SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
INSIGHT HEALTH SERVICES CORP.
AND
GENERAL ELECTRIC COMPANY
OCTOBER 14, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . 15
2.1 Purchase and Sale of Securities. . . . . . . . . . . . . . . . . . 15
2.2 Consideration for Securities.. . . . . . . . . . . . . . . . . . . 15
2.3 Private Placement Fee. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Closings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Deliveries by the Company at the First Closing.. . . . . . . . . . 16
3.3 Deliveries by the Purchaser at the Closing.. . . . . . . . . . . . 16
3.4 Second Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Form of Documents and Instruments. . . . . . . . . . . . . . . . . 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 17
4.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . 17
4.2 Capitalization of the Company. . . . . . . . . . . . . . . . . . . 18
4.3 Authorization of Issuance. . . . . . . . . . . . . . . . . . . . . 19
4.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Consents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Employee Benefit Plans and Other Agreements. . . . . . . . . . . . 22
4.9 Governmental Filings.. . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Financial Statements and Reports. . . . . . . . . . . . . . . . . 26
4.11 Absence of Undisclosed Liabilities: Guarantees. . . . . . . . . . 26
4.12 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 27
4.13 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 28
4.14 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.15 True and Complete Disclosure. . . . . . . . . . . . . . . . . . . 29
4.16 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.17 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . . 31
4.18 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.19 Real Property and Leaseholds. . . . . . . . . . . . . . . . . . . 33
4.20 Tangible Assets.. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.21 Contracts and Commitments.. . . . . . . . . . . . . . . . . . . . 34
4.22 Books and Records.. . . . . . . . . . . . . . . . . . . . . . . . 35
4.23 Labor Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.24 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.25 Intellectual Property.. . . . . . . . . . . . . . . . . . . . . . 36
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4.26 Securities Offerings. . . . . . . . . . . . . . . . . . . . . . . 36
4.27 No Other Agreements to Sell the Assets or the Company.. . . . . . 37
4.28 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.29 Accounts and Notes Receivable.. . . . . . . . . . . . . . . . . . 37
4.30 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.31 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 37
4.32 No Research Grants. . . . . . . . . . . . . . . . . . . . . . . . 38
4.33 Certain Regulatory Matters. . . . . . . . . . . . . . . . . . . . 38
4.34 Certain Additional Regulatory Matters.. . . . . . . . . . . . . . 38
4.35 Medicare/Medicaid Participation.. . . . . . . . . . . . . . . . . 39
4.36 Compliance with Medicare/Medicaid and Insurance Programs. . . . . 40
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . 40
5.1 Organization of the Purchaser. . . . . . . . . . . . . . . . . . . 40
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.3 Noncontravention.. . . . . . . . . . . . . . . . . . . . . . . . . 41
5.4 Consents and Appeals.. . . . . . . . . . . . . . . . . . . . . . . 41
5.5 Purchase for Investment. . . . . . . . . . . . . . . . . . . . . . 41
5.6 No Brokers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.7 No Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1 Best Efforts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.2 Restrictive Agreements Prohibited. . . . . . . . . . . . . . . . . 43
6.3 Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . 43
6.4 Financial Statements and Information.. . . . . . . . . . . . . . . 43
6.5 Press Releases.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . 45
6.7 Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . . 46
6.8 Conversion Stock.. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.9 Certain Regulatory Matters.. . . . . . . . . . . . . . . . . . . . 47
6.10 Employment Arrangements.. . . . . . . . . . . . . . . . . . . . . 47
6.11 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . 48
6.12 Stockholder Approval of Certain Actions.. . . . . . . . . . . . . 48
6.13 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 52
6.14 Restrictions on Transfer of Capital Stock.. . . . . . . . . . . . 54
6.15 Expiration of Certain Covenants.. . . . . . . . . . . . . . . . . 56
ARTICLE VII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 57
7.1 Conditions to Each Party's Obligations.. . . . . . . . . . . . . . 57
7.2 Conditions to the Company's Obligations. . . . . . . . . . . . . . 57
7.3 Conditions to the Purchaser' Obligations.. . . . . . . . . . . . . 58
7.3 Conditions to Second Closing . . . . . . . . . . . . . . . . . . . 60
ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 60
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8.1 Survival of Representations, Etc.. . . . . . . . . . . . . . . . . 60
8.2 Indemnification by the Company.. . . . . . . . . . . . . . . . . . 60
8.3 Limitation on Indemnities. . . . . . . . . . . . . . . . . . . . . 61
8.4 Losses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.5 Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 63
9.3 Assignment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.5 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.6 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . 65
9.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.8 Invalidity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.9 Headings; Language.. . . . . . . . . . . . . . . . . . . . . . . . 65
9.10 Limitation of Liability.. . . . . . . . . . . . . . . . . . . . . 66
9.11 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . 66
EXHIBITS
EXHIBIT A: Form of Amended and Restated Bylaws
EXHIBIT B: Form of Registration Rights Agreement
EXHIBIT C: Form of Series B Certificate of Designation
EXHIBIT D: Form of Series C Certificate of Designation
EXHIBIT E: Form of Series D Certificate of Designation
EXHIBIT F: Form of Warrant Agreement
EXHIBIT G: Form of Carlyle Warrant Agreement
EXHIBIT H: Form of Opinion of the Purchaser's Counsel
EXHIBIT I: Form of Opinion of the Company's Corporate Counsel
EXHIBIT J: Persons Whose Knowledge Is Attributed to the Company
EXHIBIT K: Center Operations
EXHIBIT L: Form of Supplemental Service Fee Termination Agreement
SCHEDULES
Schedule 4.1(b) Organization of the Company
Schedule 4.2 Capitalization of the Company
Schedule 4.6 Consents
Schedule 4.7 Subsidiaries
Schedule 4.8 Employee Benefit Plans and Other Agreements
Schedule 4.11 Absence of Undisclosed Liabilities: Guarantees
Schedule 4.12(x) Absence of Certain Changes
Schedule 4.13(a) Compliance With Laws
Schedule 4.14 Litigation
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Schedule 4.16 Taxes
Schedule 4.17 Environmental Matters
Schedule 4.19 Real Property and Leaseholds
Schedule 4.20 Tangible Assets
Schedule 4.21 Contracts and Commitments
Schedule 4.23 Labor Matters
Schedule 4.25 Intellectual Property
Schedule 4.26 Securities Offerings
Schedule 4.30 Indebtedness
Schedule 4.31 Transactions with Affiliates
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of October 14, 1997, is by and between INSIGHT HEALTH SERVICES CORP., a
Delaware corporation (the "Company"), and GENERAL ELECTRIC COMPANY, a New
York corporation (the "Purchaser").
RECITALS
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set
forth in Section 2.2 hereof, (i) an aggregate of 7,000 shares (the "First
Closing Preferred Shares") of its newly issued Series C Preferred Stock, each
share of which Series C Preferred Stock shall be convertible (a) initially
into one hundred nineteen and four hundred three one-thousandths (119.403)
shares of Common Stock at an initial conversion price of $8.375 per share of
such Common Stock (so that all of the shares of First Closing Preferred
Shares purchased by the Purchaser shall be convertible initially into an
aggregate of 835,821 shares of such Common Stock), having the rights,
designations and preferences set forth in the Series C Certificate of
Designation or (b) after the Type B Trigger Date, into shares of Series D
Preferred Stock having the rights, designations and preferences set forth in
the Series D Certificate of Designation on the terms set forth in the Series
D Certificate of Designation and (ii) the Warrants; and
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, for the consideration set
forth in Section 2.2 hereof, an aggregate of 20,953 shares (the "Second
Closing Preferred Shares", and, collectively with the First Closing Preferred
Shares, the "Preferred Shares") of Series C Preferred Stock, each share of
which Series C Preferred Stock shall be convertible initially into one
hundred nineteen and four hundred three one-thousandths (119.403) shares of
Common Stock at an initial conversion price of $8.375 per share of such
Common Stock (so that all of the Second Closing Preferred Shares purchased by
the Purchaser shall be convertible initially into an aggregate of 2,501,851
shares of such Common Stock), having the rights, designations and preferences
set forth in the Series C Certificate of Designation;
WHEREAS, contemporaneously with the Purchaser's acquisition of
the First Closing Preferred Shares, and as a condition to such acquisition,
TC Group, L.L.C. and certain of its Affiliates (collectively, "Carlyle")
shall (i) acquire warrants (the "Carlyle Warrants") initially to purchase
250,000 shares of Common Stock at an initial exercise price of $10.00 per
share and (ii) purchase 25,000 shares of newly issued Series B Preferred
Stock, each share of which Series B Preferred Stock shall be convertible (a)
initially into one hundred nineteen and four hundred three one-thousandths
(119.403) shares of Common Stock at an initial conversion price of $8.375 per
share of Common Stock (so that such shares of Series C Preferred Stock
acquired in respect of such purchase would be initially convertible into an
aggregate of 2,985,075 shares of Common Stock, at an initial conversion price
of $8.375 per share), or (b) after the Type B Trigger Date,
into shares of Series D Preferred Stock having the rights, designations and
preferences set forth in the Series D Certificate of Designation on the terms
set forth in the Series D Certificate of Designation; and
WHEREAS, contemporaneously with the Purchaser's acquisition of
the Securities, and as a condition to such acquisition, the Company shall
execute and deliver definitive documents with respect to the Credit Facility,
and funding shall occur upon filing by the lender under the Credit Facility
of appropriate UCC filings and certain other conditions set forth in the
documentation related to the Credit Facility, and upon such funding, certain
of the proceeds of the Credit Facility and the investment described herein
shall be used by the Company to repay (i) Seventy Million Seven Hundred One
Thousand Six Hundred Eleven Dollars and Seventy-Five Cents ($70,701,611.75)
in principal, interest and fees, plus additional accrued and unpaid interest
associated therewith at the rate of Nineteen Thousand, Two Hundred Ninety-Six
Dollars ($19,296) per day for each day after October 14, 1997, of
Indebtedness of the Company and certain of its Affiliates to GE pursuant to
the Master Debt Restructuring Agreement, and (ii) certain other Indebtedness.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used herein, the terms below shall have the following
meanings:
"AFFILIATE" of any specified Person means (a) any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) the beneficial
owner of ten percent (10%) or more of the voting securities of such Person).
For purposes of this definition, "control" (including, with correlative
meanings, the terms: "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by agreement or otherwise.
"AGREEMENT" means this Securities Purchase Agreement, together
with all Schedules and Exhibits referenced herein, as the same hereinafter
may be amended from time to time.
"AMENDED BYLAWS" means the Amended and Restated Bylaws of the
Company, in the form attached hereto as Exhibit A.
2
"ANCILLARY AGREEMENTS" means the Warrant Agreement and the
Registration Rights Agreement, as each hereinafter may be amended from time
to time.
"APPLICABLE LAW" means any statute, law, rule or regulation or
any judgment, order, writ, injunction, decree or financial assessment
(subject, in the case of financial assessments, to the exhaustion of appeals)
of any Governmental Entity to which a specified Person or its properties or
assets, or its officers, directors, employees, consultants or agents (in
their capacities as such) is subject, including, without limitation, all such
statutes, laws, rules, regulations, judgments, orders, writs, injunctions,
decrees and financial assessments relating to, without limitation, energy
regulation, public utility regulation, securities regulation, consumer
protection, equal opportunity, health care industry regulation, public health
and safety, motor vehicle safety or standards, third party reimbursement
(including Medicare and Medicaid), environmental protection, fire, zoning,
building and occupational safety and health matters and laws respecting
employment practices, employee documentation, terms and conditions of
employment and wages and hours.
"APPROVALS" has the meaning set forth in Section 4.13 of this
Agreement.
"BENEFIT ARRANGEMENT" means any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health
or accident benefits (including without limitation any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to
or required to be contributed to, as the case may be, by the Company or an
ERISA Affiliate or under which the Company or any ERISA Affiliate may incur
any liability, and (c) covers any present or former employees, directors or
consultants of the Company (with respect to their relationship with such
entities).
"BOARD OF DIRECTORS" means the board of directors of the
Company as it is constituted from time to time in accordance with the terms
of this Agreement, the Certificate of Incorporation and the Amended Bylaws.
"BYLAWS" means the Bylaws of the Company as in effect on the
date hereof.
"BUSINESS" means the provision of diagnostic services to the
healthcare industry.
"CAPITAL BUDGET PLAN" means, for each Fiscal Year, the plan of
the Company for making Capital Expenditures for such Fiscal Year which has
been approved for such Fiscal Year by either the Executive Committee or a
Supermajority Vote of the Board of Directors.
3
"CAPITAL EXPENDITURES" means, for any period, expenditures made
by the Company or any of its Subsidiaries to acquire or construct fixed
assets, plant and Fixtures and Equipment (including additions, improvements,
upgrades and replacements, but excluding repairs) during such period
calculated in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any
and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, (iii) in the case of a partnership,
partnership interests (whether general or limited) and (iv) any other
interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CARLYLE AFFILIATES" means the Purchaser (as such term is
defined in the Carlyle Purchase Agreement), TC Group, L.L.C., and any
investor in any entity comprising the Purchaser (as such term is defined in
the Carlyle Purchase Agreement) or TC Group, L.L.C. on the date hereof.
"CARLYLE PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement, of even date herewith, by and between the Company and
Carlyle in respect of the Series B Preferred Stock and the Carlyle Warrants.
"CARLYLE WARRANT AGREEMENT" means that certain Warrant
Agreement by and between the Company and Carlyle substantially in the form
attached hereto as Exhibit F pursuant to which the Company shall issue the
Carlyle Warrants to Carlyle.
"CARLYLE WARRANTS" means the warrants to purchase Common Stock
to be acquired by Carlyle at the First Closing.
"CARLYLE WARRANT SHARES" means the Common Stock issuable to
Carlyle upon the exercise of the Carlyle Warrants.
"CENTER OPERATIONS" means the operations of the Company and its
Subsidiaries at the locations identified in Exhibit K hereto.
"CERTIFICATE OF INCORPORATION" means the certificate of
incorporation (as defined in Section 104 of the Delaware General Corporation
Law) of the Company in effect on the date hereof, including, without
limitation, the Series B, the Series C and the Series D Certificate of
Designation.
"CHAMPUS" has the meaning set forth in Section 4.34 of this
Agreement.
4
"CHANGE OF CONTROL" shall be deemed to have occurred (i) at
such time as any person (as defined in Section 13(d)(3) of the Exchange Act
but excluding Carlyle and its Affiliates and the Purchaser, individually and
collectively) at any time shall directly or indirectly acquire more than 40%
of the voting power of the Common Stock of the Company, (ii) at such time as
during any one (1) year period, individuals who at the beginning of such
period constitute the Company's Board of Directors cease to constitute at
least a majority of such Board of Directors (provided, however, that a change
in directors upon a Type B Event Date shall not be deemed to cause a Change
of Control pursuant to this clause (ii)), (iii) upon consummation of a merger
or consolidation of the Company into or with another Person in which the
stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iv) the sale, transfer or lease of all or substantially all of the assets of
the Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction
or series of related transactions; PROVIDED, that no Change of Control
hereunder with respect to the Company shall be deemed to occur solely by
reason of (x) the ownership by Carlyle or any Carlyle Affiliate thereof or GE
or its Affiliates of the Series C Preferred Stock or any Affiliate thereof of
any Capital Stock of the Company or (y) the conversion of shares of Series B
Preferred Stock into either Series D Preferred Stock (and any change in the
Board of Directors incident thereto) or Common Stock, or (z) the conversion
of shares of Series D Preferred Stock into Common Stock.
"CLAIM" has the meaning set forth in Section 8.5 of this
Agreement.
"CLAIM NOTICE" has the meaning set forth in Section 8.5 of this
Agreement.
"CLOSING " means the time at which this Agreement is executed
and delivered by the parties, the Purchaser purchases the First Closing
Preferred Shares and Carlyle purchases the Carlyle Warrants and the Series B
Preferred Stock.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON EQUITY" means all shares now or hereafter authorized of
any class of common stock of the Company (including the Common Stock) and any
other stock of the Company, however designated, authorized after the date
hereof, which has the right (subject always to prior rights of any class or
series of preferred stock) to participate in any distribution of the assets
or earnings of the Company without limit as to per share amount, but shall
not include the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock or the Series D Preferred Stock.
"COMMON STOCK" has the meaning set forth in Section 4.2(a) of
this Agreement.
5
"COMMON STOCK DIRECTOR" has the meaning set forth in the
Certificate of Incorporation.
"COMPANY" has the meaning set forth in the Preamble to this
Agreement, and, in addition, with respect to past events, means the Company
and its predecessors.
"CONVERSION DIRECTOR" has the meaning set forth in the Amended
Bylaws.
"CONVERSION PRICE" means $8.375 per share of Common Stock,
subject to adjustment as set forth in the Series C Certificate of Designation.
"CONVERTIBLE SECURITIES" shall mean any stock or securities
directly or indirectly convertible into or exchangeable for Common Equity,
including, without limitation, any exchangeable debt securities.
"CREDIT FACILITY" means the credit facility provided to the
Company pursuant to the terms of the Credit Agreement dated as of October 14,
1997 among the Company, certain subsidiaries, as guarantors, certain
financial institutions party thereto and NationsBank, N.A., as Agent.
"CURRENT CUSTOMER" has the meaning set forth in Section 4.21 of
this Agreement.
"ELIGIBLE HOLDER" has the meaning set forth in Section 6.4 of
this Agreement.
"ELIGIBLE SECURITIES" means (i) the Series B Conversion Stock,
the Series C Conversion Stock and the Series D Conversion Stock, (ii) the
Warrants and (iii) any Common Stock of the Company issued or issuable in
respect of the Securities or other securities issued or issuable pursuant to
the conversion of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event. Securities shall
cease to constitute "Eligible Securities" at such time that they are sold or
transferred in a transaction wherein the transferee does not acquire
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section
4.8 of this Agreement.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, encumbrance or other right of
third parties, and, with respect to any securities, any agreements,
understandings or restrictions affecting the voting rights or other incidents
of record or beneficial ownership pertaining to such securities.
"ENVIRONMENTAL CONDITION" means the Release or threatened Release
of any Hazardous Material (whether or not upon a Facility or any former facility
or other property and whether or not such Release constituted at the time
thereof a violation of any Environmental
6
Law) as a result of which the Company has or would reasonably be expected to
become liable to any Person or by reason of which any Facility, any former
facility or any of the assets of the Company may suffer or be subjected to
any Encumbrances.
"ENVIRONMENTAL LAWS" means any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, legally binding decrees or other requirements of any Governmental
Entity (including, without limitation, common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health relating to exposure of any kind of Hazardous
Materials, as have been, are now or may at any time hereafter be in effect.
"ENVIRONMENTAL PERMITS" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorizations
required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under
"common control" with, a member of an "affiliated service group" with or
otherwise required to be aggregated with the Company, as set forth in Section
414(b), (c), (m) or (o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FACILITY" or "FACILITIES" means one or more of the offices and
buildings and all other real property and related facilities which are owned,
leased or operated by the Company or any Subsidiary.
"FEDERAL HEALTH CARE PROGRAM" has the meaning set forth in
Section 4.35 hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4.10 hereof.
"FIRST CLOSING" means the time at which this Agreement is
executed and delivered by the parties, the Purchaser purchases the First
Closing Preferred Shares and Carlyle purchases the Carlyle Warrants and the
shares of Series B Preferred Stock.
"FIRST CLOSING DATE" means the business day upon which the
First Closing occurs.
"FIRST CLOSING PREFERRED SHARES" has the meaning set forth in
the Recitals.
