRAPH 6. NEGATIVE COVENANTS.
6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid, the
Company covenants that:
6A. FINANCIAL COVENANTS. The Company will not permit:
(1) FIXED CHARGES. The ratio of (a) the sum of EBITDA plus
Consolidated Lease/Rental Expenses to (b) Consolidated Fixed Charges for any
period of four consecutive fiscal quarters, commencing with the period of four
fiscal quarters ended December 31, 1996, to be less than 1.5:1.0.
(2) CONSOLIDATED NET WORTH. Consolidated Net Worth on the last day of
any fiscal quarter, commencing with the fiscal quarter ended March 31, 1997, to
be less than the sum of (i) $30,673,993 plus (ii) 70% of any Equity Proceeds
----
plus (iii) the cumulative total of 50% of Consolidated Net Earnings of the
- ----
Company and its Subsidiaries (but not including the Consolidated Net Earnings of
any Acquired Company for any periods prior to such Acquired Company becoming a
Subsidiary) for each fiscal quarter after December 31, 1996 in which such
Consolidated Net Earnings is greater than $0, to and including the fiscal
quarter ended on such measurement date.
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<PAGE>
(3) TOTAL DEBT. At any time the ratio of Total Debt to EBITDA for the
period of the four consecutive fiscal quarters most recently ended to exceed
4.0:1.0.
(4) SENIOR DEBT. At any time the ratio of Senior Debt to EBITDA for
the period of the four consecutive fiscal quarters most recently ended to exceed
3.5:1.0.
6B. LIMITATION ON SUBSIDIARY INDEBTEDNESS. The Company will not
permit any Subsidiary to create, assume, incur or permit to exist any
Indebtedness, except (i) unsecured Indebtedness that is set forth on Schedule 9D
-----------
attached hereto and that does not relate to Seller Notes; (ii) Indebtedness
evidenced by the Subsidiary Guaranty; (iii) Indebtedness evidenced by the
Guarantee by any Subsidiary of any Senior Debt, provided that the conditions of
paragraph 5K have been complied with; (iv) Swaps related to Indebtedness
otherwise permitted under clause (i) or (v) of this paragraph 6B; and (v)
additional Indebtedness of Subsidiaries, provided that the aggregate amount of
such additional Indebtedness plus (without duplication) the aggregate amount of
----
Indebtedness secured by Liens permitted under paragraph 6G(vi) plus (without
----
duplication) the aggregate amount of Seller Notes (except any Seller Notes
evidencing the right of Diagnostic Services, Inc., a Delaware corporation, to
require DHS Management Services, Inc. ("DHSMS") to pay up to $1,500,000 as
additional consideration for DHSMS's March 21, 1997 acquisition of all issued
and outstanding capital stock of Diagnostic Imaging Services, Inc., a California
corporation) that are not subordinated to the Notes or to the Subsidiary
Guaranty, as the case may be, as contemplated by the last sentence of paragraph
6F does not exceed at any time 30% of Consolidated Net Worth.
6C. LIMITATION ON ASSET DISPOSITIONS. The Company will not and will
not permit any Subsidiary to make any Asset Disposition, except:
------
(i) Asset Dispositions permitted under paragraph 6D; and
(ii) Asset Dispositions that are not prohibited by paragraph 6D and
that do not, when combined with all other Asset Dispositions theretofore or
contemporaneously therewith made in the same fiscal year pursuant to this clause
(ii), involve assets that constitute more than 10% of the consolidated assets
(determined in accordance with generally accepted accounting principles) of the
Company and its Subsidiaries as of the end of the most recent fiscal year.
6D. CONSOLIDATION, MERGER OR TRANSFER OF ASSETS. The Company will not
and will not permit any Subsidiary to merge or consolidate with or into any
Person or convey, transfer, lease or otherwise dispose of all or substantially
all of its assets to any Person, except that:
------
(i) any Subsidiary may merge or consolidate with the Company (provided
that the Company shall be the sole continuing or surviving Person) or with any
other Person provided that such surviving Person shall be a Wholly Owned
Subsidiary;
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<PAGE>
(ii) any Subsidiary may convey, transfer, lease or otherwise dispose
of all or substantially all of its assets to the Company or to a Wholly Owned
Subsidiary; and
(iii) the Company may merge or consolidate with or into any other
corporation that is not a Subsidiary; provided, that: (a) there shall be a
single successor formed by such consolidation or a single survivor of such
merger, as the case may be, (b) the successor formed by such consolidation or
the survivor of such merger, shall be organized and existing under the laws of a
state of the United States and shall have a majority of its assets and business
located in the United States, (c) if the Company is not such successor or
survivor, the successor or survivor shall have expressly assumed all obligations
of the Company under or with respect to the Notes, the Warrants, this Agreement,
the Warrant Purchase Agreement, the Registration Rights Agreement and any other
agreement entered into in connection with the transactions contemplated hereby,
and such successor or survivor shall have caused to be delivered to each holder
of the Notes an opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
or other independent counsel reasonably acceptable to the Required Holder(s), to
the effect that all agreements and instruments effecting such assumption are
enforceable in accordance with their terms (subject to customary exceptions
regarding bankruptcy and equitable principles and such other exceptions and
qualifications, if any, that are reasonably approved by the Required Holders)
and comply with the terms hereof, and (d) no Default or Event of Default shall
exist immediately after giving effect to such merger or consolidation.
6E. TRANSACTIONS WITH AFFILIATES. The Company will not and will not
permit any Subsidiary to directly or indirectly, purchase, acquire or lease any
property from, or sell, transfer or lease any property to, or otherwise deal
with, in the ordinary course of business or otherwise (i) any Affiliate, (ii)
any Person owning, beneficially or of record, directly or indirectly, either
individually or together with all other Persons to whom such Person is related
by blood, adoption or marriage, stock of the Company (of any class having
ordinary voting power for the election of directors) aggregating 5% or more of
such voting power or (iii) any Person related by blood, adoption or marriage to
any Person described or coming within the provisions of clause (i) or (ii) of
this paragraph 6E, except in the ordinary course and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
6F. PROHIBITION AGAINST LAYERING; SUBORDINATION OF SELLER NOTES. The
Company will not and will not permit any Subsidiary to incur, create, issue,
assume, guarantee or in any other manner become directly or indirectly liable
with respect to or responsible for, or permit to remain outstanding, any
Indebtedness (including, without limitation, Indebtedness permitted pursuant to
paragraphs 6A(3), 6A(4) and 6B), that is subordinate or junior in right of
payment to any Senior Debt or any Guarantee in respect thereof unless such
Indebtedness is also pari passu in right of payment with the Notes or the
Subsidiary Guaranty, as the case may be, or subordinate in right of payment to
the Notes or the Subsidiary Guaranty, as the case may be, at least to the same
extent as the Notes
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<PAGE>
are subordinate in right of payment to Senior Debt pursuant to the subordination
provisions contained in this Agreement or the Subsidiary Guaranty is subordinate
in right of payment to the Guarantees in respect of such Senior Debt pursuant to
the subordination provisions contained in the Subsidiary Guaranty, as the case
may be. Subject to the provisions of clause (v) of paragraph 6B, the Company
will not and will not permit any Subsidiary to incur, create, issue, assume,
guarantee or in any other manner become directly or indirectly liable with
respect to or responsible for, or permit to remain outstanding, any Indebtedness
in the form of Seller Notes unless each such Seller Note is subordinate in right
of payment to the Notes, (in the case of Seller Notes, or Guarantees thereof,
issued by the Company) or the Subsidiary Guaranty (in the case of Seller Notes,
or Guarantees thereof, issued by a Subsidiary), as the case may be, at least to
the same extent as the Notes are subordinated to Senior Debt pursuant to the
subordination provisions contained in this Agreement or as the Subsidiary
Guaranty is subordinated to Guarantees in respect of Senior Debt pursuant to the
subordination provisions contained in the Subsidiary Guaranty, as the case may
be.
