-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TeLSE7f+K5CygNMayckB++AXOhYywqvl4tKOUTvfB2MSk2U44dXeHDxyIELjD2iG 2LDRMc4VUFPfaCU5K8e2Ww== 0001047469-97-001467.txt : 19971024 0001047469-97-001467.hdr.sgml : 19971024 ACCESSION NUMBER: 0001047469-97-001467 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19971023 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CO CENTRAL INDEX KEY: 0000040545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 140689340 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-51773 FILM NUMBER: 97699591 BUSINESS ADDRESS: STREET 1: 3135 EASTON TURNPIKE STREET 2: C/O BANK OF NEW YORK CITY: FAIRFIELD STATE: CT ZIP: 06431 BUSINESS PHONE: 2033732816 MAIL ADDRESS: STREET 1: 3135 EASTON TURNPIKE CITY: FAIRFIELD STATE: CT ZIP: 06431 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT HEALTH SERVICES CORP CENTRAL INDEX KEY: 0001012697 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 330702770 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 4440 VON KARMAN AVENUE STE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7144760733 MAIL ADDRESS: STREET 1: 4440 VON KARMAN AVE., STE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 SC 13D/A 1 FORM 13-D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 1) Insight Health Services Corp. (Name of Issuer) Common Stock, $0.001 par value (Title of Class of Securities) 45766Q 10 1 (CUSIP Number) Robert E. Healing, Esq. General Electric Company 3134 Easton Turnpike Fairfield, Connecticut 06431 (203) 373-2243 (Name, address, including zip code, and telephone number, including area code of agent for service) COPIES TO: Ronald S. Beard, Esq. Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071-3197 (213) 229-7000 October 14, 1997 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. Check the following box if a fee is being paid with the statement / /. SCHEDULE 13D CUSIP No. 45766Q 10 1 Page 2 of ___ Pages 1 NAMES OF REPORTING PERSON General Electric Company S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (I.R.S. # 14-0689340) 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* Not Applicable 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [X] 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 2,501,760 shares of Series A Preferred Stock convertible into Common Stock; and 7,000 shares of Series C Preferred Stock convertible into Common Stock or Series D Preferred Stock; and 250,000 Warrants See Item 5(a) OWNED BY 8 SHARED VOTING POWER EACH 0 REPORTING 9 SOLE DISPOSITIV PERSON E POWER WITH 2,501,760 shares of Series A Preferred Stock convertible into Common Stock; and 7,000 shares of Series C Preferred Stock convertible into Common Stock or Series D Preferred Stock; and 250,000 Warrants See Item 5(a) 10 SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,501,760 shares of Series A Preferred Stock convertible into Common Stock; 7,000 shares of Series C Preferred Stock convertible into Common Stock or Series D Preferred Stock; and 250,000 Warrants (see Item 5(a)) 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 100% of outstanding Series A Preferred Stock 100% of outstanding Series C Preferred Stock 56.9% of Common Stock, par value $0.001 per share (assuming conversion of shares of Series A Preferred Stock and Series C Preferred Stock and exercise of GE Warrants) 14 TYPE OF REPORTING PERSON* CO *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. STATEMENT PURSUANT TO RULE 13d-1 OF THE GENERAL RULES AND REGULATIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED This amendment amends a statement on Schedule 13D (the "Original 13D") relating to the Common Stock, $0.001 par value per share ("Common Stock"), of Insight Health Services Corp., a Delaware corporation ("Insight"), filed with the Securities and Exchange Commission on July 12, 1996. This amendment reports (i) the purchase by General Electric Company, a New York corporation ("GE"), of 7,000 shares of newly issued InSight Convertible Preferred Stock, Series C, par value $0.001 per share ("Series C Preferred Stock"), (ii) the purchase by GE of warrants to purchase up to 250,000 shares of Insight Common Stock at the initial exercise price of $10.00 per share (the "GE Warrants"), and (iii) an agreement between GE and InSight (subject to certain conditions) for