"FISCAL YEAR" means each year ending June 30, or any other
fiscal year as approved by the Board of Directors.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, equipment and other tangible assets owned by the
Company or any Subsidiary that are material to the conduct of their
businesses as currently conducted.
7
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, which are in
effect as of the date of this Agreement.
"GE" means General Electric Company, a New York corporation,
and its Affiliates.
"GE TRANSACTION EXPENSES" means the reasonable fees and
expenses incurred by the Purchaser and any GE Affiliate (including, but not
limited to, reasonable fees and expenses of legal counsel, accountants,
consultants and travel expenses in connection with the preparation of this
Agreement and the Purchaser's due diligence examination) relating to this
Agreement and the Transaction, which, together with the Carlyle Transaction
Expenses (as such term is defined in the Carlyle Purchase Agreement) shall be
in an amount not to exceed $500,000.
"GOVERNMENTAL ENTITY" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state or local public,
governmental or regulatory body, agency, department, commission, board,
bureau or other authority or instrumentality (domestic or foreign).
"HAZARDOUS MATERIALS" means any hazardous substance, gasoline
or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity and
any other materials or substances of any kind, whether solid, liquid or gas,
and whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or
that could give rise to liability under any Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"INDEBTEDNESS" means, as to any Person without duplication, (a)
all items which, in accordance with GAAP, would be included as a liability on
the balance sheet of such Person and its Subsidiaries (including any
obligation of such Person to the issuer of any letter of credit for
reimbursement in respect of any drafts drawn under such letter of credit),
excluding (i) obligations in respect of deferred taxes and deferred employee
compensation and benefits, and (ii) anything in the nature of Capital Stock,
surplus capital and retained earnings; (b) Capital Lease Obligations of such
Person; and (c) all obligations of other Persons that such Person has
guaranteed, including, without limitation, all obligations of such Person
consisting of recourse liabilities with respect to accounts receivable sold
or otherwise disposed of by such Person, PROVIDED, HOWEVER, that the term
Indebtedness shall not include trade accounts payable (other than for
borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person, provided the same are not more than sixty
(60) days overdue or are being contested in good faith.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.2 of
this Agreement.
8
"INDEPENDENT" means any person who is not an officer or
employee of the Company or any Subsidiary or other Affiliate of the Company
or otherwise paid any compensation or remuneration by the Company or any
Subsidiary or other Affiliate of the Company other than director's fees.
"JOINT DIRECTOR" has the meaning set forth in Section 6.13 of
this Agreement.
"LIABILITY" or "LIABILITIES" means, with respect to any Person,
any liability or obligation of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined,
determinable or otherwise and whether or not the same is required to be
accrued on the financial statements of such Person.
"LIQUIDATING EVENT" means (i) the commencement by the Company
of a voluntary case under the bankruptcy laws of the United States, as now or
hereafter in effect, or, if an involuntary case against the Company has been
commenced, the decision by the Company not to timely controvert such petition
and seek its prompt dismissal; (ii) the commencement by the Company of any
proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or
the adoption of a plan of liquidation; (iii) if any proceeding set forth in
the preceding clause has been commenced against the Company, the decision by
the Company not to controvert such proceeding and seek its prompt dismissal;
or (iv) any Change of Control (A) pursuant to clauses (i) and (ii) of the
definition thereof if such Change of Control occurred in or as a result of a
transaction or series of related transactions approved by the Board of
Directors, or (B) pursuant to clauses (iii) or (iv) of the definition of
Change of Control; in any of cases (i) through (iv) above, in a single
transaction or series of related transactions.
"LOSSES" has the meaning set forth in Section 8.2 of this
Agreement.
"MARKET PRICE" means as to any security the average of the
closing prices of any such security's sales on all domestic securities
exchanges on which such security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative
bid and asked prices quoted in Nasdaq as of 4:00 P.M., New York time, on such
day, or, if on any day such security is not quoted in Nasdaq, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) business days consisting of the day
as of which "Market Price" is being determined and the twenty (20)
consecutive business days prior to such day; provided that if such security
is listed on any domestic securities exchange the term "business days" as
used in this sentence means business days on which such exchange is open for
trading. If at any time such security is not listed on any domestic
securities exchange or quoted in Nasdaq or the domestic over-the-counter
9
market, the "Market Price" shall be the fair value thereof determined by the
Company and approved by the Purchaser; provided that if such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an appraiser jointly selected by the Company and the
Purchaser. The determination of such appraiser shall be final and binding
on the Company and the Purchaser, and the fees and expenses of such appraiser
shall be paid by the Company.
"MASTER DEBT RESTRUCTURING AGREEMENT" means that certain Master
Debt Restructuring Agreement dated as of June 26, 1996 by and among
Purchaser, General Electric Capital Corporation, the Company, American Health
Services Corp. Maxum Health Corp. and certain subsidiaries of Maxum Health
Corp., as amended through the date hereof.
"MATERIAL ADVERSE EFFECT" with respect to any Person means a
material adverse effect on the results of operations, condition (financial or
otherwise), assets, liabilities (whether absolute, accrued, contingent or
otherwise) or business of such Person and its Subsidiaries (if any), taken as
a whole.
"MATERIAL AGREEMENTS" has the meaning set forth in Section 4.21
of this Agreement.
"MERGER AGREEMENT" means that certain Agreement and Plan of
Merger dated as of February 26, 1996 by and among the Company, American
Health Services Corp., AHSC Acquisition Corp., Maxum Health Corp. and MXHC
Acquisition Corp.
"MOBILE OPERATIONS" means all operations of the Company and its
Subsidiaries other than Center Operations.
"MULTIEMPLOYER PLAN" means any "multiemployer plan," as defined
in Section 400l(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (b) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such Persons).
"OPERATING LEASE" shall mean any lease with respect to which
the obligations of the lessee thereunder are, at the time any determination
thereof is to be made, not required to be capitalized on the lessee's balance
sheet in accordance with GAAP.
"OPTION" shall mean any rights or options to subscribe for or
purchase Common Equity or Convertible Securities.
"ORDINARY COURSE OF BUSINESS," for purposes of Section 6.12(s) of
this Agreement, means the ordinary course of business for a company engaged in
the business of providing diagnostic services to the health care industry;
provided, however, that all sales by the Company
10
or any Subsidiary, as the case may be, of inventory and sales of Fixtures and
Equipment no longer used or useful in such business shall be deemed to be in
the Ordinary Course of Business.
"PARITY SECURITIES" has the meaning set forth in Section 2 of
the Series B Certificate of Designation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a)
the Company or any ERISA Affiliate maintains, administers, contributes to or
is required to contribute to, or, within the five (5) years prior to the
Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (b) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such Persons).
"PERMITS" means all licenses, permits, orders, consents,
approvals, registrations, authorizations, qualifications and filings required
by any federal, state, local or foreign law or regulation or governmental or
regulatory bodies and all industry or other non-governmental self-regulatory
organizations.
"PERMITTED ENCUMBRANCES" means (a) any mechanic's or
materialmen's lien or similar Encumbrances with respect to amounts not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established, (b)
Encumbrances for Taxes not yet due and payable or which are being contested
in good faith by appropriate proceedings, for which appropriate reserves have
been established, (c) easements, licenses, covenants, rights of way and
similar Encumbrances which, individually or in the aggregate, would not
materially and adversely affect the marketability or value of the property
encumbered thereby or materially interfere with the operations of the
Business and (d) Encumbrances arising under the Credit Facility.
"PERSON" means any individual, corporation, partnership,
limited partnership, limited liability partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" means any Environmental
Condition occurring or in existence on or prior to the Closing Date.
"PREFERRED SHARES" has the meaning set forth in the Recitals to
this Agreement.
"PROCEEDING" means any action, suit, claim, litigation, legal or
other proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit, claim, litigation, legal or
other proceeding, and any investigation that could reasonably be expected to
lead to such an action, suit, claim, litigation, legal or other proceeding, not
including
11
an audit other than an audit by a Governmental Entity pursuant to any
Applicable Laws relating to health care, the health care industry and the
provision of health care services, third party reimbursement (including
Medicare and Medicaid), public health and safety and wrongful death and
medical malpractice, which shall be included in this definition of
"Proceeding."
"PROPRIETARY RIGHTS" has the meaning set forth in Section 4.25
of this Agreement.
"PROXY STATEMENT" means that certain Maxum Health Corp. and
American Health Services Corp. Joint Proxy Statement for Special Meeting of
Stockholders to be held June 25, 1996, dated May 9, 1996.
"PURCHASER" has the meaning set forth in the Preamble to this
Agreement, and shall include the Purchaser's successors and permitted assigns.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement by and among the Company and the Purchaser substantially in the
form attached hereto as Exhibit B.
"REGULATION D" has the meaning set forth in Section 4.26 of
this Agreement.
"RELEASE" means and includes any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment or the workplace of any Hazardous
Materials, and otherwise as defined in any Environmental Law.
"SEC FILINGS" has the meaning set forth in Section 4.9 of this
Agreement.
"SECOND CLOSING" means the time at which the Purchaser converts
all of its Series A Preferred Stock into the Second Closing Preferred Shares.
"SECOND CLOSING PREFERRED SHARES" has the meaning set forth in
the Recitals.
"SECOND CLOSING DATE" means the business day after all waiting
periods with respect to Purchaser's filing of a notification under the HSR
Act with respect to the transactions to occur at the Second Closing have
expired or have been terminated and neither the Federal Trade Commission nor
the Department of Justice shall have sent a letter giving notice of its
intention to initiate legal action to prevent such transactions or to seek
further information.
"SECURITIES" means the Preferred Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR MANAGEMENT" means such members of the senior management
of the Company as are proposed by the President of the Company and accepted
by the Series B Directors and the Series C Director, which acceptance shall
not unreasonably be withheld.
12
"SENIOR SECURITIES" has the meaning set forth in Section 2 of
the Series C Certificate of Designation.
"SERIES A PREFERRED STOCK" means the Convertible Preferred
Stock, Series A, par value $0.001 per share, of the Company, all of the
outstanding shares of which as of the date of this Agreement are held by
Purchaser.
"SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock, in the
form attached hereto as Exhibit C.
"SERIES B CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Carlyle in respect of
the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" means the Convertible Preferred
Stock, Series B, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series B Certificate of
Designation.
"SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit D.
"SERIES C CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to Purchaser in respect of
the Series C Preferred Stock.
"SERIES C PREFERRED STOCK" means the Convertible Preferred
Stock, Series C, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series C Certificate of
Designation.
"SERIES D CERTIFICATE OF DESIGNATION" means the Certificate of
Designation, Preferences and Rights of the Series D Preferred Stock, in the
form attached hereto as Exhibit E.
"SERIES D CONVERSION SHARES" means the shares of Common Stock
issuable, upon certain conditions, by the Company to the Purchaser in respect
of the Series D Preferred Stock.
"SERIES D PREFERRED STOCK" means the Convertible Preferred
Stock, Series D, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Series D Certificate of
Designation.
"SPECIAL CORPORATE EVENT" shall be deemed to have occurred (i)
at such time as any person (as defined in Section 13(d)(3) of the Exchange Act),
except Carlyle, any Carlyle Affiliate, Purchaser and/or any Affiliate of
Purchaser, at any time shall directly or indirectly acquire more than twenty
percent (20%) of the voting power of the Common Stock of the Company, (ii) at
such time as during any one (1) year period, individuals who at the beginning of
such period constitute the Company's Board of Directors cease to constitute at
least a majority of such Board (provided, however, that a change in directors
upon a Type B Event Date shall not be deemed to cause a Special Corporate Event
pursuant to this clause (ii)), (iii) upon consummation of a merger or
consolidation of the Company into or with another Person in which the
13
stockholders of the Company immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly-owned by the parent
corporation) immediately following the consummation of such transaction, or
(iv) the sale, transfer or lease of all or substantially all of the assets of
the Company, in any of cases (i), (ii), (iii) or (iv) in a single transaction
or series of related transactions.
"SSA" has the meaning set forth in Section 4.34 of this
Agreement.
"STATE HEALTH CARE PROGRAM" has the meaning set forth in
Section 4.35 of this Agreement.
"SUBSIDIARY" means (a) any corporation of which at least a
majority in interest of the outstanding voting stock (having by the terms
thereof voting power under ordinary circumstances to elect a majority of the
directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned or controlled by the Company and/or by
one or more Subsidiaries of the Company, or (b) any corporate or
non-corporate entity in which the Company and/or one or more Subsidiaries of
the Company, directly or indirectly, at the date of determination thereof,
has an ownership interest and one hundred percent (100%) of the revenue of
which is included in the consolidated financial reports of the Company
consistent with GAAP. With respect to past events, a reference to a
Subsidiary shall be a reference to such Subsidiary and its predecessors.
"SUPERMAJORITY VOTE" means the affirmative vote of six (6)
directors of the Company with respect to the matter subject to such vote.
"SUPERVOTING SECURITIES" means any class or series of the
Company's Capital Stock the holders of which have the right to cast more than
one vote per share and/or have the right to elect one or more members of the
Board of Directors, voting as a class or series.
"SUPPLEMENTAL SERVICE FEE" has the meaning set forth in the
Recitals hereof.
"SUPPLEMENTAL SERVICE FEE TERMINATION AGREEMENT" means the
Supplemental Service Fee Termination Agreement between the Company and the
Purchaser substantially in the form attached hereto as Exhibit L.
"TAX" or "TAXES" means any federal, state, local or foreign net
or gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, (including taxes under Section 59A of
the Code), customs duties, Capital Stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax, governmental fee or
like assessment or charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not, imposed by any
Governmental Entity or arising under any tax law or agreement, including,
without limitation, any joint venture or partnership agreement.
14
"TAX RETURN" means any return, declaration, report, claim for
refund or information or return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendments thereof.
"THIRD PARTY NOTICE" has the meaning set forth in Section 8.5
of this Agreement.
"TRANSACTION" means, taken together, the transactions
contemplated under this Agreement and the Carlyle Purchase Agreement,
including, without limitation, the transactions that will occur at the
Closing, the initial funding of the Credit Facility and the Second Closing.
"TYPE B CONVERSION" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B EVENT DATE" has the meaning set forth in the Series B
Certificate of Designation and the Series C Certificate of Designation.
"TYPE B TRIGGER DATE" means the date one year after the inital
borrowing of funds under the Credit Facility.
"WARRANT AGREEMENT" means that certain Warrant Agreement by and
between the Company and the Purchaser substantially in the form attached
hereto as Exhibit E pursuant to which the Company shall issue the Warrants to
the Purchaser.
"WARRANT CERTIFICATES" means one or more warrant certificates
evidencing the Warrants, in the form attached as an exhibit to the Warrant
Agreement.
"WARRANTS" means 250,000 warrants, issued pursuant to the
Warrant Agreement, to purchase, initially, an equivalent number of shares of
Common Stock at an initial exercise price of $10.00 per share, expiring on
the date that is the fifth anniversary of the Closing Date.
"WARRANT SHARES" means the Common Stock issuable upon the
exercise of the Warrants.
"WELFARE PLAN" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or under which the Company or any ERISA Affiliate may incur any liability
and (b) covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.1 PURCHASE AND SALE OF SECURITIES.
Upon the terms and subject to the conditions contained herein, on
the First Closing Date the Company shall sell to the Purchaser and the Purchaser
shall purchase from the
15
Company the First Closing Preferred Shares and the Warrants. Upon the terms
and subject to the conditions contained herein, on the Second Closing Date
the Company shall sell to the Purchaser and the Purchaser shall purchase from
the Company the Second Closing Preferred Shares.
2.2 CONSIDERATION FOR SECURITIES.
Upon the terms and subject to the conditions contained herein,
as consideration for the purchase of the First Closing Preferred Shares and
the Warrants, on the First Closing Date the Purchaser shall terminate the
Supplemental Service Fee. Upon the terms and subject to the conditions
contained herein (including without limitation the conditions relating to the
HSR Act), as consideration for the purchase of the Second Closing Preferred
Shares, on the Second Closing Date the Purchaser shall convert all of its
shares of Series A Preferred Stock into the Second Closing Preferred Shares.
2.3 PRIVATE PLACEMENT FEE.
On the First Closing Date, the Company shall pay by wire
transfer of immediately available funds to an account designated by the
Purchaser at least 24 hours before the Closing a private placement fee of One
Hundred Twenty Five Thousand Dollars ($125,000).
ARTICLE III
CLOSING
3.1 CLOSINGS.
The First Closing shall be held at 10:00 a.m. Los Angeles time
on the First Closing Date, at the offices of Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, CA 90071, unless the parties hereto
otherwise agree. The Second Closing shall be held at 10:00 a.m. Los Angeles
time on the Second Closing Date, at the offices of Gibson, Dunn & Crutcher
LLP, 333 South Grand Avenue, Los Angeles, CA 90071, unless the parties hereto
otherwise agree.
3.2 DELIVERIES BY THE COMPANY AT THE FIRST CLOSING.
At the First Closing, the Company shall issue and deliver to
the Purchaser:
(a) Certificates evidencing the First Closing Preferred Shares
in the name of the Purchaser (or its assignees), in the respective amounts as
set forth in a written notice provided to the Company by the Purchaser 24
hours in advance of the First Closing;
(b) The Warrant Certificates in the names of the Purchaser (or
its assignees), in the respective amounts as set forth in a written notice
provided to the Company by the Purchaser;
(c) The Ancillary Agreements;
16
(d) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(e) All such other documents and instruments as the Purchaser
or its counsel shall reasonably request to consummate the First Closing.
3.3 DELIVERIES BY THE PURCHASER AT THE CLOSING.
At the First Closing, the Purchaser shall deliver to the
Company:
(a) The Supplemental Service Fee Termination Agreement;
(b) The Ancillary Agreements;
(c) The certificates, opinions of counsel and other documents
described in Article VII of this Agreement; and
(d) All such other documents and instruments as the Company or
its counsel shall reasonably request to consummate the Closing.
3.4 SECOND CLOSING.
The parties contemplate that the Second Closing shall occur on
the Second Closing Date. At the Second Closing, all of GE's shares of Series
A Preferred Stock shall be converted into Series C Preferred Stock. At the
Second Closing, the Company shall issue and deliver to the Purchaser
Certificates evidencing the Second Closing Preferred Shares in the names of
the Persons comprising the Purchaser (or their assignees), in the respective
amounts as set forth in a written notice provided to the Company by the
Purchaser 24 hours in advance of the Second Closing, and the Purchaser shall
deliver to the Company certificates evidencing the shares of Series A
Preferred Stock.
3.5 FORM OF DOCUMENTS AND INSTRUMENTS.
All of the documents and instruments delivered at the Second
Closing shall be in form and substance, and shall be executed and delivered
in a manner, reasonably satisfactory to the respective counsel of the
Purchaser and the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
4.1 ORGANIZATION OF THE COMPANY.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as
17
presently being conducted and as proposed to be conducted. No actions or
Proceedings to dissolve the Company are pending or, to the Knowledge of the
Company, threatened. The copies of the Certificate of Incorporation and
Amended Bylaws heretofore delivered by the Company to the Purchaser are
accurate and complete as of the date hereof. The Company is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or
the conduct of its business requires such qualification or licensing, except
where the failure to do so taken in the aggregate would not have a Material
Adverse Effect on the Company. The Certificate of Incorporation and the
Amended Bylaws of the Company comply in all material respects with Delaware
law.