6G. LIMITATION ON LIENS. The Company will not and will not permit
any Subsidiary to create, assume or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Notes in accordance
with the provisions of paragraph 5D), except
------
(i) Liens on property of the Company and its Subsidiaries described
in Schedule 9D attached hereto and securing Senior Debt that does not relate to
Seller Notes,
(ii) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings,
(iii) other Liens incidental to the conduct of its business or the
ownership of its property and assets which are not incurred in connection with
the borrowing of money or the obtaining of advances or credit or guaranteeing
the obligations of a Person (including landlord liens), and which do not in the
aggregate materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business,
(iv) Liens, created contemporaneously with a Person becoming a
Subsidiary, that secure Senior Debt and attach to some or all of the assets of,
and stock or other equity interests in, such Subsidiary, provided that the
Company has complied with the provisions of paragraph 5K,
(v) Liens existing on any property or assets of any corporation at the
time it becomes a Subsidiary, or existing prior to the time of acquisition upon
any property acquired by the Company or any Subsidiary through purchase, merger
or consolidation or otherwise, whether or not assumed by the Company or such
Subsidiary, provided that (a) no such Lien shall have been created or assumed in
contemplation of such Person becoming a Subsidiary and (b) any such Lien shall
not encumber any other property of the Company or such Subsidiary, and
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<PAGE>
(vi) other Liens on the property of the Company or any Subsidiary,
provided that the aggregate amount of Indebtedness secured by Liens permitted by
this clause (vi) plus (without duplication) the aggregate amount of additional
----
Indebtedness of Subsidiaries permitted under paragraph 6B(v) plus (without
----
duplication) the aggregate amount of Seller Notes that are not subordinated to
the Notes or to the Subsidiary Guaranty, as the case may be, as contemplated by
the last sentence of paragraph 6F does not exceed at any time 30% of
Consolidated Net Worth.
PARAGRAPH 7. SUBORDINATION OF NOTES.
7A. SUBORDINATION. Anything in this Agreement to the contrary
notwithstanding, the Indebtedness evidenced by the Notes, including principal,
Yield-Maintenance Amount, if any, interest, expenses and all other amounts,
other than fees and expenses of legal counsel, in respect of the Notes, shall be
subordinate and junior to the extent set forth in subparagraphs (i) through
(vi), inclusive, below, to all Senior Debt.
(i) If the Company shall default in the payment of an amount in excess
of $25,000 of Senior Bank Debt, or in the payment in an amount in excess of
$50,000 of any other Senior Debt, in either case when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
of acceleration or otherwise, then, unless and until such default shall have
been waived or remedied by payment in full and in cash of the amount owing, no
holder of the Notes shall accept or receive any direct or indirect payment or
distribution in respect of or in connection with the Notes, except as provided
in subparagraphs (ii) and (iii) below.
(ii) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership proceedings in
connection therewith, relative to the Company, or in the event of any
proceedings for the liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then all Senior
Debt shall first be paid in full before any payment or distribution is made in
respect of or in connection with the Notes, and shall first be paid in full and
in cash before any payment or distribution is made in cash in respect of or in
connection with the Notes; provided, that the foregoing shall not apply to cash
payments made in respect of or in connection with, and in accordance with the
terms of, Junior Securities (as defined in subparagraph (iii) of this paragraph
7A).
(iii) In any of the proceedings referred to in subparagraph (ii)
above, any payment or distribution of any kind or character, whether in cash,
property, stock or obligations, which may be payable or deliverable by the
Company in respect of the Notes shall be paid or delivered directly to the
holders of Senior Debt (or to a banking institution selected by the court or
Person making the payment or delivery or to a Person designated by the holders
of Senior Debt) for application in payment thereof in accordance with the
priorities then
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<PAGE>
existing among such holders, unless and until all Senior Debt shall have been
paid in full; provided, however, that no such delivery need be made to holders
-------- -------
of Senior Debt of stock or obligations which are issued pursuant to
reorganization proceedings if such stock or obligations are subordinate and
junior (whether by law or agreement) at least to the extent provided elsewhere
in this paragraph 7 to the payment of all Senior Debt then outstanding (such
stock or obligations being referred to herein as "Junior Securities") and to the
payment of any stock or obligations which are issued pursuant to such
reorganization proceedings in exchange or substitution for any Senior Debt then
outstanding.
The consolidation of the Company with, or the merger of the Company with or
into, another corporation upon the terms and conditions provided in paragraph
6D(iii) shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this paragraph 7 if such other corporation
shall, as a part of such consolidation or merger, comply with the conditions
stated in paragraph 6D(iii).
(iv) Upon the occurrence and during the continuance of any Default
Subordination Event (other than under circumstances when the terms of
subparagraph (ii) or (iii) above are applicable), no holder of Notes shall
accept or receive any direct or indirect payment or distribution, by set-off or
otherwise, of or on account of any Indebtedness in respect of the Notes during
the Stand-Still Period, provided that in the case of any payment on or in
respect of any Note which would (in the absence of any such Default
Subordination Event) have been due and payable on any date during such Stand-
Still Period, the provisions of this subparagraph (iv) shall not prevent such
payment on or after the date immediately following the termination of such
Stand-Still Period.
(v) If any payment or distribution of any character, whether in cash,
securities or other property, shall be received by any holder of Notes in
contravention of any of the terms of this paragraph 7 and before all the Senior
Debt shall have been paid in full, such payment or distribution shall be
received in trust for the benefit of the holders of the Senior Debt at the time
outstanding and shall forthwith be paid over or delivered and transferred to the
holders of Senior Debt.
(vi) If any payment by the Company in respect of Senior Debt must be
disgorged by any holder of Senior Debt as a result of any action under the
United States Bankruptcy Code or other debtor relief law, the obligations in
respect of which such payment was made shall continue to constitute Senior Debt
and shall remain entitled to the benefit of the provisions of this paragraph 7.
Without limitation of the foregoing, in the event of any such disgorgement by a
holder of Senior Debt, all holders of Notes, if any, who have become subrogated
to the rights of such holder of Senior Debt pursuant to paragraph 7C and have
obtained payment from the Company through the exercise of such subrogation
rights shall disgorge and pay to such holder of Senior Debt any payment so
obtained, to the extent of the payment or payments disgorged by such holders of
Senior Debt.
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<PAGE>
7B. OBLIGATION OF THE COMPANY UNCONDITIONAL. The provisions of this
paragraph 7 are for the purpose of defining the relative rights of the holders
of Senior Debt on the one hand, and the holders of the Notes on the other hand,
against the Company and its property, and nothing herein shall impair, as
between the Company and the holders of the Notes, the obligation of the Company,
which is unconditional and absolute, to pay to the holders thereof the principal
thereof and Yield-Maintenance Amount, if any, interest thereon and expenses in
respect thereof in accordance with their terms and the provisions hereof, nor
shall anything herein prevent the holders of the Notes from exercising all
remedies otherwise permitted by applicable law or hereunder upon default
hereunder, under the Notes or the Subsidiary Guaranty (including, without
limitation, the right to demand payment and sue for performance hereof and of
the Notes and to accelerate the maturity thereof as provided in paragraph 8A),
subject to the rights, if any, under this paragraph 7 of holders of Senior Debt
to receive cash, property, stock or obligations otherwise payable or deliverable
by the Company to the holders of the Notes; provided, however, that upon the
-------- -------
commencement and during the continuance of a Stand-Still Period the holders of
the Notes, to the extent they are otherwise entitled to do so, will not
institute any litigation (including, without limitation, initiating or joining
in any involuntary bankruptcy petition or other reorganization proceeding naming
the Company or any Guarantor as debtor) to enforce payment thereof unless and
until the earlier of (i) the end of such Stand-Still Period and (ii) the
acceleration of any Senior Bank Debt.
Any holder of Notes that gives the Company a notice of intent to
accelerate, or a notice of the acceleration of, the maturity of such Notes shall
give to the agent bank or sole lender under the Bank Facility a copy of such
notice.
7C. SUBROGATION. Upon payment in full of the Senior Debt, the
holders of the Notes shall be subrogated to the rights of the holders of the
Senior Debt to receive payments or distributions of assets of the Company made
on Senior Debt until the principal of and Yield-Maintenance Amount, if any, and
interest on and expenses of and other amounts in respect of the Notes shall be
paid in full, and, for the purposes of such subrogation, no payments to the
holders of Senior Debt of any cash, property, stock or obligations to which the
holders of the Notes would be entitled except for the provisions of paragraph 7A
shall, as between the Company, its creditors (other than the holders of the
Senior Debt) and the holders of the Notes, be deemed to be a payment by the
Company to or on account of Senior Debt.
7D. RIGHTS OF HOLDERS OF SENIOR DEBT. The provisions of this
paragraph 7 (and the provisions set forth in the last sentence of clause (iii)
of subparagraph 4D) shall be deemed a continuing offer to all holders of Senior
Debt to act in reliance on such provisions (but no such reliance shall be
required to be proven to receive the benefits hereof) and may be enforced by
such holders and no right of any present or future holder of any Senior Debt to
enforce subordination as provided in this paragraph 7 (or in such clause) shall
at any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act by any such holder, or
by any non-compliance by the Company with the terms, provisions and covenants of
this Agreement or the Notes. Without in any way limiting the generality of the
foregoing, the
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<PAGE>
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the holders of the Notes, and without impairing or
releasing the subordination provided in this paragraph 7 (or in such clause) or
the obligations hereunder of the holders of the Notes to the holders of Senior
Debt, do any one or more of the following, subject in all cases to the
limitations contained in the definition of Senior Debt: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
or waive defaults under, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any Person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the
Company and any other Person, including any guarantor or surety.