GE to convert all of its shares of existing InSight Convertible Preferred Stock, Series A, par value $0.001 per share ("Series A Preferred Stock"), into shares of Series C Preferred Stock. ITEM 2 - IDENTITY AND BACKGROUND This statement is filed by GE. GE's principal executive offices are located at 3135 Easton Turnpike, Fairfield, Connecticut. GE engages in providing a wide variety of industrial, commercial and consumer products and services. For information with respect to the identity and background of each director and executive officer of GE, see Schedule I attached hereto. During the last five years, neither GE nor, to its best knowledge, any person identified on Schedule I has, except as set forth on Schedule II hereto (a) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which GE or such person, as the case may be, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. To the best knowledge of GE, all persons identified on Schedule I are United States citizens, except that Paolo Fresco, Vice Chairman of the Board and an executive officer of GE, is an Italian citizen, Claudio X. Gonzalez, a director of GE, is a Mexican citizen and G.S. Malm, an executive officer of GE, is a Swedish citizen. ITEM 3 - SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION On October 14, 1997, InSight consummated a recapitalization ("Recapitalization") pursuant to which (a) certain investors affiliated with TC Group, LLC and its affiliates (collectively, "Carlyle"), a private merchant bank headquartered in Washington, D.C., made a cash investment of $25 million in InSight and received therefor (i) 25,000 shares of newly issued InSight Convertible Preferred Stock, Series B, par value $0.001 per share ("Series B Preferred Stock"), initially convertible, at the option of the holders thereof, in the aggregate into 2,985,075 shares of InSight Common Stock, and (ii) warrants (the "Carlyle Warrants") to purchase up to 250,000 shares of InSight Common Stock at the initial exercise price of $10.00 per share; (b) GE (i) surrendered its rights with respect to a supplemental service fee payable from InSight to GE in exchange for (A) the issuance of 7,000 shares of newly issued Series C Preferred Stock, initially convertible, at the option of GE, in the aggregate into 835,821 shares of InSight Common Stock, and (B) the GE Warrants, and (ii) agreed to exchange all of its Series A Preferred Stock on the business day (the "Second Closing") after all waiting periods with respect to GE's filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, have expired or been terminated, for an additional 20,953 shares of Series C Preferred Stock, initially convertible, at the option of the holders thereof, in the aggregate into 2,501,851 shares of InSight Common Stock; and (c) InSight executed a Credit Agreement with NationsBank, N.A. pursuant to which NationsBank, as agent, committed to provide a total of $125 million in senior secured credit, including a $50 million acquisition facility (the "Credit Facility"), upon the satisfaction of certain customary conditions. The shares of Series B Preferred Stock and Series C Preferred Stock are convertible, at the option of the majority of the holders of each such series and under certain conditions, one year after the initial funding under the Credit Facility (which such initial funding took place on October 22, 1997), into shares of InSight Convertible Preferred Stock, Series D, par value $0.001 per share ("Series D Preferred Stock"). The Series D Preferred Stock is convertible into Common Stock. The holders of the shares of Series C Preferred Stock have the right to vote with the holders of Common Stock and the holders of the Series B Preferred Stock with respect to all matters submitted to a shareholder vote, except for the election of directors (with respect to which the holders of the shares of Series C Preferred Stock have the voting rights set forth in the next paragraph). With respect to all matters submitted to a shareholder vote (except for the election of directors), each holder of Series C Preferred Stock has one vote for every share of Common Stock into which each share of Series C Preferred Stock is convertible pursuant to the terms of the Series C Certificate of Designation; provided, however, that the