(b) Each Subsidiary is a corporation or other business entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently being conducted and as proposed to be conducted. Except as set forth
in Schedule 4.1(b), each Subsidiary is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the conduct of its business
requires such qualification or licensing, except where the failure to do so
would not have a Material Adverse Effect on the Company. The terms and
provisions of the organizational documents of each Subsidiary comply in all
material respects with the laws of such Subsidiary's jurisdiction of
incorporation.
4.2 CAPITALIZATION OF THE COMPANY.
(a) The authorized Capital Stock of the Company consists of:
(i) Twenty-Five Million (25,000,000) shares of common stock, par value $0.001
per share (the "Common Stock"), Two Million Seven Hundred Fourteen Thousand
Seven Hundred Twenty Five (2,714,725) shares of which will be issued and
outstanding immediately after the Closing Date; (ii) Three Million Five
Hundred Thousand (3,500,000) shares of preferred stock, of which (A) Two
Million Five Hundred One Thousand Seven Hundred Sixty (2,501,760) shares of
Series A Preferred Stock are issued and outstanding as of the date hereof,
all of which shares are expected to be exchanged at the Second Closing for
shares of Series C Preferred Stock so that no shares of Series A Preferred
Stock are expected to be outstanding immediately after the Second Closing
Date; (B) Twenty Five Thousand (25,000) shares of Series B Preferred Stock
which will be designated and authorized as of the Closing Date, all of which
will be issued and outstanding immediately after the Closing Date; (C) Twenty
Seven Thousand Nine Hundred Fifty Three (27,953) shares of Series C Preferred
Stock which will be designated and authorized as of the Closing Date, Seven
Thousand (7,000) shares of which will be issued and outstanding immediately
after the Closing Date and all of which are expected to be issued and
outstanding immediately after the Second Closing Date; and (D) Six Hundred
Thirty Two Thousand Two Hundred Sixty Six (632,266) shares of Series D
Preferred Stock which will be designated and authorized as of the Closing
Date, no shares of which will be issued and outstanding immediately after the
Closing Date. All outstanding shares of Capital Stock of the Company are
fully paid, non-assessable, free and clear of all Encumbrances and have been
issued in compliance with all state and federal securities laws. Except for
the Series B Preferred Stock, the Series C Preferred
18
Stock and the Series D Preferred Stock, none of such shares is subject to,
nor has been issued in violation of, any preemptive rights.
(b) The Company has not become subject to any commitment or
obligation, either absolute or conditional, matured or unmatured, vested or
not yet vested, to issue, deliver or sell, or cause to be issued, delivered
or sold, under offers, stock option agreements, stock bonus agreements, stock
purchase plans, incentive compensation plans, warrants, options, calls,
conversion rights or otherwise, any shares of the Capital Stock or other
securities of the Company including securities or obligations convertible
into or exchangeable for any shares of Capital Stock, other equity securities
or ownership interests, upon payment of any consideration or otherwise,
except for (i) the commitments and obligations of the Company pursuant to
this Agreement, the Warrant Agreement, the Carlyle Purchase Agreement, the
Carlyle Warrant Agreement, the Series B Certificate of Designation and the
Series C Certificate of Designation; (ii) the issuance, sale or grant of the
options outstanding on the date hereof to Senior Management and directors of
the Company set forth on SCHEDULE 4.2 hereto; (iii) the warrants outstanding
on the date hereof set forth on SCHEDULE 4.2 hereto; (iv) as set forth on
SCHEDULE 4.2 hereto, the number of shares of Capital Stock (all of which are
included in the Two Million Seven Hundred Fourteen Thousand Seven Hundred
Twenty Five (2,714,725) outstanding shares of Common Stock stated in Section
4.2(a)) as to which the Company would be required to issue new stock
certificates if all stock certificates were now surrendered that represented
shares of Capital Stock of American Health Services Corp. or Maxum Health
Corp. (constituent corporations in the mergers contemplated by the Merger
Agreement) that either were outstanding immediately prior to such mergers or
that were issuable pursuant to any commitment or obligation of either of such
constituent corporations, either absolute or conditional, matured or
unmatured, vested or not yet vested, to issue, deliver or sell, or cause to
be issued, delivered or sold, under offers, stock option agreements, stock
bonus agreements, stock purchase plans, incentive compensation plans,
warrants, options, calls, conversion rights or otherwise; and (v) as set
forth on SCHEDULE 4.2, and to the extent not otherwise described in clause
(iv) of this Section 4.2, the number of shares of Capital Stock of the
Company that would be required to be issued if the surviving corporations of
such mergers were to give their written approval (pursuant to Section 262(k)
of the Delaware General Corporation Law), to holders of shares of Capital
Stock of such constituent corporations who exercised their appraisal rights
with respect to such shares, to withdraw such holders' demands for appraisal
and accept such mergers. Except as provided in this Agreement, the Company
is not a party or subject to any agreement or understanding and, to the
Company's Knowledge, there is no agreement or understanding between any
Persons and/or entities, that affects or relates to the voting or giving of
written consents with respect to any of the Company's voting securities.
(c) Upon issuance to the Purchaser of the Twenty-Seven
Thousand, Nine Hundred and Fifty Three (27,953) shares of Series C Preferred
Stock to be issued hereunder, if the Purchaser were to immediately convert
such shares into Common Stock, such shares of Common Stock would represent
Thirty One and Seven Tenths (31.7%) of the Common Stock of the Company on a
fully diluted basis. Such percentage shall equal one hundred (100) times the
following quotient. The numerator of such quotient shall be the number of
shares of Common Stock that the Purchaser would be entitled to receive if the
Purchaser were to convert into
19
Common Stock, immediately following the First Closing and the Second Closing
and pursuant to the terms of the Series C Certificate of Designation, all of
the shares of Series C Preferred Stock the Purchaser is to receive at the
First Closing and the Second Closing pursuant to the terms of this Agreement.
The denominator of such quotient shall equal the sum of (1) such numerator,
plus (2) the number of shares of Common Stock that would need to be issued if
all of the shares of Series B Preferred Stock to be issued pursuant to the
Carlyle Purchase Agreement were converted into Common Stock, pursuant to the
terms of the Series B Certificate of Designation, plus (3) the number of
shares of Common Stock that would need to be issued if the all of the
Warrants and Carlyle Warrants were exercised in full, plus (4) the maximum
number of shares of Common Stock that would need to be issued if all of the
issuances of Capital Stock contemplated in clauses (ii), (iii), (iv) and (v)
of Section 4.2(b) were to occur immediately following the Closing plus (5)
all shares of Common Stock issued and outstanding on the First Closing Date.
The calculation in the immediately preceding sentence shall be made as if all
issuances of Common Stock referred to in clauses (1), (2), (3), (4) and (5)
thereof were made immediately following the First Closing, whether or not the
Company is or could be under any obligation to issue such shares of Common
Stock immediately following the First Closing.
4.3 AUTHORIZATION OF ISSUANCE.
The rights, preferences, privileges and restrictions of the
Series B Preferred Stock are as stated in the Series B Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series C Preferred Stock are as stated in the Series C Certificate of
Designation. The rights, preferences, privileges and restrictions of the
Series D Preferred Stock are as stated in the Series D Certificate of
Designation. Upon consummation of the Transaction, the Securities acquired
by the Purchaser from the Company will be duly authorized and validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series C Certificate of Designation, and the Purchaser
will have good and marketable title to such Securities, free and clear of any
Encumbrances or preemptive rights. Upon consummation of the Transaction, the
Series B Conversion Shares and the Series C Conversion Shares (and the Series
D Conversion Shares, which will not be issued to the extent that Series B
Conversion Shares and Series C Conversion Shares are issued) will be duly
authorized and reserved for issuance and upon conversion in accordance with
the terms of the Series B Preferred Stock and the Series C Preferred Stock
(and the Series D Preferred Stock), respectively, will be validly issued,
fully paid and non-assessable and not subject to any preemptive rights except
as set forth in the Series B Certificate of Designation and the Series C
Certificate of Designation (and the Series D Certificate of Designation),
respectively, and the Purchaser will have good and marketable title to the
Series C Conversion Shares (and the Series D Conversion Shares), free and
clear of any Encumbrances or preemptive rights. Upon consummation of the
Transaction, the Warrant Shares and the Carlyle Warrant Shares will be duly
authorized and reserved for issuance and, upon exercise of the Warrants or
the Carlyle Warrants, as the case may be, and when issued and paid for in
accordance with the terms of the Warrants or the Carlyle Warrants, as the
case may be, will be validly issued, fully paid and non-assessable and not
subject to any preemptive rights, and the Purchaser will have good and
marketable title to the Warrant Shares, free and clear of any Encumbrances or
preemptive rights.
20
4.4 AUTHORIZATION.
The Company has full corporate power and authority to execute
and deliver this Agreement, the Carlyle Purchase Agreement and the Ancillary
Agreements and to consummate the Transaction. The execution and delivery by
the Company of this Agreement, the Carlyle Purchase Agreement and the
Ancillary Agreements and the consummation by it of the Transaction, have been
duly authorized by all necessary corporate action of the Company. This
Agreement, the Carlyle Purchase Agreement and each Ancillary Agreement has
been duly executed and delivered by the Company and each constitutes a valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally, and (ii) general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law). No approval or consent of the
Company's stockholders for this Agreement, the Carlyle Purchase Agreement,
the Ancillary Agreements or the consummation of the Transaction is required.
4.5 NONCONTRAVENTION.
The execution and delivery by the Company of this Agreement,
the Carlyle Purchase Agreement and the Ancillary Agreements and the
consummation by it of the Transaction do not and will not (i) conflict with
or result in a violation of any provision of the Certificate of Incorporation
or the Amended Bylaws, or the charter, bylaws or other governing instruments
of any Subsidiary, (ii) materially conflict with or result in a material
violation of any provision of, constitute (with or without the giving of
notice or the passage of time or both) a material default under or give rise
(with or without the giving of notice or the passage of time or both) to any
loss of material benefit or of any right of termination, cancellation or
acceleration under, any Material Agreement, (iii) result in the creation or
imposition of any material Encumbrance upon the properties of the Company or
any Subsidiary, or (iv) violate in any material respect any Applicable Law
binding upon the Company or any Subsidiary.
4.6 CONSENTS.
No material consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary in connection with
the execution and delivery by the Company of this Agreement, the Carlyle
Purchase Agreement and the Ancillary Agreements or the consummation of the
Transaction, other than (a) compliance with any applicable requirements of
the Securities Act; (b) compliance with any applicable requirements of the
Exchange Act; (c) compliance with any applicable state securities laws and
(d) compliance with applicable provisions of the HSR Act. Except as set
forth on SCHEDULE 4.6, no material consent or approval of any Person is
required to be obtained or made by the Company or any Subsidiary in
connection with the execution and delivery by the Company of this Agreement,
the Carlyle Purchase Agreement and the Ancillary Agreements or the
consummation of the Transaction.
21
In addition, no consent, approval, order, authorization of or
declaration, filing or registration with any Governmental Entity is required
to be obtained or made by the Company or any Subsidiary that could affect the
validity of the issuance of the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Warrants, the Carlyle
Warrants, the Warrant Shares or the Carlyle Warrant Shares, other than (a)
compliance with any applicable requirements of the Securities Act; (b)
compliance with any applicable requirements of the Exchange Act; (c)
compliance with any applicable state securities laws; and (d) compliance with
applicable provisions of the HSR Act. Except as set forth on SCHEDULE 4.6,
no consent or approval of any Person is required to be obtained or made by
the Company or any Subsidiary that could affect the validity of the issuance
of the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Warrants, the Carlyle Warrants, the Warrant Shares or
the Carlyle Warrant Shares.
4.7 SUBSIDIARIES.
(a) Except as otherwise set forth on SCHEDULE 4.7, the Company
does not own, directly or indirectly, more than five percent (5%) of the
Capital Stock or other securities of any Person or have any direct or
indirect equity or ownership interest of more than five percent (5%) in any
other Person, other than its Subsidiaries. SCHEDULE 4.7 lists each
Subsidiary as of the date hereof, its respective jurisdiction of
incorporation and the jurisdictions in which it is qualified to do business,
the number of shares, partnership or other equity interests and the
percentage ownership interest held by the Company in each such Subsidiary.
Except as otherwise indicated on SCHEDULE 4.7, no actions or other
Proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on SCHEDULE 4.7, all the
outstanding Capital Stock or other equity interests of each Subsidiary is
owned directly or indirectly by the Company, free and clear of all
Encumbrances and restrictions on voting, sale or disposition. All
outstanding shares of Capital Stock of each Subsidiary have been validly
issued and are fully paid and non-assessable. No shares of Capital Stock or
other equity interests of any Subsidiary are subject to, nor have any been
issued in violation of, preemptive or similar rights.
(c) Except for shares of common stock owned by the Company or
any Subsidiary and as set forth on SCHEDULE 4.7, there are outstanding (i) no
shares of Capital Stock or other voting securities of any Subsidiary; (ii) no
securities of any Subsidiary convertible into or exchangeable for shares of
Capital Stock or other voting securities of any Subsidiary; (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind to acquire Capital Stock or other voting securities
from any Subsidiary, and no obligation of any Subsidiary to issue or sell,
any shares of Capital Stock or other voting securities of any Subsidiary or
any securities of any Subsidiary convertible into or exchangeable for such
Capital Stock or voting securities; and (iv) no equity equivalents, interests
in the ownership or earnings or other similar rights of or with respect to
any Subsidiary to repurchase, redeem or otherwise acquire any shares of
Capital Stock or any other securities of the type described in clauses
(i)-(iv) above. No Subsidiary holds shares of its Capital Stock in its
treasury.
22
4.8 EMPLOYEE BENEFIT PLANS AND OTHER AGREEMENTS.
(a) SCHEDULE 4.8 contains a complete list of Employee Plans.
True and complete copies of each of the following Employee Plan documents have
been delivered or made available by the Company to the Purchaser: (i) each
Employee Plan document (and, if applicable, related trust agreements and all
annuity contracts or other funding instruments) and all amendments thereto, all
reasonably available written descriptions thereof which have been distributed to
the Company's employees and those of its ERISA Affiliates during the last
thirty-six (36) months and a reasonably detailed description of any Employee
Plan which is not in writing,, (ii) the most recent determination or opinion
letter issued by the Internal Revenue Service with respect to each Pension Plan
and each Welfare Plan (other than a Multiemployer Plan), (iii) for the three (3)
most recent plan years, Annual Reports on Form 5500 Series required to be filed
with any governmental agency for each Pension Plan, (iv) a description setting
forth the amount of any liability of the Company as of the Closing Date for
payments more than thirty (30) calendar days past due with respect to each
Welfare Plan.
(b) EMPLOYEE PLANS.
(i) PENSION PLANS.
(A) No Pension Plan is or has been subject to
Title IV of ERISA or Section 412 of the Code.
(B) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument is qualified
and tax-exempt under the provisions of Code Sections 401(a) (or
403(a), as appropriate) and 501(a) and has been so qualified during
the period from its adoption to date.
(C) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument presently
complies and has been maintained in compliance, in all material
respects, with its terms and, both as to form and in operation, with
the requirements prescribed by any and all Applicable Laws, including
without limitation ERISA and the Code.
(ii) MULTIEMPLOYER PLANS.
(A) Neither the Company nor any ERISA Affiliate
has, at any time within the last seventy-two (72) months, maintained,
contributed to or been obligated to maintain or contribute to, or
withdrawn from, a Multiemployer Plan.
(iii) WELFARE PLANS.
(A) Each Welfare Plan presently complies and has
been maintained in compliance, in all material respects, with its
terms and, both as to form and operation, with the requirements
prescribed by any and all statutes,
23
orders, rules and regulations which are applicable to such Welfare
Plan, including, without limitation, ERISA and the Code.
(B) Except as disclosed on SCHEDULE 4.8, none of
the Company, any ERISA Affiliate or any Welfare Plan has any present
or future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate
pursuant to, any retiree medical benefit plan or other retiree Welfare
Plan, and no condition exists which would prevent the Company from
amending or terminating any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health
plan," as defined in Section 607(1) of ERISA, has been operated in
compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and 4980B of the Code at all times. The Company is not obligated to
provide health care benefits of any kind to its retired or former
employees or their dependents pursuant to any agreement or
understanding.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement
has been maintained in compliance, in all material respects, with its
terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Benefit
Arrangement, including without limitation, the Code, and with all plan
documents. Except as set forth in SCHEDULE 4.8 and except as provided by
law, the employment of all persons presently employed or retained by the
Company is terminable at will.
(v) UNRELATED BUSINESS TAXABLE INCOME. No Employee
Plan (or trust or other funding vehicle pursuant thereto) is subject to
any Tax under Section 511 of the Code.
(vi) DEDUCTIBILITY OF PAYMENTS. Except as disclosed in
SCHEDULE 4.8, there is no contract, agreement, plan or arrangement
covering any present or former employee, director or consultant of the
Company or any of its ERISA Affiliates (with respect to his or her
relationship with such entities) that, individually or collectively,
provides for the payment by the Company of any amount (i) that is not
deductible under Section 162(a)(l) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to Section 280G of the Code.
(vii) FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS.
Neither the Company nor any plan fiduciary of any Welfare Plan or Pension
Plan has engaged in any transaction in violation of Sections 404 or 406
of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Code, for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise
violated the provisions of Part 4 of Title I, Subtitle B of ERISA. The
Company has not participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension
Plan. The Company has not been assessed any civil penalty under Section
502(1) of ERISA.
24
(viii) VALIDITY AND ENFORCEABILITY. Each Welfare Plan
related trust agreement, annuity contract or other funding instrument is
legally valid, binding, enforceable against the Company and in full force
and effect, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). .
(ix) LITIGATION. There is no Proceeding relating to or
seeking benefits under any Employee Plan that is pending, or, to the
Knowledge of the Company, threatened against the Company, any ERISA
Affiliate or any Employee Plan other than routine claims for benefits.
(x) NO AMENDMENTS. Except as disclosed in Schedule
4.8, neither the Company nor any ERISA Affiliate has any announced plan
or legally binding commitment to create any additional Employee Plans
which are intended to cover present or former employees, directors or
consultants of the Company or any of its ERISA Affiliates (with respect
to their relationship with such Persons) or to amend or modify any
existing Employee Plan. Each Employee Plan can be amended or terminated
at any time without approval from any Person, without advance notice and
without any liability other than for benefits accrued prior to such
amendments or termination.
(xi) NO OTHER MATERIAL LIABILITY. To the Knowledge of
the Company, no event has occurred in connection with which the Company
or any ERISA Affiliate or any Employee Plan, directly or indirectly,
could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or
(B) pursuant to any obligation of the Company to indemnify any person
against liability incurred under any such statute, regulation or order as
they relate to the Employee Plans.
(xii) INSURANCE CONTRACTS. Neither the Company nor any
Employee Plan (other than a Multiemployer Plan) holds as an asset of any
Employee Plan any interest in any annuity contract, guaranteed investment
contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(xiii) NO ACCELERATION OR CREATION OF RIGHTS. Except as
disclosed on Schedule 4.8, neither the execution and delivery of this
Agreement by the Company nor the consummation of all or any portion of
the Transaction will result in the acceleration or creation of any rights
of any person to benefits under any Employee Plan (including, without
limitation, the acceleration of the vesting or exercisability of any
stock options, the acceleration of the vesting of any restricted stock,
the acceleration of the accrual or vesting of any benefits under any
Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(c) There are no employment, consulting, change of control,
severance pay, continuation pay, termination pay, loans, guarantees or
indemnification agreements or other
25
similar agreements of any nature whatsoever (collectively, "Employment
Agreements") between the Company, on the one hand, and any current or former
stockholder, officer, director, employee or Affiliate of the Company or any
consultant or agent of the Company, on the other hand, that, as a direct
result of the Transaction, (i) will require any payment by the Company or any
consent or waiver from any stockholder, officer, director, employee or
Affiliate of the Company or any consultant or agent of the Company, or (ii)
will result in any change in the nature of any rights of any stockholder,
officer, director, employee or Affiliate of the Company or any consultant or
agent of the Company under any such Employment Agreement or other similar
agreement (including, without limitation, any accelerated payments, deemed
satisfaction of goals or conditions, new or increased benefits or additional
or accelerated vesting).