7E. NO RECEIPT OF PAYMENTS DURING SUBORDINATED DEBT EVENT OF DEFAULT
NOTICE PERIOD. No holder of a Note shall accept or receive any direct or
indirect payment or distribution in respect of principal of or interest on the
Notes during the existence of a Subordinated Debt Event of Default Notice Period
and prior to the acceleration of the maturity of the Notes. Notwithstanding the
foregoing, at any time that a Default Subordination Event exists the other
provisions of this paragraph 7 shall apply.
7F. SUBORDINATION DEFINITIONS.
"BANK FACILITY" shall mean (a) the Loan Agreement, as the same may be
amended, or amended and restated, from time to time after the Date of Closing
(including, without limitation, extensions of the maturity thereof and increases
in the amount thereof), and (b) any other agreement between the Company and one
or more commercial banks or other lenders providing for extensions of credit for
working capital and other corporate purposes including, without limitation,
Acquisitions. In no event shall there be more than one Bank Facility in effect
at any time (although the foregoing shall not be construed to preclude the use
of revolving, term and other types of credit facilities as a single Bank
Facility), and so long as the Loan Agreement (as the same may be amended, or
amended and restated, from time to time, as aforesaid) is in effect it shall
constitute the Bank Facility.
"DEFAULT SUBORDINATION EVENT" shall mean the existence of all of the
following: (i) a Subordination Event of Default shall have occurred and be
continuing in respect of any Senior Bank Debt, (ii) the holders of the Notes
shall have received a notice from or on behalf of any holder of Senior Bank Debt
specifying that such Subordination Event of Default has occurred and is
continuing and that such notice constitutes a "DEFAULT SUBORDINATION NOTICE" and
(iii) no other Default Subordination Notice shall have been delivered by any
holder of Senior Bank Debt within the 365 day period immediately preceding the
giving of such notice. The "STAND-STILL PERIOD" relating to any Default
Subordination Event shall be deemed to continue until the earlier of (a) the
Subordination Event of Default under the Senior Bank Debt giving rise thereto
shall have been cured or waived and (b) a period of 180 days shall have elapsed
from the receipt of the Default Subordination Notice relating thereto.
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"DEFAULT SUBORDINATION NOTICE" shall have the meaning specified in the
definition of "Default Subordination Event."
"SENIOR BANK DEBT" shall mean Senior Debt outstanding under or
otherwise incurred in connection with the Bank Facility.
"STAND-STILL PERIOD" shall have the meaning specified in the
definition of "Default Subordination Event."
"SUBORDINATED DEBT EVENT OF DEFAULT NOTICE" shall mean a notice from
the Required Holders to the agent bank or sole lender under the Bank Facility
that an Event of Default described in (i) paragraph 8A(i) or 8A(ii) in an amount
of at least $25,000, (ii) paragraph 8A(v) (in respect of one or more covenants,
terms or agreements contained in paragraph 6) or (iii) paragraph 8A(vi) (solely
with respect to the failure of the Company to deliver an unqualified opinion of
independent public accountants pursuant to paragraph 5A(ii)) exists and that
such notice constitutes a Subordinated Debt Event of Default Notice, provided
that no other Subordinated Debt Event of Default Notice shall have been
delivered by the Required Holders within the 180 day period immediately
preceding the giving of such notice.
"SUBORDINATED DEBT EVENT OF DEFAULT NOTICE PERIOD" shall mean the
period commencing with the receipt by the agent bank or sole lender under the
Bank Facility of a Subordinated Debt Event of Default Notice and ending on the
earlier of (a) 10 Business Days thereafter or (b) the rescission of such
Subordinated Debt Event of Default Notice; provided, that if the maturity of any
Note is accelerated, the Subordinated Debt Event of Default Notice Period shall
not terminate so long as such acceleration has not been rescinded.
"SUBORDINATION EVENT OF DEFAULT" shall mean any event of default in
respect of Senior Bank Debt that permits the holder or holders thereof to
accelerate the maturity of such Senior Bank Debt.
PARAGRAPH 8. EVENTS OF DEFAULT.
8. EVENTS OF DEFAULT.
8A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or Yield-
Maintenance Amount payable with respect to any Note when the same shall become
due, either by the terms thereof or otherwise as herein provided, including,
without limitation, failure to purchase the Notes together with interest owing
and Yield-Maintenance Amount, if any, upon a Change of Control as contemplated
by paragraph 4D; or
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(ii) the Company defaults in the payment of any interest on any Note
for more than 10 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any Capitalized Lease
Obligation, any obligation under a conditional sale or other title retention
agreement, any obligation issued or assumed as full or partial payment for
property whether or not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of credit) beyond
any period of grace provided with respect thereto, or the Company or any
Subsidiary fails to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause, or to
permit the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be repurchased
by the Company or any Subsidiary) prior to any stated maturity, provided that
the aggregate principal amount of all obligations as to which such a payment
default shall occur and be continuing, or such a failure or other event causing
or permitting acceleration (or resale to the Company or any Subsidiary) shall
occur and be continuing, exceeds $2,500,000; or
(iv) any representation or warranty made by the Company herein or by
the Company or any Subsidiary in any writing (including, without limitation, any
certification on its behalf by one of its officers) furnished in connection with
or pursuant to this Agreement shall be false in any material respect on the date
as of which made; or
(v) the Company fails to perform or observe any term, covenant or
agreement contained in paragraph 6 or in the final grammatical paragraph of
paragraph 5A and such failure shall not be remedied within 15 days after the
earlier of the holder of any Note giving notice of such failure to the Company
or any Responsible Officer obtaining actual knowledge thereof; or
(vi) the Company or any Subsidiary fails to perform or observe any
other agreement, covenant, term or condition contained herein or in the
Subsidiary Guaranty and such failure shall not be remedied within 45 days after
the earlier of the holder of any Note giving notice of such failure to the
Company or any Responsible Officer obtaining actual knowledge thereof; or
(vii) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts become
due; or
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(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (the "BANKRUPTCY LAW"), of any
jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company or
any Subsidiary, or of any substantial part of the assets of the Company or any
Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings (other than proceedings for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Company or any Subsidiary under
the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Subsidiary and the Company or such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or approving
the petition in any such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company or
such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose assets
represent a substantial part, of the consolidated assets of the Company and its
Subsidiaries (determined in accordance with generally accepted accounting
principles) or which requires the divestiture of assets, or stock of a
Subsidiary, which shall have contributed a substantial part of the consolidated
net income of the Company and its Subsidiaries (determined in accordance with
generally accepted accounting principles) for any of the three fiscal years then
most recently ended, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xiii) a final judgment or order for the payment of money in excess
of $1,000,000 (or judgments or orders for the payment of money aggregating in
excess of $1,000,000), exclusive of amounts covered by insurance (as the
applicability of insurance coverage is determined by the Company in good faith,
but in any event excluding from coverage matters as to which the applicable
insurance company has stated specific grounds for denying, or for reserving its
right to deny, coverage (excluding any such reservation of rights that is
customary for such insurance company)) shall be rendered against the Company or
any
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Subsidiary and such judgment(s) or order(s) shall continue unsatisfied or
unstayed for a period of 45 days;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 8A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may, during the continuation of such Event of
Default, at its option, by notice in writing to the Company, declare such Note
to be, and such Note shall thereupon be and become, immediately due and payable
at par together with interest accrued thereon, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Company, (b) if such event is an Event of Default specified in clause (viii),
(ix) or (x) of this paragraph 8A with respect to the Company, all of the Notes
at the time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (c) if
such event is not an Event of Default specified in clause (viii), (ix) or (x) of
this paragraph 8A with respect to the Company, the Required Holder(s) may,
during the continuation of such Event of Default, at its or their option, by
notice in writing to the Company, declare all of the Notes to be, and all of the
Notes shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
The Company acknowledges, and the parties hereto agree, that each
holder of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for) and that
the provision for payment of the Yield-Maintenance Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
8B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
8A, the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 12C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
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8C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 8A or any such
declaration shall be rescinded and annulled pursuant to paragraph 8B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
8D. OTHER REMEDIES. If any Event of Default or Default shall occur
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement, such Note and the Subsidiary Guaranty by exercising
such remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any covenant or other agreement contained in this
Agreement, the Notes or the Subsidiary Guaranty or in aid of the exercise of any
power granted hereby or thereby. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
PARAGRAPH 9. REPRESENTATIONS, COVENANTS AND WARRANTIES.
9. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
9A. ORGANIZATION. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware. Each
Subsidiary, except the LP, is a corporation duly organized and validly existing
in good standing under the laws of the jurisdiction in which it is incorporated.
The LP is a limited partnership duly organized and validly existing in good
standing under the laws of the State of California. The execution, delivery and
performance by the Company of this Agreement, the Notes, the Warrant Purchase
Agreement, the Warrants and the Registration Rights Agreement are within the
Company's corporate powers and have been duly authorized by all necessary
corporate action. The execution, delivery and performance by the Subsidiaries
of the Subsidiary Guaranty is within the corporate or other organizational
powers of each Subsidiary and has been duly authorized by all necessary
corporate or other organizational action. The name of each Subsidiary, the
state in which each Subsidiary is incorporated or otherwise organized and the
percentage of the Company's equity interest in each Subsidiary that is not a
Wholly Owned Subsidiary are each listed in Schedule 9A attached hereto.
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9B. FINANCIAL STATEMENTS. The Company has furnished you with the
following financial statements, identified by a principal financial officer of
the Company: a consolidated balance sheet of the Company and its Subsidiaries
as at December 31 in each of the years 1994 to 1996, inclusive, and consolidated
statements of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for each such year, all reported on by Moore, Stephens L.L.P. or
Simonton, Kutac & Barnidge, L.L.P. Such financial statements (including any
related schedules and/or notes) are true and correct in all material respects,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and its Subsidiaries required to be shown
in accordance with
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such principles. The balance sheets fairly present the condition of the Company
and its Subsidiaries as at the dates thereof, and the statements of income,
stockholders' equity and cash flows fairly present the results of the operations
of the Company and its Subsidiaries and their cash flows for the periods
indicated, all in accordance with generally accepted accounting principles
consistently applied. There has been no material adverse change in the
business, condition (financial or otherwise), operations or prospects of the
Company and its Subsidiaries taken as a whole since December 31, 1996.
9C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in any material adverse change in the
business, condition (financial or otherwise), operations or prospects of the
Company and its Subsidiaries taken as a whole. There is no action, suit,
investigation or proceeding pending or threatened against the Company or any of
its Subsidiaries which purports to affect the validity or enforceability of this
Agreement or any Note, the Warrant Purchase Agreement, the Warrants, the
Registration Rights Agreement or the Subsidiary Guaranty.
9D. OUTSTANDING DEBT. Neither the Company nor any of its
Subsidiaries has outstanding any Debt except as permitted by paragraphs 6A(3),
6A(4) and 6B. All Debt of the Company and its Subsidiaries, as well as a
designation of which such Debt is Senior Debt and a description of the property
or other assets subject to any Lien securing such Debt, as of the Date of
Closing is set forth on Schedule 9D attached hereto. There exists no default
-----------
under the provisions of any instrument evidencing such Debt or of any agreement
relating thereto.
9E. TITLE TO PROPERTIES. The Company and each of its Subsidiaries
own no real property. The Company has and each of its Subsidiaries has good
title to all of its respective properties and assets, including the properties
and assets reflected in the balance sheet as at December 31, 1996 referred to in
paragraph 9B (other than properties and assets disposed of in the ordinary
course of business), subject to no Lien of any kind except Liens permitted by
paragraph 6G. All leases necessary in any material respect for the conduct of
the respective businesses of the Company and its Subsidiaries are valid and
subsisting and are in full force and effect.
9F. TAXES. The Company has and each of its Subsidiaries has filed
all federal, state and other income tax returns which, to the knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established in accordance with generally accepted accounting principles.
9G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company
nor any of its Subsidiaries is a party to any contract or agreement or subject
to any charter or other corporate restriction which materially and adversely
affects its business, property or assets, or financial
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condition. Neither the execution nor delivery of this Agreement, the Warrant
Purchase Agreement, the Warrants, the Registration Rights Agreement, the
Subsidiary Guaranty or the Notes, nor the offering, issuance and sale of the
Notes or the Warrants, nor fulfillment of nor compliance with the terms and
provisions hereof and of the Notes, the Warrant Purchase Agreement, the
Warrants, the Registration Rights Agreement or the Subsidiary Guaranty will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the articles or certificate of incorporation,
certificate of limited partnership, bylaws or limited partnership agreement of
the Company or any of its Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries
is a party to, or otherwise subject to any provision contained in, any
instrument evidencing Indebtedness of the Company or such Subsidiary, any
agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Debt of the Company of the type to be evidenced by the Notes
except as set forth in the agreements listed in Schedule 9G attached hereto.
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9H. OFFERING OF NOTES AND WARRANTS. Neither the Company nor any
agent acting on its behalf has, directly or indirectly, offered the Notes, the
Warrants or any similar security of the Company for sale to, or solicited any
offers to buy the Notes, the Warrants or any similar security of the Company
from, or otherwise approached or negotiated with respect thereto with, any
Person other than institutional investors, and neither the Company nor any agent
acting on its behalf has taken or will take any action which would subject the
issuance or sale of the Notes or the Warrants to the provisions of section 5 of
the Securities Act or to the provisions of any securities or Blue Sky law of any
applicable jurisdiction.
9I. USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("MARGIN STOCK"). The proceeds of sale of the Securities will be used to
finance the acquisition of Diagnostic Imaging Services, Inc., to repay
$5,500,000 in principal amount of Indebtedness incurred in connection with a
Subsidiary's March 21, 1997 acquisition of the ultrasound division of Diagnostic
Imaging Services, Inc. and for general corporate purposes not inconsistent with
this paragraph 9I. None of such proceeds will be used, directly or indirectly,
for the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any margin stock or for the purpose of maintaining, reducing or
retiring any Indebtedness which was originally incurred to purchase or carry any
stock that is currently a margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Notes to violate
Regulation G or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
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9J. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company , any
Subsidiary or any ERISA Affiliate which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any
ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
The execution and delivery of this Agreement and the issuance and sale of the
Notes will be exempt from, or will not involve any transaction which is subject
to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of your representation in paragraph
10B.
9K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes, the issuance of the Warrants, or the execution and delivery of the
Warrant Purchase Agreement, Registration Rights Agreement or the Subsidiary
Guaranty is such as to require any authorization, consent, approval, exemption
or other action by or notice to or filing with any court or administrative or
governmental or regulatory body (other than routine filings after the Date of
Closing with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes and the Warrants or
fulfillment of or compliance with the terms and provisions of this Agreement,
the Subsidiary Guaranty, the Warrant Purchase Agreement, the Registration Rights
Agreement, the Notes or the Warrants.
9L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and
all of their respective properties and facilities have complied at all times and
in all respects with all federal, state, local and regional statutes, laws,
ordinances and judicial or administrative orders, judgments, rulings and
regulations relating to protection of the environment except, in any such case,
where failure to comply would not result in a material adverse effect on the
business, condition (financial or otherwise), operations or prospects of the
Company and its Subsidiaries taken as a whole.
9M. DISCLOSURE. Neither this Agreement nor the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1996 nor any other
document, certificate or statement furnished to you by or on behalf of the
Company in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or any of its Subsidiaries which materially adversely affects or in the
future may (so far as the
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Company can now foresee) materially adversely affect the business, property or
assets, or financial condition of the Company and its Subsidiaries taken as a
whole and which has not been set forth in this Agreement or in the other
documents, certificates and statements furnished to you by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby. The pro forma financial statements contained in the
Private Placement Memorandum of February 1997 and the financial projections
previously provided to you are reasonable based on the assumptions stated
therein and the best information available to the officers of the Company to
date, except that the exercise of the public and other warrants referred to
therein resulted in the receipt by the Company of approximately $8,670,000
rather than the $9,200,000 set forth in such pro forma financial statements.
9N. DELIVERY OF LOAN AGREEMENT AND RELATED DOCUMENTS. The Company
has delivered to you prior to the date hereof a true, correct and complete copy
of (i) the Loan Agreement, including all amendments and waivers of any provision
thereof, and (ii) each of the security documents, Guarantees and Swaps relating
thereto.