aggregate number of such votes, when combined with the aggregate number of votes attributable to the holders of the shares of Series B Preferred Stock, shall not exceed 37% of the total number of votes eligible to be cast. Pursuant to the terms of the Recapitalization, the number of directors comprising the Company's Board of Directors (the "Board") is currently fixed at nine. Six directors (the "Common Stock Directors") are to be elected by the common stockholders, one of whom (the "Joint Director") is to be proposed by the majority holders of each of the Series B Preferred Stock and the Series C Preferred Stock and approved by a majority of the Board in its sole discretion. Of the three remaining directors, two are to be elected by the holders of the Series B Preferred Stock and one is to be elected by the holders of the Series C Preferred Stock, subject to increase or decrease in certain circumstances (the "Preferred Stock Directors"). Presently, the Board of the Company consists of seven directors, five of whom are Common Stock Directors and two of whom are Preferred Stock Directors elected by the holders of the Series B Preferred Stock. GE does not currently intend to elect its Preferred Stock Director until after the Second Closing. The vacancy created for the Joint Director has not been filled. Upon a conversion by the holders of the Series B Preferred Stock and the Series C Preferred Stock of their shares of preferred stock into shares of Series D Preferred Stock (a "Type B Event Date"), the number of members of the Board shall be increased automatically by the smallest whole number that will result in at least the Type B Percentage (but less than sixty six and two-thirds percent (66 2/3%)) of the members of the Board being Series D Directors. Immediately following a Type B Event Date, the holders of Series D Preferred Stock shall have the right to elect all of the new directors (the "Conversion Directors"). The "Type B Percentage" equals a percentage equal to the number of shares of Common Stock held by all holders of Series B Preferred Stock and Series C Preferred Stock as of the Type B Event Date (assuming conversion of all such shares of Series B Preferred Stock and Series C Preferred Stock into Common Stock) divided by the total number of shares of Common Stock outstanding as of such date (assuming conversion of all convertible shares of Preferred Stock as of such date); provided, however, that the maximum Type B Percentage is sixty-four percent (64%). "Series D Directors" means, collectively, the Preferred Stock Directors and the Conversion Directors. The foregoing discussion in response to this Item 3 is qualified in its entirety by reference to the Securities Purchase Agreement dated October 14, 1997 between GE and InSight (the "Securities Purchase Agreement"), the Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series B, the Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series C, and the Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series D, all of which are attached as Exhibits hereto and which are hereby incorporated herein. ITEM 4 - PURPOSE OF TRANSACTION GE has acquired its shares of Series A Preferred Stock, shares of Series C Preferred Stock (including its right to purchase shares of Series C Preferred Stock at the Second Closing) and GE Warrants (including, to the extent applicable, its rights thereunder to acquire Common Stock of InSight) as an investment in the ordinary course of business, and not with the purpose of changing control of InSight. GE may, from time to time, transfer all or part of its shares of Series C Preferred Stock to one or more of its affiliates pursuant to the provisions of the Securities Purchase Agreement. GE may change its current intentions, acquire additional Common Stock or rights that are convertible into or exercisable for Common Stock or take any other action with respect to InSight or its equity securities in any manner permitted by law. Other than as set forth herein, GE has no current plans which relate to or would result in any of the events described in Items (a) through (j) of the instructions to this Item 4 of Schedule 13D. ITEM 5 - INTEREST IN SECURITIES OF THE ISSUER (a) GE beneficially owns all 2,501,760 shares of InSight's outstanding Series A