4.9 GOVERNMENTAL FILINGS.
(a) Since June 30, 1994, the Company and each of its
Subsidiaries have filed with the Commission all forms, reports, schedules,
statements and other documents required to be filed by them under the
Securities Act, the Exchange Act and all other federal securities laws and
the rules and regulations promulgated thereunder (the "SEC Filings"). Each
SEC Filing was prepared in accordance with, and at the time of filing
complied in all material respects with, the requirements of the Securities
Act, the Exchange Act or other applicable federal securities law and the
rules and regulations promulgated thereunder, as the case may be, except as
the same was corrected or superseded in an amendment to such SEC Filing filed
with the Commission. None of the SEC Filings, including, without limitation,
any financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading, except as the same was corrected or superseded in
a subsequent document duly filed with the Commission. The Company has
heretofore furnished or made available to the Purchaser true, correct and
complete copies of all SEC Filings since June 30, 1996.
(b) Since June 30, 1992, all material reports, documents and
notices required to be filed, maintained or furnished to any Governmental
Entity (other than the Commission) by the Company or any Subsidiary have been
so filed, maintained or furnished. All such reports, documents and notices
were complete and correct in all material respects on the date filed (or were
corrected in or superseded by a subsequent filing) such that no Liabilities
exist with respect to such filing.
4.10 FINANCIAL STATEMENTS AND REPORTS.
(a) The financial statements contained in the SEC Filings
(collectively, the "Financial Statements") have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and with
each other (except that the Financial Statements may not contain all footnotes
required by GAAP) and fairly present the consolidated financial condition of the
Company and the Subsidiaries and the consolidated results of operations as of
such dates and for such periods indicated. Since April 30, 1997, there has not
been any change to the financial condition of the Company or any Subsidiary as
set forth in the Financial
26
Statements that would have a Material Adverse Effect on the Company. Except
as reflected in the Financial Statements, neither the Company nor any
Subsidiary is a guarantor or indemnitor of any Indebtedness of any other
Person. The Company maintains a standard system of accounting established
and administered in accordance with GAAP. The general ledger, accounts
receivable, accounts payable, bank reconciliations and payroll records of the
Company have been maintained in all material respects in the ordinary course
and contain a materially correct and complete record of the matters typically
contained in records of such nature.
(b) The Company has not received any management letters or
other letters (other than audit letters included in the SEC Filings) from the
Company's independent auditing firm(s) relating to the results of operations,
financial statements or internal controls of the Company or any Subsidiary
insofar as the same may pertain to the business or assets of the Company and
any Subsidiary during any period from and after June 30, 1994.
4.11 ABSENCE OF UNDISCLOSED LIABILITIES: GUARANTEES.
(a) Except as set forth in the Financial Statements or as set
forth on SCHEDULE 4.11: (i) as of April 30, 1997, neither the Company nor
any Subsidiary had any Liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise) which are reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company,
and (ii) since April 30, 1997, the Company and its Subsidiaries, taken as a
whole, have not incurred any such Liabilities or obligations that have had a
Material Adverse Effect on the Company.
(b) Except as set forth on SCHEDULE 4.11, neither the Company
nor any Subsidiary is a party to (i) any Material Agreement relating to the
making of any advance to, or investment in, any Person, or (ii) any Material
Agreement providing for a guarantee or other contingent liability with
respect to any Indebtedness or similar obligation of any Person.
4.12 ABSENCE OF CERTAIN CHANGES.
Since April 30, 1997, except as reflected in the Financial
Statements or the SEC Filings, neither the Company nor any Subsidiary has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its Capital Stock; (ii) made Capital
Expenditures or commitments therefor, other than such Capital Expenditures or
commitments made in the ordinary course consistent with past practice;
(iii) made any loans or advances to any Person exceeding $5,000 individually or
$25,000 in the aggregate (other than advances for business or travel expenses)
or guaranteed the obligations of any Person; (iv) sold, exchanged or otherwise
disposed of any of its assets or rights exceeding $5,000 individually or $25,000
in the aggregate, other than the sale, exchange or other disposition of its
equipment and services in the ordinary course of business consistent with past
practice; (v) incurred any material change in the assets, Liabilities, financial
condition, operating results or Business of the Company from that reflected in
the Financial Statements, except changes that have not, in the aggregate, had a
Material Adverse Effect on the Company; (vi) suffered any damage, destruction or
loss, whether or not covered by insurance, that had or would have a Material
Adverse Effect on the Company; (vii) waived a right or a debt owed to it
27
exceeding $1,000 individually or $5,000 in the aggregate, except in the
ordinary course of business consistent with past practice; (viii) satisfied
or discharged any Encumbrance or payment of any obligation, except in the
ordinary course of business consistent with past practice and that has not
had and is not reasonably expected to have a Material Adverse Effect on the
Company; (ix) agreed to or made any material change or amendment to any
Material Agreement, except in the ordinary course of business consistent with
past practice; (x) except as set forth in SCHEDULE 4.12(X), made any material
change in any compensation arrangement or agreement with any employee that
would increase such employees' compensation by more than ten percent (10%);
(xi) permitted or allowed any of its assets to be subjected to any material
Encumbrance, other than Encumbrances on equipment in the ordinary course of
business consistent with past practice; (xii) written up the value of any
inventory, notes or accounts receivable or other assets in any material
respect; (xiii) licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any right to the use of any Proprietary
Rights; (xiv) made any change in any method of accounting or accounting
practice or any change in depreciation or amortization policies or rates
previously adopted; (xv) paid, lent or advanced any amount to, sold,
transferred or leased any assets to or entered into any material agreement or
material arrangement with any of its Subsidiaries or GE (except for the GE
Purchase Agreement, the GE Registration Rights Agreement, the GE Warrant
Agreement and related documents) or entered into any agreement or arrangement
whatsoever with any of its Affiliates other than its Subsidiaries and GE,
except for directors' fees, travel expense advances and employment
compensation to officers; or (xvi) incurred or suffered any other event or
condition of any character that could reasonably be expected to have a
Material Adverse Effect on the Company.
4.13 COMPLIANCE WITH LAWS.
(a) The Company and its Subsidiaries are in compliance in all
material respects with all material Applicable Laws. Material Applicable
Laws includes, without limitation, all Applicable Laws relating to health
care, the health care industry and the provision of health care services,
third party reimbursement (including Medicare and Medicaid), public health
and safety and wrongful death and medical malpractice. Neither the Company
nor any of its Subsidiaries has received any notice of, nor does the Company
or any of its Subsidiaries have any Knowledge of, any violation (or of any
investigation, inspection, audit or other proceeding by any Governmental
Entity involving allegations of any violation) of any Applicable Law
involving or related to the Company or any of its Subsidiaries which has not
been dismissed or otherwise disposed of. Except as set forth in SCHEDULE
4.13(A), neither the Company nor any of its Subsidiaries has received notice
or otherwise has any Knowledge that the Company or any Subsidiary is charged
with, threatened with or under investigation with respect to, any violation
of any Applicable Law, or has any Knowledge of any proposed change in any
Applicable Law that would have a Material Adverse Effect on the Transaction
or the Company.
(b) Each of the Company and its Subsidiaries has, and all
professional employees or agents of each of the Company and its Subsidiaries who
are performing health care or health care related functions on behalf of the
Company or any of its Subsidiaries or joint ventures have, all material
licenses, franchises, permits, accreditations, provider numbers, authorizations,
including certificates of need, consents or orders of, or filings with, or other
28
approvals from all Governmental Entities ("Approvals") necessary for the
conduct of, or relating to the operation of, the business of each of the
Company and its Subsidiaries and the occupancy and operation, for its present
uses, of the real and personal property which each of the Company and its
Subsidiaries owns or leases, and neither the Company nor any Subsidiary or
the professional employees or agents of either (acting in such capacities) is
in violation of any such Approval in any material respect or any terms or
conditions thereof. All such Approvals are in full force and effect, have
been issued to and fully paid for by the holder thereof and no notice or
warning from any Governmental Entity with respect to the suspension,
revocation or termination of any Approval has been, to the Knowledge of the
Company, threatened by any Governmental Entity or issued or given to the
Company or any Subsidiary. No such Approvals will in any way be affected by,
terminate or lapse by reason of the consummation of all or any portion of the
Transaction. There are no physicians (other than radiologists and radiation
oncologists) owning Capital Stock in any Subsidiary, and no physicians own
stock in the Company, except for physician ownership of publicly traded stock
of the Company acquired on terms equally available to the public through
trading on the Nasdaq Stock Market, and no physician owns 5% or more of the
outstanding shares of any class of securities issued by the Company.
4.14 LITIGATION.
Except as set forth on SCHEDULE 4.14 hereto, there is no
Proceeding (by any Governmental Entity or otherwise) of which the Company has
received notice or of which the Company has Knowledge pending against or
affecting the Company, any Subsidiary or the assets, products or business of
any of them or, to the Knowledge of the Company, any basis therefor or threat
thereof. Except as set forth on SCHEDULE 4.14 hereto, neither the Company
nor any Subsidiary is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or other Governmental
Entity. Except as set forth on SCHEDULE 4.14 hereto, there is no Proceeding
by the Company or any Subsidiary currently pending or that the Company or any
Subsidiary currently intends to initiate. There are no Proceedings pending
or, to the Knowledge of the Company, threatened against the Company, any
Subsidiary or any of their respective businesses, assets or products that
seek to enjoin, question the validity of or rescind the Transaction, the
Carlyle Purchase Agreement, the Ancillary Agreements or otherwise prevent the
Company from complying with the terms and provisions of this Agreement, the
Carlyle Purchase Agreement, the Ancillary Agreements or any of such other
agreements. Any and all Liabilities of the Company and its Subsidiaries
under such Proceedings that are probable and subject to reasonable estimation
within the meaning of GAAP are adequately covered (except for standard
deductible amounts) by the existing insurance maintained by the Company or
estimates in accordance with GAAP for the uninsured costs thereof are
reflected in the Financial Statements. No holder of shares of the Capital
Stock of American Health Services Corp. or Maxum Health Corp. (constituent
corporations in the mergers contemplated by the Merger Agreement) that either
were outstanding immediately prior to such mergers made a demand for the
appraisal of such holder's shares pursuant to Section 262 of the Delaware
General Corporation Law.
29
4.15 TRUE AND COMPLETE DISCLOSURE.
Taken as a whole, this Agreement, the Carlyle Purchase Agreement,
the Ancillary Agreements, the Exhibits, Schedules, statements and certifications
made or delivered in connection herewith or therewith, do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading. All financial projections
reflected in the 1998 budget provided by the Company to the Purchaser were
prepared in good faith on the basis of assumptions believed to be reasonable at
the time such projections were prepared.
4.16 TAXES.
(a) All Company Tax Returns have been properly and timely filed
and all such Tax Returns are correct and complete in all material respects.
Each affiliated group with which any of the Company and its Subsidiaries files a
consolidated or combined Tax Return has filed all such Tax Returns that it was
required to file for each taxable period during which any of the Company and its
Subsidiaries was a member of the group. All such consolidated and combined Tax
Returns were correct and complete in all material respects.
(b) All material Taxes due and payable by the Company and/or its
Subsidiaries (whether or not shown on any Tax Return) have been timely paid in
full. All material Taxes owed by any affiliated group with which any of the
Company and its Subsidiaries files a consolidated or combined Tax Return
(whether or not shown on any Tax Return) have been paid for each taxable period
during which any of the Company and the Subsidiaries was a member of the group.
(c) There is no (nor is there any pending request for an)
agreement, waiver or consent providing for an extension of time with respect to
the assessment or collection of, or statute of limitations regarding, any Taxes
or the filing of any Tax Returns that is currently in effect and no power of
attorney granted by or with respect to the Company or any Subsidiary with
respect to any Tax matter is currently in force.
(d) To the Knowledge of the Company, there is no pending audit,
examination or investigation with respect to any Company Tax Returns, nor to
the Knowledge of the Company, is there pending any notice of the initiation
thereof; there is no Proceeding, claim, demand, deficiency or additional
assessment pending or threatened with respect to any Company Tax Returns.
(e) To the Knowledge of the Company and its Subsidiaries, the
Company and its Subsidiaries have withheld all Taxes required to have been
withheld and paid by them on their behalf in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
related or unrelated third party, and such withheld Taxes have either been duly
paid to the proper Governmental Entity or set aside in accounts for such
purpose.
30
(f) None of the Company and its Subsidiaries (i) has been a
member of any affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which is the Company) or (ii) has any
liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(g) The charges, accruals and reserves for Taxes (including
deferred Taxes) currently reflected on the Financial Statements in accordance
with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Company and its Subsidiaries in respect of taxable periods that end on or
before the Closing Date and for any taxable periods that begin before the
Closing Date and end thereafter to the extent such Taxes are attributable to
the portion of such period ending on the Closing Date.
(h) Neither the Company nor any Subsidiary has agreed,
requested or been requested to make, or is required to make, any adjustment
to taxable income for any taxable period after the Closing under Sections
481(a) or 263A of the Code or any comparable provision of state or foreign
tax laws by reasons of a change in accounting method or otherwise.
(i) There are no Encumbrances (other than Permitted
Encumbrances) on any asset or property of the Company or any Subsidiary
arising out of, connected with or related to any Tax imposed on the Company,
its Subsidiaries or any of their businesses or properties.
(j) The Company is not a party to, is not bound by and has no
obligation (or potential obligation) under any Tax sharing or allocation
agreement.
(k) Neither the Company nor any Subsidiary is a party to any
agreement with an Affiliate relating to a foreign sales corporation (or
"FSC") within the meaning of Section 922 of the Code; or a domestic
international sales corporation (or "DISC") within the meaning of Section 992
of the Code.
(l) Other than the elections made in the Tax Returns provided
to or made available to the Purchaser, no agreement, consent or election for
foreign, federal, state or local tax purposes that would affect or be binding
on the Company or any Subsidiary after the Closing has been filed or entered
into by the Company or any Subsidiary. No consent has been filed with
respect to the Company or any Subsidiary under Section 341(f) of the Code.
(m) SCHEDULE 4.16 lists all federal, state, local and foreign
Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit, other than (i) Tax Returns relating to
closed years, and (ii) Tax Returns that have been audited where such audit
did not result in any change in any tax due from the Company or any
Subsidiary to any Governmental Entity. Correct and complete copies of all
federal Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company or any of its Subsidiaries since
June 30, 1996 have been delivered or made available to the Purchaser. Each
of the Company and its Subsidiaries has disclosed on its federal income Tax
Returns all positions taken therein that could reasonably be expected to give
rise to a substantial understatement of federal income Tax within the meaning
of Section 6662 of the Code.
31
4.17 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 4.17, the term "Company"
shall include (i) the Company, (ii) any Affiliates of the Company other than
the Purchaser, (iii) the Business, (iv) all partnerships, joint ventures and
other entities or organizations in which the Company or the Business was at
any time or is a partner, joint venturer, member or participant, and (v) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence as of the
date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by the Company or the
Business or to which the Company or the Business has succeeded.
(b) The Company and its Subsidiaries: (i) are, and within the
period of all applicable statutes of limitation have been, in compliance in
all material respects with all applicable Environmental Laws PROVIDED, that
the representation and warranty contained in this clause (i) is limited to
the Knowledge of the Company to the extent (but only to the extent) that it
directly applies to real property that the Company has purchased or has
leased from another Person in a transaction other than the acquisition of
such Person (whether by merger or consolidation, stock purchase or exchange,
acquisition of all or substantially all of the assets of such Person or a
similar fundamental transaction); (ii) hold all Environmental Permits (each
of which is in full force and effect) required for any of their current or
intended operations or for any property owned, leased or otherwise operated
by any of them; (iii) are, and within the period of all applicable statutes
of limitation have been, in compliance with all of their Environmental
Permits; and (iv) reasonably believe that each of their Environmental Permits
currently in effect will be renewed effective prior to the expiration of such
Environmental Permit.
(c) Except as set forth on SCHEDULE 4.17, the Company and its
Subsidiaries have not received any notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, any
Environmental Condition. The Company has not received any notice of any
other claim, demand or action by any individual or entity alleging any actual
or threatened injury or damage to any person, property, natural resource or
the environment arising from or relating to any Release or threatened Release
of any Hazardous Materials at, on, under, in, to or from any Facility or any
former Facilities, or in connection with any operations or activities of the
Company or any of its Subsidiaries.
(d) Except as disclosed in SCHEDULE 4.17 or with respect to
such matters as have been fully and finally resolved and as to which there
are to the Knowledge of the Company, no remaining obligations, neither the
Company nor any of its Subsidiaries has entered into or agreed to or is
subject to any consent decree, order or settlement or other agreement in any
judicial, administrative, arbitral or other similar forum relating to
compliance with or Liability under any Environmental Law.
(e) Except as disclosed in SCHEDULE 4.17, Hazardous Materials
have not been transported, disposed of, emitted, discharged or otherwise
Released or threatened to be Released to or at any real property presently or
formerly owned or leased by the Company or any of its Subsidiaries, which
Hazardous Materials are reasonably expected to (i) give rise to Liability of
32
the Company or any Subsidiary under any applicable Environmental Law, (ii)
interfere with the Company's or any Subsidiary's continued operations or
(iii) materially impair the fair salable value of any real property owned or
leased by the Company or any Subsidiary.
(f) Except as disclosed in SCHEDULE 4.17, neither the Company
nor any of its Subsidiaries has assumed or retained, by contract or, to the
Knowledge of the Company, by operation of law in connection with the sale or
transfer of any assets or business, Liabilities arising from or associated
with or otherwise in connection with such assets or business of any kind,
fixed or contingent, known or not known, under any applicable Environmental
Law. Neither the Company nor any of its Subsidiaries, to the Knowledge of
the Company, is required to make any capital or other expenditures to comply
with any Environmental Law nor to the Knowledge of the Company is there any
reasonable basis on which any Governmental Entity could take any action that
would require any such capital expenditures.
(g) True, complete and correct copies of the written reports,
and all parts thereof, of all environmental audits or assessments which have
been conducted in respect of any Facility or any former Facility within the
past five (5) years, either by the Company or any attorney, environmental
consultant or engineer or other Person engaged by the Company or any of its
Subsidiaries for such purpose, have been delivered to the Purchaser and a
list of all such reports, audits and assessments and any other similar
report, audit or assessment of which the Company has Knowledge is included on
SCHEDULE 4.17.
4.18 INSURANCE.
Each insurance policy held by or for the benefit of the Company
or any of its Subsidiaries is in full force and effect. Each of the Company
and its Subsidiaries carries, and will continue to carry, insurance with
reputable insurers (except as to self-insurance) with respect to such of
their respective properties and businesses, in such amounts and against such
risks as is customarily maintained by other entities of similar size engaged
in similar businesses (which may include self-insurance in amounts
customarily maintained by companies similarly situated or has been maintained
in the past by the Company and its Subsidiaries). None of such insurance was
obtained through the use of materially false or misleading information or the
failure to provide the insurer with all material information requested in
order to evaluate the liabilities and risks insured. Neither the Company nor
any of its Subsidiaries has received any notice of cancellation or
non-renewal of any insurance policies or binders.