9O. SENSITIVE PAYMENTS. The Company and its Subsidiaries have not
(a) made any contributions, payments or gifts to or for the private use of any
governmental official, employee or agent where either the payment or the purpose
of such contribution, payment or gift is illegal under the laws of the United
States or the jurisdiction in which made, (b) established or maintained any
unrecorded fund or asset for any purpose or made any false or artificial entries
on its or their books, (c) given or received any payments or other forms of
remuneration in connection with the referral of patients which would violate the
Medicare/Medicaid Anti-Kickback law, Section 1128(b) of the Social Security Act,
42 U.S.C. (S) 1320a-7b(b) or any analogous state statute, or (d) made any
payments to any Person with the intention that any part of such payment was to
be used for any purpose other than that described in the documents supporting
the payment.
9P. DELIVERY OF ACQUISITION DOCUMENTS. The Company has delivered to
you prior to the date hereof a true, correct and complete copy of each of the
Acquisition Documents.
9Q. Authorized Capital Stock. The authorized capital stock of the
Company consists of 15,000,000 shares of Common Stock and 3,000,000 shares of
preferred stock, $0.001 per share par value (the "PREFERRED STOCK"), of which
1,125,000 shares of Preferred Stock have been designated as Series A Preferred
Stock ("SERIES A PREFERRED STOCK"). The outstanding capital stock of the
Company consists of 9,647,055 shares of Common Stock and 648,986 shares of
Series A Preferred Stock (excluding in-kind dividends on such shares of Series A
Preferred Stock accrued from January 1, 1997). All of said outstanding shares
of Common Stock and Series A Preferred Stock are duly authorized, validly
issued, fully paid and nonassessable. The Company does not have outstanding any
warrants, options, convertible securities or other rights for the purchase or
acquisition of shares of its capital stock other than (i) the Warrants, (ii)
rights to acquire shares of Common Stock under employee benefit plans, (iii)
other options and warrants to acquire an aggregate of 515,072 shares of Common
Stock, and (iv) the outstanding, and the accrued but unissued dividends on the
outstanding, shares of Series A Preferred Stock. The Warrants and the Common
Stock issuable upon
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the exercise of the Warrants have been duly and validly authorized, and such
shares of Common Stock have been duly reserved for issuance upon exercise of the
Warrants. No shareholder of the Company or any other Person is entitled to
preemptive or similar rights with respect to the shares of Common Stock which
are issuable upon exercise of the Warrants and, if and when issued upon exercise
of the Warrants in accordance with the provisions thereof, such shares will be
validly issued, fully paid and nonassessable shares.
PARAGRAPH 10. REPRESENTATIONS OF THE PURCHASER.
10. REPRESENTATIONS OF THE PURCHASER. You represent as follows:
10A. NATURE OF PURCHASE. You are not acquiring the Notes or the
Warrants to be purchased by you hereunder with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act, provided that the disposition of your property shall at all times be and
remain within your control.
10B. SOURCE OF FUNDS. No part of the funds being used by you to pay
the purchase price of the Notes or the Warrants being purchased by you hereunder
constitutes assets allocated to any separate account maintained by you. For the
purpose of this paragraph 10B, the term "separate account" shall have the
meaning specified in section 3 of ERISA.
PARAGRAPH 11. DEFINITIONS.
11. DEFINITIONS. For the purpose of this Agreement, the terms
defined in the introductory sentence and in paragraphs 1, 2 and 7 shall have the
respective meanings specified therein, and the following terms shall have the
meanings specified with respect thereto below (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
11A. YIELD-MAINTENANCE TERMS.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banks in New York City are required or authorized to be
closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4B, purchased pursuant
to paragraph 4D or is declared to be immediately due and payable pursuant to
paragraph 8A, as the context requires.
"CHANGE OF CONTROL REINVESTMENT YIELD" shall mean, with respect to the
Called Principal of any Note purchased pursuant to paragraph 4D, 4.25% (425
basis points) over the yield to maturity implied by (i) the yields reported, as
of 10:00 a.m. (New York City time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page 678" on the Telerate Service (or such other display as may replace Page
678 on the Telerate Service) for actively traded U.S. Treasury securities having
a maturity equal to the
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<PAGE>
Remaining Average Life of such Called Principal as of such Settlement Date, or
if such yields shall not be reported as of such time or the yields reported as
of such time shall not be ascertainable, (ii) the Treasury Constant Maturity
Series yields reported, for the latest day for which such yields shall have been
so reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, (a) if necessary, by (x) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (y) interpolating linearly between (1) the actively traded U.S.
Treasury security with the maturity closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with the
maturity closest to and less than the Remaining Average Life and (b) by
converting all such implied yields to a quarterly payment basis in accordance
with accepted financial practice.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to, in
the case of Notes purchased pursuant to paragraph 4D, the Change of Control
Reinvestment Yield with respect to such Called Principal and, in the case of
Notes prepaid pursuant to paragraph 4B or Notes declared immediately due and
payable pursuant to paragraph 8A, the Reinvestment Yield with respect to such
Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal
of any Note that is being prepaid pursuant to paragraph 4B or declared
immediately due and payable pursuant to paragraph 8A, 0.75% (75 basis points)
over the yield to maturity implied by (i) the yields reported, as of 10:00 a.m.
(New York City time) on the Business Day next preceding the Settlement Date with
respect to such Called Principal, on the display designated as "Page 678" on the
Telerate Service (or such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date,
or if such yields shall not be reported as of such time or the yields reported
as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity
Series yields reported, for the latest day for which such yields shall have been
so reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, (a) if necessary, by (x) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (y) interpolating linearly between (1) the actively traded U.S.
Treasury security with the maturity closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with the
maturity closest to and less than the Remaining Average Life and
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<PAGE>
(b) by converting all such implied yields to a quarterly payment basis in
accordance with accepted financial practice.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest one-
twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) each Remaining Scheduled Payment of
such Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B, is purchased pursuant to paragraph 4D or is declared to be
immediately due and payable pursuant to paragraph 8A , as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
----
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
11B. OTHER TERMS.
"ACQUIRED COMPANY" shall mean as of any date of calculation of EBITDA,
a Subsidiary acquired by the Company or another Subsidiary, or a Person all or
substantially all of the assets of which have been acquired by the Company or
another Subsidiary, in either case after March 31, 1996 and in each case having
an Initial Report Date on or after the last day of the twelfth calendar month
prior to the date of calculation of EBITDA.
"ACQUIRED EBITDA" shall mean for each Acquired Company, either of the
following as approved in writing by the Required Holders in their reasonable
discretion: (a) (i) GAAP EBITDA for such Acquired Company for the 12 month
period ended on the date of calculation, or (ii) GAAP EBITDA for such Acquired
Company for some other 12 month period as may be acceptable to the Required
Holders in their reasonable discretion; in each case calculated as of the
Initial Report Date for such Acquired Company, multiplied by (b) the EBITDA
-------------
Factor for such Acquired Company.
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<PAGE>
"ACQUISITION" shall mean the acquisition by the Company or any
Subsidiary of the stock of, any other equity security or interest in, or, in a
transaction outside the ordinary course of business, the assets of, any other
Person.
"ACQUISITION DOCUMENTS" shall mean the Stock Purchase Agreement dated
March 21, 1997 by and among the Company, DHS Management Services, Inc., a Texas
corporation, and Diagnostic Imaging Services, Inc., a Delaware corporation, and
the agreements being executed and delivered pursuant thereto.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation or other
entity if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such corporation or other
entity, whether through the ownership of voting securities, by contract or
otherwise.
"ASSET DISPOSITION" shall mean, with respect to the Company or any
Subsidiary, any transaction or series of related transactions in which such
Person sells, conveys, transfers or leases (as lessor) or parts with control of,
including without limitation, any sale/leaseback transaction (collectively, for
purposes of this definition, a "TRANSFER"), directly or indirectly, any of its
property or assets, including, without limitation, any Indebtedness of any
Subsidiary or capital stock of or other equity interests in any Subsidiary
(including the issuance of such stock or other equity interests by such
Subsidiary), other than (i) transfers of cash or cash equivalents, (ii)
transfers of inventory in the ordinary course of business, or (iii) transfers
from a Subsidiary to the Company or a Wholly Owned Subsidiary.
"ASSUMPTION OF SUBSIDIARY GUARANTY" shall mean the Senior Subordinated
Guaranty Assumption Agreement, to be executed by certain Persons that become
Subsidiaries after the Date of Closing, substantially in the form of Exhibit F
---------
attached hereto.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 8A.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Subsidiary or Acquired Company,
taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with such principles.
"CHANGE IN CONTROL" shall mean if any Person or Persons acting in
concert (other than the members of the Control Group), together with Affiliates
thereof, shall in the aggregate, (i) directly or indirectly, control or own
(beneficially or otherwise) 50% or more (by number of shares) of the issued and
outstanding Voting Stock of the Company, or (ii) possess the power to elect,
appoint or cause the election or appointment of at least a majority of the
members of the Board of Directors of the Company.