Preferred Stock, all 7,000 issued shares of InSight's Series C Preferred Stock, and all 250,000 GE Warrants. If GE converted all of the shares of Series A Preferred Stock and Series C Preferred Stock to Common Stock pursuant to the terms thereof and exercised the GE Warrants, GE would own approximately 56.9% of the outstanding shares of Common Stock of InSight (assuming conversion of all shares of Series A Preferred Stock and Series C Preferred Stock and exercise of the GE Warrants, and based upon a number of shares of Common Stock reported as outstanding by InSight as of September 30, 1997 of 2,714,725). (b) GE has sole voting and investment power with respect to the securities that are the subject of this Schedule 13D. (c) Not applicable. (d) No other person is known to GE to have the right to receive or the power to direct the receipt of dividends from, or any proceeds from the sale of, the securities that are the subject of this Schedule 13D. (e) Not applicable. ITEM 6 - CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER The response to Item 3 is incorporated by reference herein. Pursuant to the Securities Purchase Agreement and the terms of the Series C Preferred Stock, GE has certain class voting rights with respect to InSight's Series C Preferred Stock and preemptive rights with respect to certain securities issuances by InSight. In addition, InSight has granted GE certain registration rights with respect to the shares of Common Stock issuable upon exercise of the GE Warrants, and has agreed to provide registration rights with respect to the shares of Common Stock issuable upon conversion of the Series A Preferred Stock and the Series C Preferred Stock. The foregoing response to this Item 6 is qualified in its entirety by reference to the Securities Purchase Agreement, the Warrant Purchase Agreement (a copy of which is attached hereto as Exhibit 3) and the Registration Rights Agreement (a copy of which is attached hereto as Exhibit 2), which are hereby incorporated herein. ITEM 7 - MATERIAL TO BE FILED AS EXHIBITS. (1) Securities Purchase Agreement dated as of October 14, 1997 (2) Registration Rights Agreement dated as of October 14, 1997 (3) Warrant Purchase Agreement dated as of October 14, 1997 (4) Certificate of Designation, Preferences and Rights of Series B Preferred Stock (5) Certificate of Designation, Preferences and Rights of Series C Preferred Stock (6) Certificate of Designation, Preferences and Rights of Series D Preferred Stock SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. GENERAL ELECTRIC COMPANY By: /s/ Name: Title: Dated: October __, 1997 GENERAL ELECTRIC COMPANY DIRECTORS PRESENT PRINCIPAL NAME PRESENT BUSINESS ADDRESS OCCUPATION ---------------- ------------------------ ---------------------- D.W. Calloway PepsiCo, Inc. Retired Director and 700 Anderson Hill Road Chairman of the Board, Purchase, NY 10577 Pepsico, Inc. J.I.Cash, Jr. Harvard Business School Professor of Business Baker Library 187 Administration-Graduate Soldiers Field School of Business Boston, MA 02163 Administration, Harvard University S.S. Cathcart 222 Wisconsin Avenue Retired Chairman, Suite 103 Illinois Tool Works Lake Forest, IL 60045 D.D. Dammerman General Electric Company Senior Vice President- 3135 Easton Turnpike Finance, General Electric Fairfield, CT 06431 Company P. Fresco General Electric Company Vice Chairman of the (U.S.A.) Board and Executive 3 Shortlands, Officer, General Hammersmith Electric Company London, W6 8BX, England C.X. Gonzalez Kimberly-Clark de Chairman of the Board and Mexico, Chief Executive Officer, S.A. de C.V. Kimberly-Clark de Mexico, Jose Luis Lagrange 103, S.A. de C.V. Tercero Piso Colonia Los Morales Mexico, D.F. 11510, Mexico G.G. Michelson Federated Department Former Member of the Stores Board of Directors, 151 West 34th Street Federated Department New York, NY 10001 Stores S. Nunn King & Spalding Partner, King & Spalding 191 Peachtree Street, N.E. Atlanta, Georgia 30303 GENERAL ELECTRIC COMPANY EXECUTIVE OFFICERS PRESENT PRINCIPAL NAME PRESENT BUSINESS ADDRESS OCCUPATION ---------------- ------------------------ ---------------------- J.F. Welch, Jr. General Electric Company Chairman of the Board and 3135 Easton Turnpike Chief Executive Officer Fairfield, CT 06431 P. Fresco General Electric