4.19 REAL PROPERTY AND LEASEHOLDS.
(a) To the Knowledge of the Company, each lease agreement and
mortgage to which the Company or any Subsidiary is a party is in full force
and effect in accordance with its terms.
(b) With respect to each parcel of real property owned or
leased by the Company or any of its Subsidiaries:
33
(i) The Company or the relevant Subsidiary, as the
case may be, has good and valid title to and/or a valid and subsisting
leasehold interest in each item of real property and leasehold, as
appropriate, free and clear of all mortgages, liens, Encumbrances (except
Permitted Encumbrances), leases, equities, claims, charges, easements,
rights-of-way, covenants, conditions and restrictions, except for liens,
if any, for property taxes not due;
(ii) No officer, director or employee of the Company,
of any Subsidiary or of any Affiliate of the Company, nor any Subsidiary
or Affiliate of the Company, owns directly or indirectly in whole or in
part, any of such real properties or leaseholds;
(iii) Neither the Company nor any Subsidiary is in
default with respect to any material term or condition of any such
mortgage or lease, nor has any event occurred which, through the passage
of time or the giving of notice or both, would constitute a default
thereunder by the Company or any Subsidiary or would cause the
acceleration of any obligation of the Company or any Subsidiary or the
creation of a lien or encumbrance upon any asset of the Company or any
Subsidiary;
(iv) All of the buildings, fixtures and other
improvements described in SCHEDULE 4.19 are in reasonably good operating
condition, have been maintained in accordance with reasonable industry
practices and are adequate to conduct the business of the Company and its
Subsidiaries, as the case may be, as presently conducted; and
(v) Neither the Company nor any Subsidiary has
received any notice or otherwise has Knowledge that the Company or any
such Subsidiary, as the case may be, is in violation of any applicable
building code, zoning ordinance or other law or regulation.
4.20 TANGIBLE ASSETS.
(a) The Company and its Subsidiaries have good and valid title
to or valid and subsisting leasehold interests in all Fixtures and Equipment
having original cost or fair market value in excess of Five Thousand Dollars
($5,000), including all such Fixtures and Equipment reflected in the Company's
most recent balance sheet included in the Financial Statements and all such
Fixtures and Equipment purchased or otherwise acquired by the Company or any
Subsidiary since the date of such Balance Sheet. Except as set forth on
SCHEDULE 4.20, none of such Fixtures and Equipment is subject to any Encumbrance
except for Permitted Encumbrances and Encumbrances which, individually or in the
aggregate, are not substantial in amount and do not materially detract from the
value of the property or assets of the Company and its Subsidiaries taken as a
whole or interfere with the present use of such property or assets (taken as a
whole). The Company and each Subsidiary has in all material respects performed
all the obligations required to be performed by it with respect to all such
Fixtures and Equipment leased by it through the date hereof, except where the
failure to perform would not have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole. All such leases are valid, binding and
enforceable with respect to the Company and its Subsidiaries in accordance with
34
their terms and are in full force and effect. No default has occurred
thereunder on the part of the Company, any Subsidiary or, to the Knowledge of
the Company, any other party which default would be reasonably likely to have
a Material Adverse Effect on the Company.
(b) The buildings and Fixtures and Equipment of the Company
and its Subsidiaries are in reasonably good operating condition and repair
(except for ordinary wear and tear), with no material defects, are sufficient
for the operation of the business of the Company and its Subsidiaries as
presently conducted and are in conformity, in all material respects, with all
Applicable Laws relating thereto currently in effect, except where the
failure to conform would not have a Material Adverse Effect on the Company.
4.21 CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 4.21 contains a correct and complete list of all
agreements, contracts, Indebtedness, Liabilities and other obligations to
which the Company or any Subsidiary is a party or by which it is bound that
are material to the conduct and operations of its business and properties,
which provide for payments to or by the Company or any Subsidiary in excess
of Five Hundred Thousand Dollars ($500,000) annually, which obligate the
Company or any Subsidiary to share, license or develop any product or
technology or which involve transactions or proposed transactions between the
Company and any Subsidiary, on the one hand, and any officer, director or
Affiliate or Subsidiary, on the other hand (collectively, the "Material
Agreements").
(b) The Company and its Subsidiaries have in all material
respects performed, and are now performing in all material respects, the
obligations under, and are not in default (or by the lapse of time and/or the
giving of notice or otherwise be in default) in respect of, any of the
Material Agreements. Each of the Material Agreements is in full force and
effect and is a valid and enforceable obligation against the Company or a
Subsidiary, as applicable, and, to the Company's Knowledge, the other party
or parties thereto, in accordance with its terms.
(c) "Current Customer" means any Person from whom the Company
or any Subsidiary has recognized revenue since June 1, 1997 or to whom the
Company or any Subsidiary has any obligation to complete work or honor any
contractual warranty or has any obligation or Liabilities. Since June 1,
1997, no Current Customer with respect to a Center Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract, and
no Current Customer with respect to a Mobile Operation has canceled or
terminated any Material Agreement or notified the Company or any Subsidiary
in writing or orally of its intent to cancel or terminate its contract,
except any such cancellations, terminations or notifications from Current
Customers with respect to Mobile Operations that in the aggregate could not
have a Material Adverse Effect (taking into account revenue generated from
replacement customers) on the Company.
4.22 BOOKS AND RECORDS.
The Company has made and kept (and given the Purchaser access to)
books and records and accounts, which, in reasonable detail, accurately and
fairly reflect the activities of the
35
Company and its Subsidiaries, taken as a whole. The minute books of the
Company and each such Subsidiary previously made available to the Purchaser
accurately and adequately reflect all action previously taken by the
stockholders, the Board of Directors and committees of the Board of Directors
and each of its Subsidiaries.
4.23 LABOR MATTERS.
(a) Since June 30, 1992, neither the Company nor any
Subsidiary has or has ever had any employees represented by collective
bargaining agreements. The Company and its Subsidiaries are in compliance in
all material respects with all material Applicable Laws respecting employment
practices, terms and conditions of employment and wages and hours and are not
engaged in any unfair labor practice. There is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Labor Relations Board or any other governmental agency arising out
of the activities of the Company or any of its Subsidiaries of which the
Company has received notice or of which the Company has Knowledge, and the
Company has no Knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries. There is no grievance currently being asserted and neither the
Company nor any Subsidiary has experienced since June 30, 1994 a work
stoppage or other labor difficulty which grievance, work stoppage or other
labor difficulty is reasonably likely to have a Material Adverse Effect on
the Company. No collective bargaining representation petition is pending or,
to the Knowledge of the Company, threatened against the Company or any
Subsidiary.
(b) SCHEDULE 4.23 lists those employees of the Company that
prior to the Closing Date had written employment agreements with the Company
in effect.
4.24 PAYMENTS.
Neither the Company nor any of its Subsidiaries has, directly
or indirectly, paid or delivered any fee, commission or other sum of money or
item of property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which is
in any manner related to the business or operations of the Company or its
Subsidiaries and which the Company or any of its Subsidiaries knows or has
reason to believe to have been illegal under any federal, state or local laws
of the United States (including, without limitation the U.S. Foreign Corrupt
Practices Act) or any other country having jurisdiction. Neither the Company
nor any of its Subsidiaries has participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers
4.25 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries either own or have valid
licenses or other rights to use all patents, copyrights, trademarks, service
marks, software, databases, data and other technical information used in their
businesses as presently conducted ("Proprietary Rights"), subject to the
limitations contained in the agreements governing the use of the same. SCHEDULE
4.25 sets forth all such Proprietary Rights owned by, used by or licensed to the
36
Company or any Subsidiary. There are no limitations contained in such
agreements of the type described in the immediately preceding sentence which,
upon consummation of all or any portion of the Transaction, will materially
alter or materially impair any such rights, breach any such material
agreement with any third party vendor or require payments of additional sums
thereunder. The Company and its Subsidiaries are in compliance in all
material respects with such licenses and agreements. Except as set forth on
SCHEDULE 4.25, there are no pending or, to the Knowledge of the Company,
threatened Proceedings challenging or questioning the validity or
effectiveness of any license or agreement relating to such property or the
right of the Company or any Subsidiary to use, copy, modify or distribute the
same.
(b) No person has a right, other than those set forth on
SCHEDULE 4.25, to receive a royalty or similar payment in respect of any
material Proprietary Rights whether or not pursuant to any contractual
arrangements entered into by the Company or its Subsidiaries.
4.26 SECURITIES OFFERINGS.
(a) Except as set forth on SCHEDULE 4.26, since the
consummation of the merger pursuant to the Merger Agreement, the Company has
not sold any securities other than securities registered pursuant to the
Securities Act.
(b) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the
Company has, directly or through any agent (provided that no representation
is made as to the Purchaser or any person acting on their behalf), (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in respect
of any security (as defined in the Securities Act) that is or will be
integrated with the offering and sale of the Securities in a manner that
would require the registration of the Securities under the Securities Act or
(ii) engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offering of the
Securities.
(c) Except as provided in Schedule 4.26(c) neither the Company
nor any Subsidiary is a party to any agreement or commitment that obligates
the Company to register under the Securities Act any of its presently
outstanding securities or any of its securities that hereafter may be issued,
except as contemplated hereby and by the Registration Rights Agreement.
4.27 NO OTHER AGREEMENTS TO SELL THE ASSETS OR THE COMPANY.
Except as contemplated by this Agreement, none of the Company
or any of its Subsidiaries have any legal obligation, absolute or contingent,
to any other person or firm to sell the Capital Stock, material assets or the
business of the Company or any Subsidiary or to effect any merger,
consolidation, liquidation, dissolution, recapitalization or other
reorganization of the Company or any Subsidiary or to enter into any
agreement with respect thereto.
37
4.28 NO BROKERS.
Except for Shattuck Hammond Partners Inc., the aggregate fees of
which are Five Hundred Thousand Dollars ($500,000) in connection with the
Transaction, all of which shall be paid by the Company, neither the Company nor
any Subsidiary has employed, nor is any of them subject to the known claim of,
any broker, finder, consultant or other intermediary in connection with all or
any portion of the Transaction (or the negotiations looking toward the
consummation of all or any portion of the Transaction) who might be entitled to
a fee or commission from the Company in connection with all or any portion of
the Transaction (or the negotiations looking toward the consummation of all or
any portion of the Transaction).
4.29 ACCOUNTS AND NOTES RECEIVABLE.
None of the accounts, notes and other receivables owed to the
Company or any Subsidiary as of the date hereof is pledged to any third party.
The reserve for doubtful accounts shown on the Company's most recent balance
sheet included in the Financial Statements is in accordance with GAAP.
4.30 INDEBTEDNESS.
SCHEDULE 4.30 sets forth a true and complete list of all
Indebtedness of the Company or any Subsidiary for borrowed money as of
September 30, 1997.
4.31 TRANSACTIONS WITH AFFILIATES.
Except as set forth in SCHEDULE 4.31 and except for regular
salary payments and fringe benefits under an individual's compensation
package with the Company or any Subsidiary, none of the officers, employees,
directors or other Affiliates of the Company or any Subsidiary or members of
their families is a party to any agreement, understanding, Indebtedness or
proposed transaction with the Company or any Subsidiary or is directly
interested in any Material Agreement with the Company or any Subsidiary.
Neither the Company nor any Subsidiary has guaranteed or assumed any
obligations of their respective officers, directors, employees or other
Affiliates or members of any of their families. To the Company's Knowledge,
none of such Persons has any direct or indirect ownership interest in any
Affiliate or Subsidiary, with any Person with which the Company or any
Subsidiary has a business relationship or with any Person that competes with
the Company or any Subsidiary, other than an interest of less than five
percent (5%) ownership in any publicly traded company that may compete with
the Company or any Subsidiary. For purposes of this Section 4.31, the term
"Affiliates" shall not include the Purchaser.
4.32 NO RESEARCH GRANTS
Neither the Company nor any of its Subsidiaries since inception
has provided any research, educational or study grants of any kind to any
hospital, physician or health care provider.
38
4.33 CERTAIN REGULATORY MATTERS.
Neither the Company nor any of its Subsidiaries since inception
has received notice that the Company or any Subsidiary has been, or to the
Company's Knowledge has been, the subject of any investigative proceeding
before any federal or state regulatory authority or the agent of any such
authority, including, without limitation, federal and state health
authorities.
4.34 CERTAIN ADDITIONAL REGULATORY MATTERS.
Neither the Company nor any Subsidiary, nor the officers,
directors or managing employees, as that term is defined in 42 C.F.R. Section
1001.1001(a)(1), nor to the Knowledge of the Company or any Subsidiary, the
other employees or agents of any of the Company or any Subsidiary have
engaged in any activities which are prohibited under criminal law, or are
cause for civil penalties or mandatory or permissive exclusion from Medicare
or Medicaid, or any other State Health Care Program or Federal Health Care
Program (as defined in Section 4.35 below) under Sections 1320a-7, 1320a-7a,
1320a-7b or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute
("CHAMPUS"), or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which are prohibited by any
private accrediting organization from which the Company or any of its
Subsidiaries seeks accreditation or by generally recognized professional
standards of care or conduct, including, but not limited to, the following
activities:
(a) Knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for
any benefit or payment;
(b) Knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) Presenting or causing to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or any other State Health
Care Program or Federal Health Care Program that is (i) for an item or
service that the Person presenting or causing to be presented knows or should
know was not provided as claimed, or (ii) for an item or service that the
Person presenting knows or should know that the claim is false or fraudulent;
(d) Knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind (i) in return
for referring, or to induce the referral of, an individual to a Person for
the furnishing or arranging for the furnishing of any item or service for
which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health Care
Program, or (ii) in return for, or to induce the purchase, lease or order or
the arranging for or recommending of the purchase, lease or order of, any
good, facility, service or item for which payment may be made in whole or in
party by CHAMPUS, Medicare or Medicaid or any other State Health Care Program
or any Federal Health Care Program; or
39
(e) Knowingly and willfully making or causing to be made or
inducing or seeking to induce the making of any false statement or
representation (or omitting to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading)
or a material fact with respect to (i) the conditions or operations of a
facility in order that the facility may qualify for CHAMPUS, Medicare,
Medicaid or any other State Health Care Program certification or any Federal
Health Care Program certification, or (ii) information required to be
provided under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C.
Section 1320a-3).
4.35 MEDICARE/MEDICAID PARTICIPATION.
Neither (a) the Company nor any other Person who after the
Closing will have a direct or indirect ownership interest of 5% or more (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company
or any Subsidiary, or who will have an ownership or control interest (as
defined in SSA Section 1124(a)(3) or any regulations promulgated thereunder)
in the Company or any Subsidiary, or who will be an officer, director or
managing employee (as defined in 42 C.F.R. Section 1001.1001(a)(1)) of the
Company or any Subsidiary, or, to the Knowledge of the Company and any
Subsidiary, any other employee or agent thereof, nor (b) any Person with any
relationship with such entity (including, without limitation, a parent
company of or partner in a Subsidiary) who after the Closing will have an
indirect ownership interest of 5% or more (as that term is defined in 42
C.F.R. Section 1001.1001(a)(2)) in the Company or any Subsidiary: (i) has
had a civil monetary penalty assessed against it under Section 1128A of the
SSA or any regulations promulgated thereunder; (ii) has been excluded from
participation under Medicare, Medicaid or a state health care program as
defined in SSA Section 1128(h) or any regulations promulgated thereunder
("State Health Care Program") or a federal health care program as defined in
SSA Section 1128B(f) ("Federal Health Care Program"); or (iii) has been
convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the
following categories of offenses as described in SSA Section 1128(a) and
(b)(1), (2), (3) or any regulations promulgated thereunder:
(A) Criminal offenses relating to the delivery of an
item or service under Medicare, Medicaid or any other State Health Care
Program or Federal Health Care Program;
(B) Criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
health care item or service;
(C) Criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility
or other financial misconduct in connection with the delivery of a health
care item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or local
governmental agency;
(D) Federal or state laws relating to the interference
with or obstruction of any investigation into any criminal offense
described in (A) through (C) above; or
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(E) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
4.36 COMPLIANCE WITH MEDICARE/MEDICAID AND INSURANCE PROGRAMS
(a) The Company and its subsidiaries are eligible to receive
payments with respect to operations of their respective business under Title
XVIII of the SSA and under Title XIX of the SSA. The Company and its
Subsidiaries have timely filed (except where the failure to timely file would
not reasonably be expected to have a Material Adverse Effect on the Company) all
claims and reports required to be filed with respect to the operations of their
respective businesses in connection with all state Medicaid and federal Medicare
programs, which claims and reports are complete and correct. The failure to
timely file a medical claim or report resulting only in a late payment will not
for these purposes be deemed adverse to the Company or its Subsidiaries. There
are no actions, appeals or investigations pending or, to the best of the
Company's and its Subsidiaries' Knowledge, threatened before any entity,
commission, board or agency, including an intermediary or carrier or the
administrator of the Health Care Financing Administration, with respect to any
Medicare or Medicaid claims or reports filed by the Company or its Subsidiaries
with respect to the operations of their respective businesses on or before the
date hereof or program compliance matters, which would reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Other than regularly scheduled audits and reviews, no
validation review, peer review or program integrity review related to the
operations of the Company or its Subsidiaries' respective businesses has been
conducted by any entity, commission, board or agency in connection with the
Medicare or Medicaid program, and to the best of the Company's and its
Subsidiaries' Knowledge, no such reviews are scheduled, pending or threatened
against or affecting such businesses.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company, with
respect to itself only, as follows:
5.1 ORGANIZATION OF THE PURCHASER.
The Purchaser is duly formed and validly existing and in good
standing under the laws of its jurisdiction of formation and has full power and
authority to carry on its business as currently being conducted.
5.2 AUTHORIZATION.
The Purchaser has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements and to consummate the Transaction.
The execution and delivery by the Purchaser of this Agreement and the Ancillary
Agreements and the consummation by it of the Transaction have been duly
authorized by all necessary action of the Purchaser. This
41
Agreement and each Ancillary Agreement has been duly executed and delivered
by the Purchaser and constitutes a valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its
terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
5.3 NONCONTRAVENTION.
The execution and delivery by the Purchaser of this Agreement
and the Ancillary Agreements and the consummation by it of the Transaction do
not and will not (i) conflict with or result in a violation of any provision
of the operating agreement or any other governing agreement of the Purchaser,
(ii) conflict with or result in a violation of any provision of, constitute
(with or without the giving of notice or the passage of time or both) a
default under or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under any bond, debenture, note, mortgage, indenture, lease,
agreement or other instrument or obligation to which the Purchaser is a party
or by which the Purchaser or any of its properties may be bound, (iii) result
in the creation or imposition of any Encumbrance upon the properties of the
Purchaser, or (iv) violate any Applicable Law binding upon the Purchaser,
except, in the case of clauses (ii), (iii) and (iv) above, for any such
conflicts, violations, defaults, terminations, cancellations, accelerations
or Encumbrances which would not, individually or in the aggregate, have a
material adverse effect on the ability of the Purchaser to consummate the
Transaction.
5.4 CONSENTS AND APPEALS.
No consent, approval, order or authorization of or declaration,
filing or registration with any Governmental Entity is required to be
obtained or made by the Purchaser in connection with the execution and
delivery by the Purchaser of this Agreement and the Ancillary Agreements or
the consummation of the Transaction other than (i) any filings required under
Section 13 of the Exchange Act and Rule 13d-1 under the Exchange Act (ii)
compliance with applicable provisions of the HSR Act, as amended and (iii)
such consents, approvals, orders or authorization which, if not made, would
not, individually or in the aggregate, have a material adverse effect on the
ability of the Purchaser to consummate the Transaction.