-31-
<PAGE>
"CLAIMS" shall have the meaning specified in paragraph 5G.
"CLOSING" or "DATE OF CLOSING" shall have the meaning specified in
paragraph 2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPETITOR" shall mean any Person that derives a substantial portion
of its revenues from providing medical services to hospitals, physicians'
offices or other healthcare facilities.
"CONSOLIDATED FIXED CHARGES" shall mean, with respect to any period,
the sum of Consolidated Interest Expense plus Consolidated Lease/Rental Expense.
----
"CONSOLIDATED INTEREST EXPENSE" shall mean, with respect to any
period, the sum, without duplication, of the following (in each case,
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company, its
Subsidiaries and all Acquired Companies in accordance with generally accepted
accounting principles): (a) all interest and prepayment charges in respect of
Indebtedness of the Company, the Subsidiaries and all Acquired Companies
(including imputed interest in respect of Capitalized Lease Obligations and net
costs of Swaps) deducted in determining Consolidated Net Earnings, together with
all interest capitalized or deferred during such period and not deducted in
determining Consolidated Net Earnings for such period, and (b) all debt discount
and expense amortized or required to be amortized in the determination of
Consolidated Net Earnings for such period.
"CONSOLIDATED LEASE/RENTAL EXPENSES" shall mean, with respect to any
period, the sum of the rental and other obligations required to be paid during
such period by the Company, any Subsidiary and, without duplication, any
Acquired Company as lessee under all leases of real or personal property (other
than Capitalized Lease Obligations), minus the amount of any fixed rents paid to
-----
the Company or any Subsidiary or Acquired Company by a Person other than the
Company or a Subsidiary pursuant to a sublease on the property subject to such
Lease, and excluding in all cases (whether the Company, a Subsidiary or an
Acquired Company is the lessee or the lessor) any amount required to be paid by
the lessee (whether or not therein designated as rental or additional rental) on
account of maintenance and repairs, insurance, taxes, assessments, water rates
and similar charges, provided that, if at the date of determination, any such
rental or other obligations (or portion thereof) are contingent or not otherwise
definitely determinable by the terms of the related lease, the amount of such
obligations (or such portion thereof) (i) shall be assumed to be equal to the
amount of such obligations for the period of 12 consecutive calendar months
immediately preceding the date of determination or (ii) if the related lease was
not in effect during such preceding 12-month period, shall be the amount
estimated by a Responsible Officer of the Company on a reasonable basis and in
good faith.
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<PAGE>
"CONSOLIDATED NET EARNINGS" shall mean (i) consolidated gross revenues
of the Company and its Subsidiaries and, without duplication, if the context
clearly requires, the gross revenues of all Acquired Companies for the twelve
month period ended on the date of calculation or some other twelve month period
as may be acceptable to the Required Holders in their sole discretion, (ii)
minus all operating and non-operating expenses of the Company and its
- -----
Subsidiaries and, without duplication, all operating and non-operating expenses
of the Acquired Companies. Consolidated gross revenues or gross revenues, as the
case may be, (a) shall include all charges of a proper character (including
current and deferred taxes on income, provision for taxes on unremitted foreign
earnings which are included in gross revenues, and current additions to
reserves), but (b) shall not include any gains (net of expenses and taxes
applicable thereto) in excess of losses resulting from the sale, conversion or
other disposition of capital assets (i.e., assets other than current assets),
any gains resulting from the write-up of assets (other than the write-up of
current assets as a result of revaluations or realignment of currencies), any
equity of the Company or any Subsidiary or Acquired Company in the unremitted
earnings of any Person which is not a Subsidiary, or any deferred credit
representing the excess of equity in any Subsidiary or Acquired Company at the
date of acquisition over the cost of the investment in such Subsidiary or
Acquired Company. All calculations and determinations required by this
definition shall be determined in accordance with generally accepted accounting
principles.
"CONSOLIDATED NET WORTH" shall mean stockholders' equity as set forth
in the Company's consolidated financial statements.
"CONTROL GROUP" shall mean (i) Max W. Batzer, Brad A. Hummel, James R.
Angelica, Bo W. Lycke, Carol J. Gannon and Bonnie G. Lankford, (ii) their
respective spouses, children or lineal descendants and (iii) the estate of, or
any foundation or trust for the benefit of, or a partnership or other business
entity solely among any of the foregoing Persons.
"CONVERTIBLE SECURITIES" shall mean any debt instrument that is by its
terms convertible into an equity interest in the Company or a Subsidiary.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly or
indirectly renewable or extendible at the option of the debtor to a date more
than one year from the date of the creation thereof, provided that Indebtedness
for borrowed money outstanding under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit over a period of more
than one year shall constitute Funded Debt and not Current Debt, even though
such Indebtedness by its terms matures on demand or within one year from the
date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
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<PAGE>
"EBITDA" shall mean, with respect to any period, the sum of GAAP
EBITDA plus, without duplication, Acquired EBITDA for all Acquired Companies.
----
"EBITDA FACTOR" shall mean for each Acquired Company as of any date of
calculation of EBITDA, the percentage set forth below corresponding to the
Initial Report Date for such Acquired Company, relative to such date of
calculation of EBITDA:
<TABLE>
<CAPTION>
INITIAL REPORT DATE ACQUIRED COMPANY
EBITDA FACTOR
<S> <C>
Same as date of calculation of 1.00
EBITDA
Last day of first calendar month prior .9167
to date of calculation of EBITDA
Last day of second calendar month .8333
prior to date of calculation of
EBITDA
Last day of third calendar month prior .7500
to date of calculation of EBITDA
Last day of fourth calendar month .6667
prior to date of calculation of
EBITDA
Last day of fifth calendar month prior .5833
to date of calculation of EBITDA
Last day of sixth calendar month prior .5000
to date of calculation of EBITDA
Last day of seventh calendar month .4167
prior to date of calculation of
EBITDA
Last day of eighth calendar month .3333
prior to date of calculation of
EBITDA
Last day of ninth calendar month prior .2500
to date of calculation of EBITDA
Last day of tenth calendar month prior .1667
to date of calculation of EBITDA
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Last day of eleventh calendar month
prior to date of calculation of
EBITDA .0833
Last day of twelfth calendar month .0000
prior to date of calculation of
EBITDA
</TABLE>
"EQUITY PROCEEDS" shall mean the aggregate sum of (i) the net proceeds
received after April 15, 1997 by the Company or any Subsidiary upon the sale of
any equity interest in the Company or any Subsidiary (other than in the case of
sales by a Subsidiary to the Company or to a Wholly Owned Subsidiary), plus (ii)
----
the net proceeds received after April 15, 1997 by the Company or any Subsidiary
upon (a) the exercise of the Warrants, or any other warrants or similar
instruments issued by the Company or any Subsidiary (other than in the case of
warrants or similar instruments issued to and held by the Company or a Wholly
Owned Subsidiary), and (b) the conversion of any Convertible Securities into
common stock or other equity interest in the Company or any Subsidiary (other
than conversions by the Company or a Wholly Owned Subsidiary).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph
8A, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FUNDED DEBT" shall mean, with respect to any Person, all Indebtedness
of such Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than one
year from, or is directly or indirectly renewable or extendible at the option of
the debtor to a date more than one year (including an option of the debtor under
a revolving credit or similar agreement obligating the lender or lenders to
extend credit over a period of more than one year) from, the date of the
creation thereof.
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<PAGE>
"GAAP EBITDA" shall mean Consolidated Net Earnings of the Company and
its Subsidiaries plus, to the extent deducted in the determination of
----
Consolidated Net Earnings for the Company and its Subsidiaries, (i) Consolidated
Interest Expense, (ii) all provisions for federal, state or other income tax,
(iii) provisions for depreciation, amortization and other non-cash charges, and
(iv) extraordinary losses, minus (i) extraordinary income, and (ii) amounts that
-----
would otherwise constitute GAAP EBITDA in the subject twelve month period which
are derived from "equipment placement transactions" and which exceed $500,000 in
the aggregate, with all of the foregoing being determined in accordance with
generally accepted accounting principles.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (excluding items of contingency reserves or of
reserves for deferred income taxes) which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined (including, without limitation,
Capitalized Lease Obligations, but excluding accounts payable in the ordinary
-------------
course of business, accrued expenses (other than for or relating to borrowed
money) shown as current liabilities and accruals for deferred compensation and
retiree health benefits), (ii) all indebtedness secured by any Lien on, or
payable out of the proceeds of production from, any property or asset owned or
held by such Person subject thereto, whether or not the indebtedness secured
thereby shall have been assumed, provided, that if such Lien has been created by
such Person to secure indebtedness of a Person that is not the Company or a
Subsidiary such indebtedness shall constitute "Indebtedness" only up to an
amount equal to the fair value of the property or assets encumbered by such
Lien, (iii) redemption obligations in respect of mandatorily redeemable
preferred stock, (iv) Swaps of such Person, (v) unfunded pension liabilities,
and (vi) all
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<PAGE>
indebtedness of others with respect to which and to the extent that such Person
has become liable by way of a Guarantee.
"INITIAL REPORT DATE" shall mean, with respect to an Acquired Company
the last day of the calendar month in which the stock or assets of such Acquired
Company are acquired or the last day of another preceding calendar month
approved in writing by the Required Holders in their sole discretion.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any production payment, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction) or
any other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation.
"LOAN AGREEMENT" shall mean the Amended and Restated Loan Agreement,
dated as of July 24, 1996, between the Company and Texas Commerce Bank National
Association, as the provisions thereof have been amended or modified to the Date
of Closing.
"LP" shall mean Santa Monica Imaging Center Limited Partnership, a
California limited partnership.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its Chairman, President, one of its Senior Vice Presidents or
Vice Presidents or its Treasurer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an unincorporated
organization and a government or any department or agency thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PREFERRED STOCK" shall have the meaning specified in paragraph 9Q.
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<PAGE>
"QUALIFIED INSTITUTIONAL BUYER" shall mean a "qualified institutional
buyer" as such term is defined in Rule 144A under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated of even date herewith, by and between you and the Company and
substantially in the form of Exhibit E attached hereto.
---------
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 66
2/3% of the aggregate principal amount of the Notes from time to time
outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"SECURITIES" shall mean the Notes and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLER NOTES" shall mean any Indebtedness payable by the Company or a
Subsidiary to the seller of an Acquired Company (or an entity that became an
Acquired Company upon such sale) or of other assets, or an affiliate of such
seller, in connection with an Acquisition, or any Guarantee of any such
Indebtedness.
"SENIOR DEBT" shall mean present or future Indebtedness that is not by
its terms expressed to be junior or subordinate in right of payment to or pari
passu in right of payment to the Notes or any other Subordinated Debt; provided,
--------
however, that Senior Debt shall not include: (i) promissory notes or other
- -------
instruments issued by the Company for the purpose of redeeming any stock of the
Company including, without limitation, any redemption notes of the Company
issued in connection with the Series A Preferred Stock described in the
Certificate of Stock Designation of the Company dated November 13, 1996; (ii)
any Seller Notes in respect of which the Company is obligated unless the
incurrence of the Indebtedness evidenced by such Seller Notes complies with
paragraphs 6B(v) and 6G(vi); (iii) any Convertible Securities of the Company;
(iv) Indebtedness of the Company to a Subsidiary; (v) any liability for Federal,
state, local or other taxes; and (vi) fees and expenses of legal counsel.
For purposes of paragraph 7 only, Senior Debt shall not include the
principal amount of, and interest on, Indebtedness incurred during the existence
of a Stand-Still Period or a Subordinated Debt Event of Default Notice Period
unless, and only to the extent that, (1) such Indebtedness would otherwise
constitute Senior Bank Debt, (2) the proceeds of such Indebtedness are used by
the Company and its Subsidiaries solely for working capital purposes as
certified at the time of such incurrence in an Officer's Certificate to such
effect delivered to the holders of the Notes and to the agent bank or sole
lender under the Bank Facility, (3) such Indebtedness does not cause the
aggregate principal amount of Senior Bank Debt to exceed the maximum committed
amount of
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<PAGE>
credit under the Bank Facility on the Business Day immediately prior to the
giving of the Default Subordination Notice relating to such Stand-Still Period
or the receipt of such Subordinated Debt Event of Default Notice, as the case
may be, and (4) such Indebtedness does not cause the aggregate principal amount
of Indebtedness incurred pursuant to or in connection with the Bank Facility
subsequent to or contemporaneously with the giving of such Default Subordination
Notice or the receipt of such Subordinated Debt Event of Default Notice, as the
case may be, to exceed the greater of $4,000,000 or 27.5% of EBITDA (as
previously certified by the Company in writing in its compliance certificate
delivered in connection with the Bank Facility and this Agreement) for the four
fiscal quarters of the Company most recently ended for which financial
statements have been furnished to the holders of the Notes and the agent or sole
lender under the Bank Facility.
"SUBORDINATED DEBT" shall mean the Indebtedness evidenced by the
Notes, including principal, Yield-Maintenance Amount, if any, interest, expenses
and all other amounts (except fees and expenses of legal counsel) in respect of
the Notes, and also the unpaid principal of, premium, if any, and interest on,
and fees in respect of, any other Indebtedness for borrowed money which is by
its terms expressed to be junior or subordinate in right of payment in full of
other Indebtedness.
"SUBSIDIARY" shall mean a corporation, trust, association, partnership
or other business entity of which, at the time such determination is made, at
least 50% of the total Voting Stock is owned by the Company and/or one or more
of its Subsidiaries.
"SUBSIDIARY GUARANTY" shall mean the Senior Subordinated Guaranty,
dated of even date herewith and executed by each Subsidiary and substantially in
the form of Exhibit C attached hereto.
---------
"SWAPS" shall mean with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"TOTAL DEBT" shall mean at the time of determination, the then
outstanding aggregate principal amount of all Indebtedness of the Company and
its Subsidiaries on a consolidated basis.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Note purchased by you under this Agreement.
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"VOTING STOCK" shall mean securities or other equity interests of any
class or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election or removal of corporate
directors or persons (such as general partners or managers) performing similar
functions in the case of business entities other than corporations.
"WARRANT PURCHASE AGREEMENT" shall mean that certain Redeemable Common
Stock Purchase Warrant Agreement dated as of April 16, 1997 by and between the
Company and you.
"WARRANTS" shall mean any Redeemable Common Stock Purchase Warrant
issued pursuant to the Warrant Purchase Agreement.
"WHOLLY OWNED SUBSIDIARY" shall mean any Subsidiary all of the equity
interests (except directors' qualifying shares) of which are owned, directly or
indirectly, by the Company or other Wholly Owned Subsidiaries.
11C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references
in this Agreement to "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall be deemed
to refer to generally accepted accounting principles in effect in the United
States at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a basis consistent with the
most recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 9B.
PARAGRAPH 12. MISCELLANEOUS.
12A. NOTE PAYMENTS. So long as you shall hold any Note, the Company
will make payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note, which comply with the terms of this
Agreement, by wire transfer of immediately available funds for credit (not later
than 12:00 noon, New York City time, on the date due) to your account or
accounts as specified in the Purchaser Schedule attached hereto, or such other
account or accounts in the United States as you may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. You agree that, before disposing of any Note, you will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this paragraph 12A to any
Transferee which shall have made the same agreement as you have made in this
paragraph 12A.
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12B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save you harmless against
liability for the payment of, all out-of-pocket expenses arising in connection
with such transactions, including (i) all document production and duplication
charges and the reasonable fees and expenses of any special counsel engaged by
you in connection with this Agreement and the transactions contemplated hereby,
(ii) any subsequent proposed modification of, or proposed consent under, this
Agreement, whether or not such proposed modification shall be effected or
proposed consent granted, and (iii) the costs and expenses, including reasonable
attorneys' fees, incurred by you or such Transferee in enforcing (or determining
whether or how to enforce) any rights under this Agreement, the Notes, the
Warrant Purchase Agreement, the Warrants, the Registration Rights Agreement and
the Subsidiary Guaranty or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or the
transactions contemplated hereby or by reason of your having acquired any Note,
including without limitation costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this paragraph 12B shall survive the
transfer of any Note or portion thereof or interest therein by you or any
Transferee and the payment of any Note, and shall be for the benefit of
Transferees with respect to matters covered by clauses (ii) and (iii) hereof.