5.5 PURCHASE FOR INVESTMENT.
(a) The Purchaser has been furnished with all information that
it has requested for the purpose of evaluating the proposed acquisition of
the Securities pursuant hereto, and the Purchaser has had an opportunity to
ask questions of and receive answers from the Company regarding the Company
and its Business, assets, results of operations, financial condition and
prospects and the terms and conditions of the issuance of the Securities.
(b) The Purchaser is acquiring the Securities solely by and for
its own account, for investment purposes only and not for the purpose of resale
or distribution. The Purchaser has no contract, undertaking, agreement or
arrangement with any Person to sell,
42
transfer or pledge to such Person or anyone else any Securities and the
Purchaser has no present plans or intentions to enter into any such contract,
undertaking or arrangement, except for a possible transfer or transfers to
Affiliates.
(c) The Purchaser acknowledges and understands that (i) no
registration statement relating to the Securities, the Series C Conversion
Shares or the Warrant Shares has been or is to be filed with the Commission
under the Securities Act or pursuant to the securities laws of any state;
(ii) the Securities, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Conversion Shares and the Warrant Shares cannot be sold
or transferred without compliance with the registration provisions of the
Securities Act or compliance with exemptions, if any, available thereunder
and without the delivery to the Company by reputable counsel of such
counsel's opinion, in form and substance reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from such
registration provisions; (iii) the certificates representing the respective
Securities will include a legend thereon that refers to the foregoing; and
(iv) the Company has no obligation or intention to register the Securities,
the Series C Conversion Shares, the Series D Preferred Stock, the Series D
Conversion Shares or the Warrant Shares under any federal or state securities
act or law, except to the extent, in each case, that the terms of the
Registration Rights Agreement shall otherwise provide.
(d) The Purchaser (i) is an "accredited investor" as defined
in Rule 501 of Regulation D under the Securities Act; (ii) has such knowledge
and experience in financial and business matters in general that it has the
capacity to evaluate the merits and risks of an investment in the Securities
and to protect its own interest in connection with an investment in the
Securities; (iii) has such a financial condition that it has no need for
liquidity with respect to its investment in the Securities to satisfy any
existing or contemplated undertaking, obligation or Indebtedness; and (iv) is
able to bear the economic risk of its investment in the Securities for an
indefinite period of time.
5.6 NO BROKERS.
The Purchaser has not employed, and is not subject to the known
claim of, any broker, finder, consultant or other intermediary in connection
with all or any portion of the Transaction (or the negotiations looking
toward the consummation of all or any portion of the Transaction) who might
be entitled to a fee or commission in connection with all or any portion of
the Transaction (or the negotiations looking toward the consummation of all
or any portion of the Transaction).
5.7 NO AGREEMENTS.
Such Person has not entered into any agreement or arrangement
with respect to the disposition or voting of or exercise of any other rights
with respect to any Capital Stock of the Company with any Person who is not
an Affiliate of such Person (which shall in no event include Carlyle).
43
ARTICLE VI
COVENANTS
6.1 BEST EFFORTS.
The Company shall comply with the Carlyle Purchase Agreement
and the Credit Facility through and including the Second Closing.
6.2 RESTRICTIVE AGREEMENTS PROHIBITED.
Through and including the Second Closing, the Company shall not
become a party to any agreement which by its terms violates the terms of the
Carlyle Purchase Agreement, the terms of the Series B Preferred Stock as set
forth in the Series B Certificate of Designation, the terms of the Series C
Preferred Stock as set forth in the Series C Certificate of Designation, the
terms of the Series D Preferred Stock as set forth in the Series D
Certificate of Designation, or the terms of the Carlyle Warrants. From and
after the Second Closing, the Company shall not become a party to any
agreement which by its terms violates the terms of the Series C Preferred
Stock as set forth in the Series C Certificate of Designation or the terms of
the Series D Preferred Stock as set forth in the Series D Certificate of
Designation.
6.3 CONTINUING OPERATIONS.
From and after the Closing Date, the Company shall, and shall
use its best efforts to cause each Subsidiary to, use all commercially
reasonable efforts to operate its business in a prudent fashion and in such
a fashion as is not likely to result in a Material Adverse Effect on the
Company; PROVIDED, HOWEVER, that the Company shall not be liable to the
Purchaser for violation of this Section 6.3 in connection with any action or
operation of the Company that those members of the Board of Directors who
were elected by the Purchaser (as provided in Section 6.13 of this Agreement)
voted to approve, adopt or ratify (if such action or operation was voted upon
by the Board of Directors), unless the information provided to the Board of
Directors in connection with its vote upon such action or operation failed to
contain all information that a reasonable person would deem material in
considering such action or operation.
6.4 FINANCIAL STATEMENTS AND INFORMATION.
(a) For so long as GE owns shares of Series C Preferred Stock
and Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the shares
of Series C Preferred Stock and Series A Preferred Stock outstanding on the
Closing Date, the Company shall furnish to the Purchaser:
(i) MONTHLY REPORTS. Within thirty (30) days following the
end of each calendar month, a management report for the preceding calendar
month summarizing the Company's operating and financial performance during
such preceding calendar month and including, without limitation, an
unaudited income statement, an unaudited balance sheet and an unaudited
statement of cash flows for such preceding calendar month and a narrative
description of any event, condition or change in condition
44
that had, or is likely to have, a Material Adverse Effect on the Company
(but such reports need only be furnished if the Purchaser (and any
Affiliate of the Purchaser who is to receive such reports) shall have
executed and delivered to the Company an appropriate confidentiality
agreement reasonably satisfactory to the Company.
(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available
and in any event within sixty (60) days after the end of each of the first
three (3) fiscal quarterly periods of each Fiscal Year, the Company's
quarterly report on Form 10-Q as filed with the Commission.
(iii) ANNUAL FINANCIAL STATEMENTS. As soon as available
and in any event within one hundred twenty (120) days after the end of each
Fiscal Year, the Company's Annual Report on Form 10-K and related Annual
Report to Shareholders as filed with the Commission.
(iv) SEC REPORTS; MAILINGS TO STOCKHOLDERS. Promptly after
sending or making available or filing of the same, copies of all
registration statements, proxy statements, financial statements and reports
on Forms 10-K, 10-Q and 8-K (or any comparable successor form), if any,
which the Company or any of its Subsidiaries shall file with the Commission
or any national securities exchange. In addition, (A) at the same time
that the Company makes a mailing to its stockholders generally and (B)
promptly after the Company issues a press release, the Company shall
provide a copy of the same to the Purchaser.
(v) NOTICE OF DEFAULT OR CLAIMED DEFAULT. Promptly upon
(and in any event within five (5) business days following) any officer of
the Company obtaining Knowledge (A) of any condition or event which
constitutes an event of default or default (including, without limitation,
by way of cross-default) under any Indebtedness having a principal amount
of at least $5 million, (B) that the holder of any Indebtedness has given
any written notice or taken any other action with respect to a claimed
condition or event which constitutes such an event of default or default or
(C) that any Person has given any written notice to the Company or any of
its Subsidiaries or taken any other action with respect to a claimed
default under an agreement (other than Indebtedness included in clause (A)
of this Section 6.4(a)(v)) or other obligation having total consideration
to the parties of at least $1 million, an officer's certificate describing
the same and the period of existence thereof and what action the Company
has taken, is taking and proposes to take with respect thereto.
(vi) BANKRUPTCY. Promptly upon receiving notice of any
Person's seeking to obtain or threatening to seek to obtain a decree or
order for relief with respect to the Company or any of its Subsidiaries in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, a written notice thereof specifying
what action the Company or such Subsidiary is taking or proposes to take
with respect thereto.
45
(vii) ADDITIONAL INFORMATION. With reasonable
promptness, such other information, including financial statements and
computations, relating to the performance of the provisions of this
Agreement or the affairs of the Company or any of its Subsidiaries as the
Purchaser may from time to time reasonably request.
(b) The Company will furnish to the Purchaser, at the time it
furnishes each set of financial statements pursuant to Section 6.4(a)(ii) or
(iii) above, an officer's certificate to the effect that no event of default
under any Indebtedness has occurred and is continuing (or, if any such event of
default has occurred and is continuing, describing the same in reasonable
detail, the period of existence thereof and the action that the Company has
taken and proposes to take with respect thereto).
(c) The Company will keep at its principal executive offices the
books, accounts and records of the Company and cause the same to be available
for inspection at said offices during normal business hours by the Purchaser or
by any prospective purchaser of any of the Securities from either the Purchaser
or any Affiliate of the Purchaser (other than such a purchaser proposing to
purchase pursuant to a valid registration statement or pursuant to Rule 144
promulgated under the Securities Act). The Purchaser may, at its option and its
own expense, conduct internal audits of the books, records and accounts of the
Company. Audits may be on either a continuous or periodic basis or both and may
be conducted by employees of the Purchaser or by independent auditors or other
consultants retained by the Purchaser. The Company shall make available to the
Purchaser such information and financial statements in addition to the foregoing
as shall be required by the Purchaser in connection with the preparation of
registration statements, current and periodic reports, proxy statements, Tax
Returns and other documents required to be filed under Applicable Law and shall
cooperate in the preparation of any such documents.
6.5 PRESS RELEASES.
Except as may be required by Applicable Law or by the rules of
any national securities exchange, neither the Purchaser nor the Company shall
issue any press release with respect to this Agreement or the Transaction
without the prior consent of the other party hereto (which consent shall not be
unreasonably withheld under the circumstances). Any such press release required
by Applicable Law or by the rules of any national securities exchange shall only
be made after reasonable notice to the other party as to the form and content of
such press release.
6.6 NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to the Purchaser, and the
Purchaser shall give prompt notice to the Company, of (i) the occurrence or
failure to occur of any event which occurrence or failure causes any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from and including the date
hereof through the time at which such representation or warranty ceases to
survive pursuant to Section 8.1 hereof, and (ii) any material failure of the
Company or the Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by
46
it hereunder, and each party shall use all reasonable efforts to remedy such
failure. In addition, the Company shall give prompt notice to the Purchaser
of any developments that could reasonably be expected to have a Material
Adverse Effect on the Company.
6.7 LIABILITY INSURANCE.
For so long as GE owns shares of Series C Preferred Stock and
Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the
shares of Series C Preferred Stock and Series A Preferred Stock outstanding
on the Closing Date, the Company shall ensure that each person serving on the
Board of Directors on and after the Closing Date shall receive the same
liability insurance coverage as a member of the Board of Directors receives
as of the date hereof (including coverage for liabilities arising before the
date of taking office to the extent arising from such person's status as a
prospective member of the Board of Directors) and that such policies shall be
in full force and effect in accordance with their terms as of the Closing
Date.
6.8 CONVERSION STOCK.
The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock and preferred stock,
par value $.001 per share, solely for the purpose of effecting the conversion
of shares of Series B Preferred Stock and Series C Preferred Stock and the
issuance of Common Stock in respect of the Warrants and the Carlyle Warrants,
the full number of whole shares of Common Stock and Series D Preferred Stock
then deliverable upon (a) the conversion of all shares of Series B Preferred
Stock and Series C Preferred Stock then outstanding, (b) the issuance of
Common Stock in respect of the Warrants and the Carlyle Warrants, and (c) if
any Series D Preferred Stock is then outstanding, the full number of whole
shares of Common Stock then deliverable upon the conversion of all shares of
Series D Preferred Stock then outstanding. The Company shall take at all
times such corporate action as shall be necessary in order that the Company
may validly and legally issue fully paid and non-assessable shares of Common
Stock or Series D Preferred Stock (as the case may be) upon the conversion of
shares of Series B Preferred Stock, Series C Preferred Stock, and Series D
Preferred Stock and the exercise of the then outstanding Warrants and Carlyle
Warrants. If at any time the number of authorized but unissued shares of
Common Stock or Series D Preferred Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred
Stock, Series C Preferred Stock, and Series D Preferred Stock and the
exercise of all the then outstanding Warrants and Carlyle Warrants, in
addition to such other remedies as shall be available to the holders of the
Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred
Stock, the Company shall forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock or
Series D Preferred Stock to such numbers of shares as shall be sufficient for
such purpose, including but not limited to promptly calling and holding a
meeting of the Company's stockholders, at which the Company's stockholders
shall vote on a proposed amendment to the Certificate of Incorporation that
would so increase the number of authorized shares of Common Stock or
preferred stock, par value $.001 per share, as appropriate, a favorable vote
for which amendment shall have been recommended to the Company's stockholders
by the Board of Directors, pursuant to a duly and
47
validly adopted resolution of the Board of Directors setting forth the
amendment proposed and declaring its advisability, all in accordance with
Section 242 of the Delaware General Corporation Law; and, in case of an
increase in the number of authorized shares, of such preferred stock, the
Board of Directors shall promptly cause to become effective a certificate of
increase pursuant to Section 151 of the Delaware General Corporation Law.
6.9 CERTAIN REGULATORY MATTERS.
(a) The operations of the Company and its Subsidiaries will be
conducted in compliance with all material Applicable Laws (material
Applicable Laws includes, without limitation, all Applicable Laws relating to
health care, the health care industry and the provision of health care
services, third party reimbursement (including Medicare and Medicaid), public
health and safety and wrongful death and medical malpractice). In addition
to, and without limiting the generality of the foregoing, the Company shall
adopt and implement a compliance plan adequate to assure such compliance.
The compliance plan shall include all material elements of an effective
program to prevent and detect violations of law as defined in Commentary 3(k)
to Section 8A1.2 of the Federal Sentencing Guidelines.
(b) Without limiting the generality of the foregoing, the
Company and all Affiliates shall comply in all material respects with all
lawful directives, orders, instructions, bulletins and other announcements
received from third party payors and their agents (including, without
limitation, Medicare carriers and fiscal intermediaries) regarding
participation in third party payment programs, including, without limitation,
preparation and submission of claims for reimbursement. Nothing in this
Section 6.9 shall be construed as or is intended to create any third party
beneficiaries.
6.10 EMPLOYMENT ARRANGEMENTS.
(a) The Company will keep in effect following the First
Closing the employment agreements with the employees set forth in SCHEDULE
4.23, on the same terms and conditions contained in such employment
agreements prior to the First Closing Date; provided, however, that such
employment agreements shall be modified so that none of (i) the Transaction,
(ii) any conversion of Series B Preferred Stock or Series C Preferred Stock
acquired hereunder or under the GE Purchase Agreement into shares of Series D
Preferred Stock or Common Stock , (iii) any conversion of shares of Series D
Preferred Stock into Common Stock, or (iv) any change in the membership, size
or composition of the Board of Directors incident to the transaction or such
conversions, shall trigger or constitute a change of control or otherwise
give any party to such employment agreements any right to receive any payment
(or any acceleration thereof) or protections whatsoever.
(b) Following the First Closing, the Company and the Purchaser
will review the terms and conditions of the bonus plan currently in effect at
the Company to determine whether any changes should be made to such bonus
plan.
48
6.11 TRANSACTIONS WITH AFFILIATES.
For so long as GE owns shares of Series C Preferred Stock and
Series A Preferred Stock with a total liquidation preference, taken as a
whole, at least equal to 25% of the total liquidation preference of the
shares of Series C Preferred Stock and Series A Preferred Stock outstanding
on the Closing Date, the Company covenants and agrees that it will not, and
will not permit any of its Subsidiaries to, directly or indirectly, engage in
any transaction with any Affiliate of the Company, including, without
limitation, the purchase, sale or exchange of assets or the rendering of any
service, except: (a) transactions with Affiliates of the Company that
involve consideration or payments in the aggregate of less than $5,000; (b)
transactions with Affiliates of the Company that are approved by the Board of
Directors; and (c) transactions with Affiliates of the Company in the
ordinary course of business and pursuant to the reasonable requirements of
the Company's or such Subsidiary's business and upon fair and reasonable
terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than those which might be obtained in an arm's-length
transaction at the time from a Person which is not such an Affiliate.