12C. CONSENT TO AMENDMENTS; RELEASE OF SUBSIDIARY GUARANTY. This
Agreement and the Subsidiary Guaranty may be amended, and the Company or any
Subsidiary may take any action herein or therein prohibited, or omit to perform
any act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holders except that, without the written consent of the holder or holders of all
Notes at the time outstanding, (i) no amendment to this Agreement shall change
the maturity of any Note, or change the principal of, or the rate or time of
payment of interest on or any Yield-Maintenance Amount payable with respect to
any Note, or affect the time, amount or allocation of any prepayments, or change
the proportion of the principal amount of the Notes required with respect to any
consent, amendment, waiver or declaration, and (ii) no Subsidiary shall be
released from the Subsidiary Guaranty unless (a) all Guarantees of, and all
Liens that secure, Senior Debt given or made by such Subsidiary have been
terminated, or (b)(1) title to all outstanding capital stock or other equity
interest held by the Company and all its Subsidiaries in such Subsidiary or to
substantially all the assets of such Subsidiary has been transferred to a Person
that is not at the time of such transfer the Company, a Subsidiary or an
Affiliate, provided, however, that such termination shall occur without
-------- -------
requirement of any consent by any holder(s) of Notes if and only to the extent
that all Guarantees of, and all Liens which secure, Senior Debt given or made by
such Subsidiary shall also terminate upon such transfer, (2) there is no Default
or Event of Default existing at the time of such transfer and after giving
effect thereto, and (3) such transfer is permitted under clause (ii) of
paragraph 6C. Each holder of any Note at the time or thereafter outstanding
shall be bound by any consent authorized by this paragraph 12C, whether or not
such Note shall have been marked to indicate such consent, but any Notes issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver of
any rights of any holder of such Note. As used herein and in the Notes, the
term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may
from time to time be amended or supplemented.
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12D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Subject to paragraph 12G below, upon surrender
for registration of transfer of any Note at the principal office of the Company,
the Company shall, at its expense, execute and deliver one or more new Notes of
like tenor and of a like aggregate principal amount, registered in the name of
such transferee or transferees. At the option of the holder of any Note, such
Note may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to receive.
Every Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Note so exchanged or transferred, so that neither gain nor loss of interest
shall result from any such transfer or exchange. Upon receipt of written notice
from the holder of any Note of the loss, theft, destruction or mutilation of
such Note and, in the case of any such loss, theft or destruction, upon receipt
of such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company will make
and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
12E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in such Note to any Person on
such terms and conditions as may be determined by such holder in its sole and
absolute discretion, provided that any such participation shall be in a
principal amount of at least $100,000.
12F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or made in writing by or on
behalf of the Company or Subsidiaries in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, the transfer by you of
any Note or portion thereof or interest therein and the payment of any Note, and
may be relied upon by any Transferee, regardless of any investigation made at
any time by or on behalf of you or any Transferee. Subject to the preceding
sentence, this Agreement, the Notes, the Warrant Purchase Agreement, the
Warrants, the Registration Rights Agreement and the Subsidiary Guaranty embody
the entire agreement and understanding between you and the Company with respect
to the subject matter hereof or thereof and supersede all prior agreements and
understandings relating to the subject matter hereof and thereof.
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12G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
Each holder of a Note hereby agrees that, so long as no Event of
Default shall have occurred and be continuing, it will transfer the Notes only
to Qualified Institutional Buyers or, if not to such a Person, to Persons which
are believed by such holder, after reasonable inquiry, not to be Competitors.
12H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that the
holder of any Note may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Note, (iii) any Person to which such holder offers to sell such Note or any part
thereof and to which such holder could then transfer such Note pursuant to the
second grammatical paragraph of paragraph 12G, (iv) any Person to which such
holder sells or offers to sell a participation in all or any part of such Note
and to which such holder could then transfer such Note pursuant to the second
grammatical paragraph of paragraph 12G, (v) any Person from which such holder
offers to purchase any security of the Company and to which such holder could
then transfer such Note pursuant to the second grammatical paragraph of
paragraph 12G, (vi) any federal or state regulatory authority having
jurisdiction over such holder, (vii) the National Association of Insurance
Commissioners or any similar organization or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (a) in compliance
with any law, rule, regulation or order applicable to such holder, (b) in
response to any subpoena or other legal process or informal investigative demand
or (c) in connection with any litigation to which such holder is a party.
12I. NOTICES. All notices or other communications provided for
hereunder (except for the telephonic notice required by paragraph 4C) shall be
in writing and sent by first class mail or nationwide overnight delivery service
(with charges prepaid) and (i) if to you, addressed to you at the address
specified for such communications in the Purchaser Schedule attached hereto, or
at such other address as you shall have specified to the Company in writing,
(ii) if to any other holder of any Note or Warrant, addressed to such other
holder at such address as such other holder shall have specified to the Company
in writing or, if any such other holder shall not have so specified an address
to the Company, then addressed to such other holder in care of the last holder
of such Note or Warrant which shall have so specified an address to the Company,
and (iii) if to the Company, addressed to it at 2777 Stemmons Freeway, Suite
1525, Dallas, Texas 75207, Attention: Chief Financial Officer, or at such other
address as the Company shall have specified to the holder of each Note or
Warrant in writing; provided, however, that any such communication to the
Company may also, at the option of the holder of any Note or Warrant, be
delivered by any other means either to the Company at its address specified
above or to any officer of the Company.
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12J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
interest on, or Yield-Maintenance Amount payable with respect to, any Note that
is due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
12K. SATISFACTION REQUIREMENT. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to you or to the Required Holder(s), the
determination of such satisfaction shall be made by you or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
12L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
OF THE STATE OF NEW YORK. This Agreement may not be changed orally, but
(subject to the provisions of paragraph 12C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
12M. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12O. MAXIMUM INTEREST PAYABLE. The Company, you and any other
holders of the Notes specifically intend and agree to limit contractually the
amount of interest payable under this Agreement, the Notes and all other
instruments and agreements related hereto and thereto to the maximum amount of
interest lawfully permitted to be charged under applicable law. Therefore, none
of the terms of this Agreement, the Notes or any instrument pertaining to or
relating to this Agreement or the Notes shall ever be construed to create a
contract to pay interest at a rate in excess of the maximum rate permitted to be
charged under applicable law, and neither the Company, any guarantor nor any
other party liable or to become liable hereunder, under the Notes, any guaranty
or under any other instruments and agreements related hereto and thereto shall
ever be liable for interest in excess of the amount determined at such maximum
rate, and the provisions of this paragraph 12O shall control over all other
provisions of this Agreement, any Notes, any guaranty or any other instrument
pertaining to or relating to the transactions herein contemplated. If any
amount of interest taken or received by you or any holder of a Note shall be in
excess of said maximum amount of interest which, under applicable law, could
lawfully have been collected by you or such holder incident to such
transactions, then such excess shall be deemed to have been the result of a
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mathematical error by all parties hereto and shall be refunded promptly by the
Person receiving such amount to the party paying such amount, or, at the option
of the recipient, credited ratably against the unpaid principal amount of the
Note or Notes held by you or such holder, respectively. All amounts paid or
agreed to be paid in connection with such transactions which would under
applicable law be deemed "interest" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the
stated term of this Agreement and the Notes. "Applicable law" as used in this
paragraph means that law in effect from time to time which permits the charging
and collection of the highest permissible lawful, nonusurious rate of interest
on the transactions herein contemplated and "maximum rate" as used in this
paragraph means, with respect to each of the Notes, the maximum lawful,
nonusurious rates of interest (if any) which under applicable law may be charged
to the Company from time to time with respect to such Notes.
12P. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between the
Company and you.
Very truly yours,
DIAGNOSTIC HEALTH SERVICES, INC.
By
---------------------------------
Brad A. Hummel
President
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By
---------------------------------
Jay D. Squiers
Vice President
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PURCHASER SCHEDULE
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(1) All payments on account of Notes held by such Purchaser shall be made by
wire transfer of immediately available funds for credit to:
Account No. 890-0304-391
The Bank of New York
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth
"Diagnostic Health Services, Inc.", a reference to "10.50% Senior Subordinated
Notes due April 17, 2005, Security No. !INV5606!"
in respect of which such payment is being made, and the due date and application
(as among principal, interest and Yield-Maintenance Amount) of the payment being
made.
(2) Address for all notices relating to payments and written confirmations of
such wire transfers:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Investment Operations Group
(Attention: Manager)
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue
Suite 4200E
Dallas, Texas 75201
Attention: Managing Director
(4) Recipient of telephonic or facsimile prepayment notices:
Manager, Investment Structure and Pricing
(201) 802-7398
(201) 624-6432 (facsimile)
(5) Tax Identification No.: 22-1211670
<PAGE>
SCHEDULE 9A
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LIST OF SUBSIDIARIES
<PAGE>
SCHEDULE 9D
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DEBT OF COMPANY AND SUBSIDIARIES
<PAGE>
SCHEDULE 9G
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LIST OF AGREEMENTS RESTRICTING DEBT