6.12 STOCKHOLDER APPROVAL OF CERTAIN ACTIONS.
Without limitation of the rights, restrictions and protections
contained in the Series C Certificate of Designation or otherwise available
to holders of shares of the Series C Preferred Stock, for so long as the
Purchaser, any Affiliate of the Purchaser, or the Initial Purchaser and any
such Affiliate, taken as a whole, owns or own at least thirty-three percent
(33%) in total liquidation preference, taken as a whole, of (i) the
outstanding shares of Series C Preferred Stock and (ii) the outstanding
shares of Series A Preferred Stock, the Company shall not take, and shall
cause its Subsidiaries not to take, any of the following actions without the
affirmative vote of holders of at least sixty-seven percent (67%) of the
shares of the Series C Preferred Stock then outstanding:
(a) Alter, change or amend (by merger or otherwise) any of the
rights, preferences and privileges of the Series B Preferred Stock, the
Series C Preferred Stock or any other class of Capital Stock or the terms or
provisions of any Option or Convertible Security;
(b) Effect or enter into any transaction or event that results
or could reasonably be expected to result, directly or indirectly, in a
Special Corporate Event with respect to the Company or any Subsidiary;
(c) Initiate any Liquidating Event with respect to the Company
or any Subsidiary;
(d) Amend, restate, alter, modify or repeal (by merger or
otherwise) the Certificate of Incorporation or the Amended Bylaws of the
Company, including, without limitation, amending, restating, modifying or
repealing (by merger or otherwise) any certificate of designation or
preferences (as in effect from time to time) relating to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
or the Series D Preferred Stock, including, without limitation, the filing by
the Company of a certificate with the Secretary of
49
State of the State of Delaware, pursuant to Section 151(g) of the Delaware
General Corporation Law, setting forth a resolution or resolutions adopted by
the Board of Directors of the Company that none of the authorized shares of
Series D Preferred Stock are outstanding and that none will be issued subject
to the Series D Certificate of Designation, (provided however, that upon any
upon any Type A Conversion pursuant to Section 5 of the Series B Certificate
of Designation, the Company shall immediately file a certificate with the
Secretary of State of the State of Delaware, pursuant to Section 151(g) of
the Delaware General Corporation Law, setting forth a resolution or
resolutions adopted by the Board of Directors of the Company that none of the
authorized shares of Series D Preferred Stock are outstanding and that none
will be issued subject to the Series D Certificate of Designation.);
(e) Change the number of directors of the Company to a number
less than eight (8) or more than nine (9) or the manner in which the
directors are selected, except as provided in the Certificate of
Incorporation, Amended Bylaws, Series B Certificate of Designation, Series C
Certificate of Designation and Series D Certificate of Designation;
(f) Incur any Indebtedness, in the aggregate with respect to
the Company and its Subsidiaries, in excess of $15 million in any Fiscal
Year; PROVIDED, HOWEVER, that this provision shall not apply to draw-downs
under any credit facility as to which a credit agreement had been executed
and delivered on or prior to the date hereof;
(g) Become a party to Operating Leases during any Fiscal Year
with respect to which the present value of all payments due during the term
of such Operating Leases in the aggregate (determined using a discount rate
of 10%) exceed $15 million;
(h) Create, authorize or issue any shares of Series B
Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of any such class or series;
(i) Reclassify any authorized stock of the Company into Series
B Preferred Stock or any class or series of Senior Securities, Parity
Securities, Supervoting Securities or shares of any such class or series;
(j) Increase or decrease the authorized number of shares of
Series B Preferred Stock, Series D Preferred Stock or any class or series of
Senior Securities, Parity Securities, Supervoting Securities or shares of any
such class or series;
(k) Issue any equity security below either the then current
Market Price (without deduction for any underwriters' discount) or the then
applicable Conversion Price of the Series B Preferred Stock (as defined in
the Series B Certificate of Designation), other than for (i) management stock
options currently authorized and available for grant for not more than Three
Hundred Thousand (300,000) shares of Common Stock in the aggregate, in which
Senior Management of the Company shall not participate, (ii) management stock
options exercisable at not less than the then-applicable Conversion Price per
share of Common Stock issued after October 14, 1997, exercisable for not more
than Five Hundred Thousand (500,000) shares of Common Stock in the aggregate,
in which only Senior Management of the Company shall
50
participate, and (iii) the Common Stock underlying such management stock
options and other stock options outstanding as of October 14, 1997;
(l) Declare or pay any dividend or make any distribution
(including, without limitation, by way of redemption, purchase or other
acquisition) with respect to shares of Capital Stock or any securities
convertible into or exercisable, redeemable or exchangeable for any share of
Capital Stock of the Company or any Subsidiary (including, without
limitation, any Option or Convertible Security) directly or indirectly,
whether in cash, obligations or shares of the Company or other property;
(m) Acquire, in one or a series of related transactions, any
equity ownership interest or interests of any Person, where the aggregate
consideration payable in connection with such acquisition (including, without
limitation, cash consideration, the fair market value of any securities and
the net present value of any deferred consideration) is at least $15 million;
(n) Acquire, in one or a series of related transactions, any
asset or assets of any Person, where the aggregate consideration payable in
connection with such acquisition (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) is equal to or greater than $15 million;
PROVIDED, HOWEVER, that this provision shall not apply to Capital
Expenditures made by the Company in the Ordinary Course of Business;
(o) Merge or consolidate with any Person, or permit any other
Person to merge into it where: (i) the stockholders of the Company
immediately prior to the consummation of such merger or consolidation shall,
immediately after the consummation of such merger or consolidation, hold
securities possessing more than 50% of both the total voting power of and the
beneficial ownership interests in the surviving entity of such merger or
consolidation and (ii) the equity holders of such other Person immediately
prior to the consummation of such transaction shall receive (directly or
indirectly) aggregate consideration payable in connection with such
transaction (including without limitation cash consideration, the fair market
value of any securities and the net present value of any deferred
consideration) equal to or greater than $15 million;
(p) Cause or permit any Subsidiary to merge or consolidate
with any other Person (other than the Company or a wholly-owned Subsidiary),
or cause or permit any other Person to merge into it, where: (i) the
stockholders of such Subsidiary immediately prior to the consummation of such
merger or consolidation shall, immediately after the consummation of such
merger or consolidation, hold securities possessing more than 50% of both the
total voting power of and the beneficial ownership interests in the surviving
entity of such merger or consolidation and (ii) the equity holders of the
subject Person immediately prior to the consummation of such transaction
shall receive (directly or indirectly) aggregate consideration payable in
connection with such transaction (including without limitation cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration) equal to or greater than $15 million;
51
(q) Substantially and materially engage in, either through
acquisition or internal development, any business other than the Business;
(r) Make or permit any of its Subsidiaries to make Capital
Expenditures in any Fiscal Year in excess, in the aggregate, of two percent
(2%) above the approved Capital Budget Plan for such Fiscal Year unless such
Capital Expenditure is approved by the Executive Committee of the Board of
Directors or a Supermajority Vote of the Board of Directors;
(s) (i) Sell, transfer, convey, lease or dispose of, outside
the Ordinary Course of Business, any assets or properties of the Company or
any Subsidiary, whether now or hereafter acquired, in any transaction or
transactions, if (X) the aggregate consideration payable in connection with
any single such transaction (including, without limitation, cash
consideration, the fair market value of any securities and the net present
value of any deferred consideration), is greater than $5 million or (Y) the
aggregate consideration payable in connection with all such transactions
(including, without limitation, cash consideration, the fair market value of
any securities and the net present value of any deferred consideration),
consummated after the Closing Date, taken as a whole, is or would become as a
result of such transaction greater than $20 million; (ii) undergo or cause or
permit any Subsidiary to undergo a reorganization or recapitalization; (iii)
merge or consolidate with any Person, or permit any other Person to merge
into it, where the stockholders of the Company immediately prior to the
consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing 50%
or less of either the total voting power of or the beneficial ownership
interests in the surviving entity of such merger or consolidation; (iv) cause
or permit any Subsidiary to merge or consolidate with any other Person (other
than the Company or a wholly-owned Subsidiary of the Company), or cause or
permit any other Person to merge into such Subsidiary, where the stockholders
of such Subsidiary immediately prior to the consummation of such merger or
consolidation shall, immediately after the consummation of such merger or
consolidation, hold 50% or less of either the total voting power of or the
beneficial ownership interests in the surviving entity of such merger or
consolidation, if (X) the value of the assets of such Subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
Subsidiaries with respect to all such mergers or consolidations consummated
after the Closing Date, taken as a whole, and including such transaction, is
greater than $20 million;
(t) Permit any Subsidiary to issue or sell any share of
Capital Stock, Option or Convertible Security; PROVIDED, HOWEVER, that the
Company may form a new Subsidiary not all of the equity securities of which
need be owned directly or indirectly by the Company (a "Partial Subsidiary"),
but only if (i) at the time of creation of such Partial Subsidiary, such
Partial Subsidiary is designated as such in a written notice to the
Purchaser, and, (ii) cumulatively through time no more than $5,000 of assets
(in the aggregate ) are transferred to such Partial Subsidiary by the Company
or any other Subsidiary, and (iii) no liabilities of such Partial Subsidiary
are ever assumed or guaranteed by the Company or any other Subsidiary; or
52
(u) Amend, restate, alter, modify or repeal (by merger or
otherwise) or permit any Subsidiary to amend, restate, modify or repeal (by
merger or otherwise) the certificate of incorporation or bylaws of any
Subsidiary in any material respect; or
(v) Issue any shares of Series D Preferred Stock, otherwise
than pursuant to a Type B Conversion.
6.13 BOARD OF DIRECTORS.
(a) The Board of Directors at all times following the Closing
and before a Type B Event Date shall be comprised of between eight (8) and
nine (9) members with one vacancy until the ninth member, an Independent
nominated by the Purchaser and Carlyle has been approved by the Board of
Directors (the "Joint Director") to fill such vacancy. After the occurrence
of a Type B Event Date, the Board of Directors shall be comprised of a number
of members that is consistent with the Series B Certificate of Designation,
the Series C Certificate of Designation, the Series D Certificate of
Designation and the Amended Bylaws. As long as Carlyle and all Carlyle
Affiliates own at least fifty percent (50%) of the shares of Series B
Preferred Stock originally purchased by Carlyle, the holders of the Series B
Preferred Stock, by a vote as provided in the Series B Certificate of
Designation, shall have the right to elect two (2) directors. As long as the
Purchaser, any Affiliate of the Initial Purchaser, or the Purchaser and any
such Affiliate of the Purchaser, taken as a whole owns or own shares of
Series C Preferred Stock and Series A Preferred Stock with a total
liquidation preference, taken as a whole, at least equal to 25% of the total
liquidation preference of the shares of Series C Preferred Stock and Series A
Preferred Stock outstanding as of the First Closing Date, the holders of the
Series C Preferred Stock, by a vote as provided in the Series C Certificate
of Designation, shall have the right to elect one (1) director. Until the
occurrence of a Type B Event Date, the holders of the Common Stock shall have
the right to elect between five (5) and six (6) directors (one (1) of whom
shall be the Joint Director) plus, if any of the percentage ownership
conditions contained in the two immediately preceding sentences fail to be
satisfied otherwise than pursuant to a Type B Conversion, such director or
directors as would, absent such failure, be elected by holders of the Series
B Preferred Stock or the Series C Preferred Stock, as appropriate.
(b) Immediately following the Closing, the Board of Directors
shall appoint, and shall thereafter until a Type B Event Date, unless
approved by a majority of the entire board of directors and a majority of the
directors elected by the holders of the Series B Preferred Stock and the
Series C Preferred Stock, maintain as provided in the Amended Bylaws the
following committees of the Board of Directors with the respective duties,
membership and voting requirements stated below, PROVIDED, that if the
holders of the Series C Preferred Stock shall, otherwise than as a result of
the conversion of their shares of Series C Preferred Stock in a Type B
Conversion, cease to have the right to nominate and elect any Preferred Stock
Director at all, then such holders shall no longer have the right to select
any member of any of the following committees and the member or members of
such committees selected by such holders shall automatically cease to be a
member or members of such committees:
53
(i) Compensation Committee, which shall consist of three
(3) directors, at least one (1) of whom shall be selected jointly by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock. An affirmative vote of at least two (2)
members of the Compensation Committee shall be required for approval of
matters considered by the Compensation Committee. The Compensation
Committee shall ensure that the representative on the Compensation
Committee selected by the directors elected by the Series B Preferred Stock
and the director elected by the Series C Preferred Stock shall receive
adequate notice of and an opportunity to participate in any meetings of the
Compensation Committee;
(ii) Audit Committee, which shall consist of three (3)
directors, including as many Independent directors as are available, not to
exceed three (3). An affirmative vote of at least two (2) members of the
Audit Committee shall be required for approval of matters considered by the
Audit Committee;
(iii) Executive Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The members selected by the
directors elected by the Series B Preferred Stock and the director elected
by the Series C Preferred Stock may be removed only by the director or
directors, respectively, who selected such members. The Executive
Committee shall, in addition to the customary duties of an executive
committee, have the right to approve any financing activity, including but
not limited to the Capital Budget Plan. An affirmative vote of at least
three (3) members of the Executive Committee shall be required for approval
of any matters considered by the Executive Committee. Each financing
activity not approved by the Executive Committee may be referred to the
Board of Directors for approval, which approval shall require a
Supermajority Vote; and
(iv) An Acquisitions Committee, which shall consist of four
(4) directors, one (1) of whom shall be selected by the directors elected
by the Series B Preferred Stock, one (1) of whom shall be selected by the
director elected by the Series C Preferred Stock, and two (2) of whom shall
be selected by the Board of Directors. The Acquisitions Committee shall
have the right to approve any transaction of the types described in
Sections 6.12(m), (n), (o) and (p) with respect to which transaction the
aggregate consideration payable in connection with such transaction
(including, without limitation, cash consideration, the fair market value
of any securities and the net present value of any deferred consideration)
is less than $15 million. A unanimous vote of the Acquisitions Committee
shall be required for approval of any matters considered by the
Acquisitions Committee. Except as described in the next sentence, each
matter considered but not unanimously approved by the Acquisitions
Committee may be referred to the Board of Directors for approval, which
approval shall require a majority vote of the Board of Directors. The
unanimous approval of the Acquisitions Committee or the unanimous approval
of the Board of Directors shall be required before the Company or any of
its Subsidiaries engage in a transaction of the types described in
54
Sections 6.12(m), (n) (which, only for purposes of this clause, shall also
apply to Capital Expenditures made by the Company in the ordinary course of
business), (o) and (p), in which transaction: (A) the aggregate
consideration payable in connection with such transaction (including,
without limitation, cash consideration, the fair market value of any
securities and the net present value of any deferred consideration) is less
than $15 million; and (B) the Company is to issue its common stock at an
implicit or explicit price of less than $8.375 per share. Such implicit
price shall be determined in an appraisal approved unanimously by the
Acquisitions Committee or unanimously by the Board of Directors, such
appraisal to be performed by an independent appraiser selected unanimously
by the Acquisitions Committee or unanimously by the Board of Directors.
(c) Regular meetings of the Board of Directors of the Company
shall be held at least once a calendar quarter at the offices of the Company
or at such other times and places as may be fixed by the Board of Directors
upon notice to the members of the Board of Directors.
(d) After the Closing, the following matters, among others
specified in the Bylaws, shall be deemed approved by the Board of Directors
only upon a Supermajority Vote in respect of any such matter:
(i) Approving the annual Capital Budget Plan; and
(ii) Approving the Company entering into any financing
activity not approved by the Executive Committee.
(e) Upon any Type A Conversion pursuant to Section 5 of the
Series B Certificate of Designation and Section 5 of the Series C Certificate
of Designation, of all of the outstanding shares of Series B Preferred Stock
and Series C Preferred Stock, the Company shall immediately file a
certificate with the Secretary of State of the State of Delaware, pursuant to
Section 151(g) of the Delaware General Corporation Law, setting forth a
resolution or resolutions adopted by the Board of Directors of the Company
that none of the authorized shares of Series D Preferred Stock are
outstanding and that none will be issued subject to the Series D Certificate
of Designation.
6.14 RESTRICTIONS ON TRANSFER OF CAPITAL STOCK.
(a) The Purchaser shall not transfer, sell, assign, or pledge
to any Person other than an Affiliate of the Purchaser, or dispose of, any
interest in any shares of the Series C Preferred Stock without the prior
approval of the Board of Directors, in its sole discretion. The Purchaser
shall not transfer, sell or assign to any Affiliate of the Purchaser, any
interest in any shares of the Series C Preferred Stock if such Affiliate is
engaged in the Business.
(b) After the Closing Date and before the earlier to occur of
April 14, 1999 and a Type B Event, the Purchaser shall not transfer, sell or
assign to any Person any of the Series C Conversion Shares without the prior
approval of an ordinary majority of the Board of Directors in its sole
discretion, other than in the following circumstances:
55
(i) A transfer to an Affiliate of the Purchaser (provided
that prior to any such transfer such Affiliate shall have delivered to the
Company its written agreement to be bound by the terms of this Section
6.14);
(ii) A transfer permitted under Rule 144 under the
Securities Act;
(iii) A transfer pursuant to a registered offering under
registration rights from the Company as provided in the Registration Rights
Agreement; or
(iv) A transfer pursuant to a transaction available to all
stockholders of the Company on the same terms as to the Purchaser, which
has been approved by a majority of the Board of Directors;
(c) If a Type B Event Date occurs prior to April 14, 1999, then
from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, (A) the Purchaser
shall not make a transfer of any of its Series D Preferred Stock, Series C
Conversion Shares or Series D Conversion Shares in a transaction available to
all holders of Common Stock on the same terms as to the Purchaser, unless such
transaction has been approved either by (I) the affirmative vote of not less
than 80 percent of the outstanding shares of the Company entitled to vote, or
(II) at least two-thirds (2/3) of the directors of the Company (which must
include either (i) the Joint Director, if either (x) such Joint Director served
in such position as of the Type B Event Date, or (y) such Joint Director has
been approved by a majority of the directors who were Common Stock Directors as
of the Type B Event Date, or (ii) at least one director who was a Common Stock
Director prior to the Type B Event Date, unless neither such Joint Director, nor
any of such Common Stock Directors continue to serve on the Board of Directors
at such time) and (B) the Purchaser shall not make a transfer of any of its
Series D Preferred Stock, Series C Conversion Shares or Series D Conversion
Shares in a transaction other than one available to all holders of Common Stock
on the same terms as to the Purchaser, unless such transaction has been approved
either by (I) the affirmative vote of not less than 80 percent of the
outstanding shares of the Company entitled to vote, or (II) at least 50 percent
of the directors of the Company who are not the Preferred Stock Directors or the
Conversion Directors. If a Type B Event Date occurs prior to October 14, 1999,
then from the Type B Event Date until the second subsequent annual meeting of
stockholders of the Company after such Type B Event Date, none of the following
actions or transactions shall be effected by the Company or approved by the
Company as a stockholder of any subsidiary of the Company, and neither the
Purchaser nor any other holder of Series D Preferred Stock (other than a holder
pursuant to a transfer permitted in paragraphs (b)(ii) or (b)(iii) of this
Section 6.14) shall engage in, or be a party to, any of the following actions or
transactions involving the Company or any subsidiary of the Company, if, as of
the record date for the determination of the stockholders entitled to vote
thereon, or consent thereto, any other corporation, person or entity referred to
in clauses (i) through (iv) of this sentence beneficially owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of
the Company entitled to vote:
(i) any merger or consolidation of the Company or any of its
subsidiaries with or into such other corporation, person or entity; or
56
(ii) any sale, lease, exchange or other disposition of all
or any substantial part of the assets of the Company or any of its
subsidiaries to, or with, such other corporation, person or entity; or
(iii) the issuance or delivery of any voting securities of
the Company or any of its subsidiaries to such other corporation, person or
entity in exchange for cash, other assets or securities, or a combination
thereof; or
(iv) any dissolution or liquidation of the Company;
PROVIDED, HOWEVER, that the prohibitions contained in this sentence shall not
apply with respect to any such action or transaction approved by (I) the
affirmative vote of not less than 80 percent of the outstanding shares of the
Company entitled to vote or (II) at least two-thirds (2/3) of the directors
of the Company (which must include either the Joint Director if either (x)
such Joint Director served in such position as of the Type B Event Date, or
(y) such Joint Director has been approved by a majority of the directors who
were Common Stock Directors as of the Type B Event Date, or at least one
director who was a Common Stock Director prior to the Type B Event Date,
unless neither such Joint Director, nor any of such Common Stock Directors
continue to serve on the Board of Directors at such time).
For purposes of the immediately preceding sentence, a Person shall be deemed
to own or control directly or indirectly, any outstanding shares of stock of
the Company (A) which it has the right to acquire pursuant to any agreement,
or upon the exercise of, conversion rights, warrants or options, or otherwise
or (B) which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clause (A) above) by any other
corporation, person or other entity (x) with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Company or (y) which is its "affiliate" or "associate" as those
terms are defined under the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
No transfer of Series C Preferred Stock or Series C Conversion Shares may be
made by Purchaser or any Affiliate (other than a transfer described in
paragraph (b)(ii) or (b)(iii) of this Section 6.14), unless prior thereto,
the transferee in such transfer shall have entered into an agreement in form
and substance reasonably satisfactory to the Company, agreeing to be bound by
the terms of this Section 6.14(c). Notwithstanding anything to the contrary
contained in this Section 6.14(c), the Purchaser shall not need any approval
by any directors, the Board of Directors or any stockholders under this
Section 6.14 in order to transfer, sell or assign any of its Series C
Conversion Shares in the circumstances and the persons set forth in clauses
(i), (ii) and (iii) of Section 6.14(b).
(d) The Warrants and the Warrant Shares shall be
transferable by the Purchaser, subject to compliance with federal and state
securities laws, without the approval of the Board of Directors.
57
(e) Except in the case of a transfer pursuant to Rule 144
promulgated pursuant to the Securities Act, or any successor rule, prior to
consummating any private sale or transfer of Common Stock to any Person other
than an Affiliate of Purchaser, the Purchaser shall provide to the Company
the written opinion of reputable legal counsel in form reasonably acceptable
to the Company that such sale or transfer is being made in compliance with
applicable federal securities laws.
6.15 EXPIRATION OF CERTAIN COVENANTS.
The covenants contained in Sections 6.3, 6.5 and 6.9 of this
Agreement shall expire if, at any date after the Closing Date, the Purchaser
and Affiliates of the Purchaser collectively hold, and, upon conversion into
Common Stock of all of the Series C Preferred Stock and Series A Preferred
Stock and Series D Preferred Stock held by the Purchaser and its Affiliates,
would hold less than 5% of the issued and outstanding Common Stock of the
Company on a fully diluted basis; PROVIDED, HOWEVER, that to the extent that
such covenants relate to or arise out of any Applicable Laws relating to
health care, the health care industry and the provision of health care
services, third party reimbursement (including Medicare and Medicaid), public
health and safety and wrongful death and medical malpractice), such covenants
shall expire if, at any date after the Closing Date, the Purchaser and
Affiliates of the Purchaser collectively hold less than 5% of the Series C
Preferred Stock originally purchased by the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party to consummate the
First Closing on the First Closing Date and the Second Closing on the Second
Closing Date are subject to the satisfaction or waiver, on or prior to each
respective closing date, of the condition that there shall be no injunction
or court order restraining consummation of all or any portion of the
Transaction, there shall be no pending or threatened Proceeding by or before
a court or governmental body brought by or on behalf of any Person or
Governmental Entity seeking to restrain or invalidate all or any portion of
the Transaction and there shall not have been adopted any law or regulation
making all or any portion of the Transaction illegal.
7.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company to consummate the Transaction on
the First Closing Date is subject to the satisfaction or waiver, by the
Company, on or prior to the First Closing Date of each of the following
conditions:
(a) All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material
respects at and as of the First Closing Date as if such representations and
warranties were made at and as of the First Closing Date, and the Purchaser
shall have performed in all material respects all agreements and covenants
required
58
hereby to be performed by it prior to or at the First Closing Date. There
shall be delivered to the Company a certificate (signed by an authorized
person of the Purchaser) to the foregoing effect.
(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Company and
the Purchaser to consummate the Transaction shall have been obtained.
(c) The Purchaser shall have delivered to the Company the
opinions of Gibson, Dunn & Crutcher, LLP, counsel to the Purchaser, in the
form attached hereto as Exhibit H.
(d) No order enjoining the sale of the Securities or the
Carlyle Warrants or the proposed issuance of the Series C Preferred Stock,
the Series B Conversion Shares, the Series C Conversion Shares, the Series D
Preferred Stock, the Series D Coversion Shares, the Warrant Shares or the
Carlyle Warrant Shares shall have been issued and no proceedings for such
purpose shall be pending or threatened by the Commission or any commissioner
of corporations or similar officer of any state having jurisdiction over the
Transaction. At the time of the Closing, the sale and issuance of the
Securities, the Carlyle Warrants, the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred
Stock, the Series D Coversion Shares, the Warrant Shares and the Carlyle
Warrant Shares shall be legally permitted by all laws and regulations to
which the Company and the Purchaser are subject.
(e) The Supplemental Service Fee shall have been terminated.
(f) The Purchaser shall have delivered to the Company,
unless waived in writing by the Company, such other documents relating to the
Transaction as the Company or the Company's counsel may reasonably request.
(g) The lender under the Credit Facility shall have
executed and delivered the Credit Facility and all related documents.
7.3 CONDITIONS TO THE PURCHASER' OBLIGATIONS.
The obligation of the Purchaser to consummate the First
Closing on the First Closing Date is subject to the satisfaction or waiver on
or prior to the First Closing Date of each of the following conditions:
(a) All representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects at and as of the First Closing Date as if such representations and
warranties were made at and as of the First Closing Date, and the Company
shall have performed in all material respects all agreements and covenants
required hereby to be performed by it prior to or at the First Closing Date.
There shall be delivered to the Purchaser a certificate (signed by the
President and Chief Executive Officer and the Secretary of the Company) to
the foregoing effect.
59
(b) All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Purchaser and
the Company to consummate the First Closing shall have been obtained.
(c) The Company shall have delivered to the Purchaser the
opinions of McDermott, Will & Emery, special counsel for the Company, in the
form attached hereto as Exhibit I.
(d) Since the date of this Agreement, there shall not have
been any Material Adverse Effect on the Company.
(e) All actions shall have been taken by the Company and its
Board of Directors so that, immediately upon the Purchaser's purchase of the
Securities, the Board of Directors shall consist of eight (8) directors, two (2)
of whom were elected by the holders of Series B Preferred Stock pursuant to the
Series B Certificate of Designation and one (1) of whom was elected by the
holders of Series C Preferred Stock pursuant to the Series C Certificate of
Designation.
(f) The Amended Bylaws shall be in effect in the form set
forth in Exhibit A hereto.
(g) The Company shall have provided to the Purchaser a copy
of the insurance policies together with the riders and schedules thereto which
evidence compliance with the provisions set forth in Section 6.7.
(h) No order enjoining the sale of the Securities or the
Carlyle Warrants or the proposed issuance of the Series C Preferred Stock, the
Series B Conversion Shares, the Series C Conversion Shares, the Series D
Preferred Stock, the Series D Conversion Shares, the Warrant Shares or the
Carlyle Warrant Shares shall have been issued and no Proceedings for such
purpose shall be pending or threatened by the Commission or any commissioner of
corporations or similar officer of any state having jurisdiction over the
Transaction. At the time of the Closing, the sale and issuance of the
Securities, the Carlyle Warrants, the Series C Preferred Stock, the Series B
Conversion Shares, the Series C Conversion Shares, the Series D Preferred Stock,
the Series D Conversion Shares, the Warrant Shares and the Carlyle Warrant
Shares shall be legally permitted by all laws and regulations to which the
Company and the Purchaser are subject.
(i) The Company shall have adopted and duly filed with the
Secretary of State of Delaware the Series B Certificate of Designation, the
Series C Certificate of Designation and the Series D Certificate of Designation
and each such Certificate shall have become effective under Delaware law.
(j) The Company shall have delivered to the Purchaser, unless
waived in writing by the Purchaser:
(A) copies (certified by the Secretary of the Company)
of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the
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execution, delivery and performance of this Agreement and
the other agreements contemplated hereby;
(B) a copy (certified by the Secretary of the State of
Delaware) of the certificate of incorporation as amended through the date
of the Closing and a copy (certified by the Secretary of the Company) of
the Company's bylaws as amended through the date of the Closing; and
(C) such other documents relating to the Transaction
as the Purchaser or the Purchaser's counsel may reasonably request.
(k) The Company shall have (A) issued the Series B Preferred
Stock and (B) issued the Carlyle Warrants.
(l) The Company and the lender under the Credit Agreement
shall have executed and delivered the Credit Facility and related documents.
7.3 CONDITIONS TO SECOND CLOSING
The sole condition to the Purchaser's and the Company's
obligations to consummate the Second Closing shall be the expiration or
termination of all waiting periods with respect to Purchaser's filing of a
notification under the HSR Act with respect to the transactions to occur at the
Second Closing, and that neither the Federal Trade Commission nor the Department
of Justice shall have given notice of its intention to challenge the legality of
such transaction or to seek further information.
ARTICLE VIII
INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
The representations and warranties of the parties hereto
contained herein shall survive the Closing for a period of sixty (60) days
following receipt by the Purchaser of the audited financial statements of the
Company for the Fiscal Year ended June 30, 1998, except as to (a) the
representations and warranties set forth in Sections 4.8, 4.9, 4.13 (to the
extent related to any Applicable Laws relating to health care, the health care
industry and the provision of health care services, third party reimbursement
(including Medicare and Medicaid), public health and safety and wrongful death
and medical malpractice), 4.16, 4.17, 4.32, 4.33, 4.34, 4.35 and 4.36 hereof,
which shall survive for the period of the statute of limitations applicable
thereto; (b) any matter as to which a Claim has been submitted in writing to the
Company prior to such date; and (c) any matter based on fraud by the Company in
making any of the representations and warranties contained in this Agreement.
With respect to the matters set forth in (b) and (c) above, the cause of action
in favor of the Purchaser in respect of such matters shall survive indefinitely.
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8.2 INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify and hold harmless the Purchaser,
its Subsidiaries, and its Affiliates and the directors, officers, employees,
stockholders and partners of each of the Purchaser, its Subsidiaries, and its
Affiliates (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs and reasonable
attorneys' fees, expenses and disbursements of any kind ("Losses") which may be
imposed upon or incurred by the Purchaser in any manner relating to or arising
out of any untrue representation, breach of warranty or failure to perform any
covenant or agreement by the Company contained in this Agreement (including,
without limitation, the schedules and exhibits hereto), the Series C Certificate
of Designation, the Series D Certificate of Designation, the Ancillary
Agreements or in any certificate or document delivered pursuant hereto or
thereto or arising out of any Applicable Laws relating to health care, the
health care industry and the provision of health care services, third party
reimbursement (including Medicare and Medicaid), public health and safety and
wrongful death and medical malpractice or otherwise relating to or arising out
of the Transaction; PROVIDED, HOWEVER, that the Company shall provide no
indemnification with respect to Losses relating to or arising out of the
Transaction if such Losses were caused principally by the gross negligence or
willful misconduct of one or more Indemnified Parties.
8.3 LIMITATION ON INDEMNITIES.
No Claim may be made against the Company for indemnification
pursuant to Section 8.2 until the aggregate dollar amount of all Losses
indemnifiable pursuant to Section 8.2 exceeds $250,000 (in which event the
Purchaser shall be entitled to claim the whole amount of such Losses and not
merely the excess). In no event shall the aggregate amount paid by the Company
pursuant to Section 8.2 exceed $25 million with respect to Claims arising out of
or related to matters other than breaches of the representations, warranties and
covenants contained in Sections 4.13 (to the extent related to Applicable Laws
relating to health care, the health care industry and the provision of health
care services, third party reimbursement (including Medicare and Medicaid),
public health and safety and wrongful death and medical malpractice), 4.32,
4.33, 4.34, 4.35, 4.36 and 6.9 (to the extent related to Applicable Laws
relating to health care, the health care industry and the provision of health
care services, third party reimbursement (including Medicare and Medicaid),
public health and safety and wrongful death and medical malpractice), as to
which breaches of the representations, warranties and covenants contained in
such Sections, there shall be no cap on the Company's indemnification
obligations under Section 8.2.
8.4 LOSSES.
The term "Losses" as used in this Article VIII is not limited to
matters asserted by third parties but includes Losses incurred or sustained by
an Indemnified Party in the absence of third party claims. The difference
between (a) any insurance proceeds received by an Indemnified Party in respect
of Losses and (b) the legal costs and expenses incurred by such Indemnified
Party, if any, in seeking the payment of such insurance proceeds from the
insurer or
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insurers who insured against such Loss, shall be deducted from any
Claim for indemnification made by such Indemnified Party against the Company.
Payments by an Indemnified Party of amounts for which such Indemnified Party is
indemnified hereunder shall not be a condition precedent to recovery. If, after
payment of any Claim by the Company to an Indemnified Party, such Indemnified
Party receives insurance proceeds on account of the Loss indemnified by such
payment by the Company, such Indemnified Party shall pay to the Company the
lesser of (a) the amount of the payment on the Claim with respect to such Loss
by the Company to the Indemnified Party and (b) the amount of such insurance
proceeds minus the legal costs and expenses incurred by such Indemnified Party,
if any, in seeking the payment of such insurance proceeds from the insurer or
insurers who insured against such Loss.
8.5 DEFENSE OF CLAIMS.
If a claim for Losses (a "Claim") is to be made by an Indemnified
Party, such Indemnified Party shall give written notice (a "Claim Notice") to
the Company as soon as practicable after such Indemnified Party becomes aware of
any fact, condition or event which may give rise to Losses for which
indemnification may be sought under this Article VIII. If any lawsuit or
enforcement action is filed against any Indemnified Party hereunder, notice
thereof (a "Third Party Notice") shall be given to the Company as promptly as
practicable (and in any event within ten (10) calendar days after the service of
the citation or summons). The failure of any Indemnified Party to give timely
notice hereunder shall not affect rights to indemnification hereunder, except to
the extent that the Company demonstrates actual damage caused by such failure.
After receipt of a Third Party Notice, if the Company shall acknowledge in
writing to the Indemnified Party that the Company shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or action, then
the Company shall be entitled, if it so elects, (a) to take control of the
defense and investigation of such lawsuit or action, (b) to employ and engage
attorneys of its own choice to handle and defend the same, at the Company's
cost, risk and expense unless the named parties to such action or proceeding
include both the Company and the Indemnified Party and the Indemnified Party has
been advised in writing by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Company, and (c) to compromise or settle such claim,
which compromise or settlement (i) shall be made and entered into only with the
advance written consent of the Indemnified Party (in its sole discretion) if
such compromise or settlement, in the reasonable judgment of the Indemnified
Party, would cause more than de minimis harm to such Indemnified Party's
business reputation, (ii) may be made and entered into in the sole discretion of
the Company if such compromise or settlement provides for the payment solely of
cash to the claimant in such lawsuit in full satisfaction of such claimant's
claim therein and includes a release of the Indemnified Party to the maximum
extent permitted by law (and would not otherwise, in the reasonable judgment of
such Indemnified Party, cause more than de minimis harm to such Indemnified
Party's business reputation) and (iii) otherwise shall be entered into only with
the advance written consent of the Indemnified Party (such consent not to be
unreasonably withheld). The Indemnified Party shall cooperate in all reasonable
respects with the Company and such attorneys in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; and the
Indemnified Party may, at its own cost, participate in the investigation, trial
and defense of such lawsuit or action and any appeal arising therefrom and
63
appoint its own counsel therefor, at its own cost. The parties shall also
cooperate with each other in any notifications to insurers. If the Company
fails to assume the defense of such claim within fifteen (15) calendar days
after receipt of the Third Party Notice, the Indemnified Party against which
such claim has been asserted will (upon delivering notice to such effect to the
Company) have the right to undertake the defense, compromise or settlement of
such claim at the Company's cost and the Company shall have the right to
participate therein at its own cost; provided, however, that such claim shall
not be compromised or settled without the written consent of the Company, which
consent shall not be unreasonably withheld. In the event the Indemnified Party
assumes the defense of the claim, the Indemnified Party will keep the Company
reasonably informed of the progress of any such defense, compromise or
settlement. Notwithstanding the foregoing, the Company shall not be liable for
the reasonable fees and expenses of more than one firm of attorneys at any time
for any and all Indemnified Parties (which firm shall be designated in writing
by such Indemnified Party or Parties) in connection with any one such action or
proceeding or multiple actions or proceedings provided that they are held in the
same jurisdiction, arising out of the same general allegations or circumstances.
ARTICLE IX
MISCELLANEOUS
9.1 FEES AND EXPENSES.
The Company shall be responsible for the payment of all expenses
incurred by the Company in connection with the Transaction, regardless of
whether any portion of the Transaction closes, including, without limitation,
all fees and expenses of the Company's legal counsel and all third party
consultants engaged by the Company to assist in the Transaction.
9.2 INJUNCTIVE RELIEF.
The parties hereto acknowledge and agree that irreparable damage
would occur in the event any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and shall be
entitled to enforce specifically the provisions of this Agreement in any court
of the United States or any state thereof having jurisdiction, in addition to
any other remedy to which the parties may be entitled under this Agreement or at
law or in equity
9.3 ASSIGNMENT.
Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by the Company without the prior written consent of
the Purchaser, or by the Purchaser without the prior written consent of the
Company, except that the Purchaser may, without such consent, assign, in whole
or in part, the right to acquire the Securities hereunder to an Affiliate of the
Purchaser. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall have any right, benefit or obligation
hereunder.
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9.4 NOTICES.
Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered by hand-delivery, registered first-class mail,
return receipt requested, facsimile or air courier guaranteeing overnight
delivery, as follows:
If to the Company: InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Facsimile: 714.851.4488
Attn: Chief Financial Officer
With a copy to: McDermott, Will & Emery
2049 Century Park East - 34th Floor
Los Angeles, CA 90067
Facsimile: 310.277.4730
Attn: Mark J. Mihanovic, Esq.
and
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W., Suite 600
Washington, D.C. 20036
Facsimile: 202.857.6395
Attn: Gerald P. McCartin, Esq.
If to the Purchaser: General Electric Company
P.O. Box 414, W-490
Milwaukee, WI 53201-0414
Facsimile: 414.789.4573
Attn: Richard S. Berger, Finance Manager
and
GE Capital
260 Long Ridge Road
Stamford, CT 06927-5000
Facsimile: 203.357.6567
Attn: Michael E. Aspinwall, Senior Vice President
With a copy to: Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071-3197
65
Facsimile: 213.229.7520
Attn: Ronald S. Beard, Esq.
or to such other place and with such other copies as either party may
designate as to itself by written notice to the other. All such notices,
requests, instructions or other documents shall be deemed to have been duly
given at the time delivered by hand, if personally delivered, four (4)
business days after being deposited in the mail, postage prepaid, if mailed,
when receipt is acknowledged by addressee, if by facsimile, or on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
9.5 CHOICE OF LAW.
This Agreement shall be construed, interpreted and the rights
of the parties determined in accordance with the internal laws of the State
of New York, without regard to the conflict of law principles thereof; except
with respect to matters of law concerning the internal corporate affairs of
any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern. The parties irrevocably
elect as the sole judicial forum for the adjudication of any matters arising
under or in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, and consent to the jurisdiction
of, the courts of the United States of America for the Southern District of
New York and of the State of New York in Manhattan in connection with the
adjudication of any matter arising under or in connection with this
Agreement, the Ancillary Agreements and the transactions contemplated hereby
and thereby, and waive any and all objections to such jurisdiction or venue
that they may have.
9.6 ENTIRE AGREEMENT.
All Exhibits and Schedules attached to this Agreement by this
reference are incorporated herein as if fully set forth herein. This
Agreement, including all Exhibits and Schedules attached hereto, constitutes
the entire agreement among the parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, including the written
summary of proposed terms between the Company and the Purchaser dated
September 15, 1997. Capitalized terms used in the Exhibits and Schedules but
not defined therein shall have the respective meanings ascribed to such terms
in this Agreement. Any item disclosed in one Schedule shall be deemed to have
been disclosed in all other Schedules.
9.7 COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.8 INVALIDITY.
In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein shall for any
reason be held to be invalid, illegal or
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unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
9.9 HEADINGS; LANGUAGE.
The headings of the Articles and Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement. In this Agreement,
unless the context otherwise requires, the masculine, feminine and neuter
genders and the singular and the plural include one another. Whenever used
in this Agreement: the term "Knowledge," with respect to any Person, means
the actual knowledge of such Person, after reasonable inquiry. For purposes
hereof, a Person shall be deemed to have actual knowledge of the contents of
all books and records with respect to which such Person has reasonable
access. Without limiting the generality of the foregoing, with respect to
any Person that is a corporation, partnership or other business entity,
actual knowledge shall be deemed to include the actual knowledge of all
principal employees of any such Person (which, for purposes of the Company,
shall include without limitation those Persons listed in Exhibit J) as well
as the Chief Executive Officer, President, Chief Financial Officer and all
Vice Presidents in the case of corporate Persons, and general partners in the
case of general or limited partnerships, as the case may be; "receipt by the
Company or any Subsidiary of notice," and similar phrases, means physical
receipt at a location owned, leased or operated by the Company or its
Subsidiaries; "including" means including, without limitation.
9.10 LIMITATION OF LIABILITY.
In no event shall (a) any Affiliate of the Purchaser, (b) any
member or representative of the Purchaser or of any Affiliate of the Purchaser
or (c) any direct or indirect member, stockholder, officer, director, limited
partner, employee or any other such person of the Purchaser or any Affiliate of
the Purchaser, be personally liable for any obligation of the Purchaser under
this Agreement. In no event shall any direct or indirect stockholder, officer,
director, partner, employee or salesperson of the Company or any Subsidiary or
any other such Person be personally liable for any obligation of the Company
under this Agreement.
9.11 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Purchaser, the Company and TC Group, L.L.C.
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IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed as of the day and year
first above written.
THE COMPANY:
------------
INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By ____________________________
Name: ____________________________
Title: ____________________________
THE PURCHASER:
--------------
GENERAL ELECTRIC COMPANY
a New York corporation
By ____________________________
Name: ____________________________
Title: ____________________________