Company Vice Chairman of the (U.S.A.) Board 3 Shortlands, Board and Executive Hammersmith Officer London, W6 8BX, England P.D. Ameen General Electric Company Vice President and 3135 Easton Turnpike Comptroller Fairfield, CT 06431 J.R. Bunt General Electric Company Vice President and 3135 Easton Turnpike Treasurer Fairfield, CT 06431 D.L. Calhoun General Electric Company Vice President - 2901 East Lake Road GE Transportation Systems Erie, PA 16531 W.J. Conaty General Electric Company Senior Vice President - 3135 Easton Turnpike Human Resources Fairfield, CT 06431 D. M. Cote General Electric Company Senior Vice President - 3135 Easton Turnpike GE Appliances Fairfield, CT 06431 D.D. Dammerman General Electric Company Senior Vice President - 3135 Easton Turnpike Finance Fairfield, CT 06431 L.S. Edelheit General Electric Company Senior Vice President - P. O. Box 8 Corporate Research and Schenectady, NY 12301 Development PRESENT PRINCIPAL NAME PRESENT BUSINESS ADDRESS OCCUPATION ---------------- ------------------------ ---------------------- J.D. Opie General Electric Company Vice Chairman of the 3135 Easton Turnpike Board and Executive Fairfield, CT 06431 Officer R.S. Penske Penske Corporation Chairman of the Board and 13400 Outer Drive, West President, Penske Detroit, MI 48239-4001 B.S. Prieskel Suite 3125 Former Senior Vice 60 East 42nd Street President, New York, NY 10165 Motion Picture Associations of America F.H.T. Rhodes Cornell University President Emeritus 3104 Snee Building Cornell University Ithaca, NY 14853 A.C. Sigler Champion International Retired Chairman of the Corporation Board and CEO 1 Champion Plaza and former Director, Stamford, CT 06921 Champion International Corporation D.A. Warner III J. P. Morgan & Co., Inc. Chairman of the Board, & Morgan Guaranty Trust President, and Chief Co. Executive Officer, 60 Wall Street J.P. Morgan & Co. New York, NY 10260 Incorporated and Morgan Guaranty Trust Company J.F. Welch, Jr. General Electric Company Chairman of the Board and 3135 Easton Turnpike Chief Executive Officer, Fairfield, CT 06431 General Electric Company CITIZENSHIP C. X. Gonzalez Mexico P. Fresco Italy All Others U.S.A. 2 PRESENT PRINCIPAL NAME PRESENT BUSINESS ADDRESS OCCUPATION ---------------- ------------------------ ---------------------- B.W. Heineman, General Electric Company Senior Vice President - Jr. 3135 Easton Turnpike General Counsel and Fairfield, CT 06431 Secretary J. R. Immelt General Electric Company Senior Vice President - P.O. Box 414 GE Medical Systems Milwaukee, WI 53201 W.J. Lansing General Electric Company Vice President- Corporate 3135 Easton Turnpike Business Development Fairfield, CT 06431 G. S. Malm General Electric Company Senior Vice President - 3135 Easton Turnpike Asia Fairfield, CT 06431 W.J. McNerney, General Electric Company Senior Vice President - Jr. Nela Park GE Lighting Cleveland, OH 44122 E.F. Murphy General Electric Company Senior Vice President - 1 Neumann Way GE Aircraft Engines Cincinnati, OH 05215 R.L. Nardelli General Electric Company Senior Vice President - 1 River Road GE Power Systems Schenectady, NY 12345 R.W. Nelson General Electric Company Vice President - 3135 Easton Turnpike Corporate Financial Fairfield, CT 06431 Planning and Analysis J.D. Opie General Electric Company Vice Chairman of the 3135 Easton Turnpike Board and Fairfield, CT 06431 Executive Officer G.M. Reiner General Electric Company Senior Vice President - 3135 Easton Turnpike Chief Information Officer Fairfield, CT 06431 4 PRESENT PRINCIPAL NAME PRESENT BUSINESS ADDRESS OCCUPATION ---------------- ------------------------ ---------------------- G.L. Rogers General Electric Company Senior Vice President - 1 Plastics Avenue GE Plastics Pittsfield, MA 01201 J.W. Rogers General Electric Company Vice President - GE 1635 Broadway Motors Fort Wayne, IN 46801 L.G. Trotter General Electric Company Vice President - 41 Woodford Avenue GE Electrical Plainville, CT 06062 Distribution and Control CITIZENSHIP P. Fresco Italy G. S. Malm Sweden All Others U.S.A. 5 RECENT GE CONVICTIONS 1. HER MAJESTY'S INSPECTORATE OF POLLUTION V. IGE MEDICAL SYSTEMS LIMITED (St. Albans Magistrates Court, St. Albans, Hertsfordshire, England, Case No. 04/00320181) In April, 1994, GEMS' U.K. subsidiary, IGE Medical Systems Limited (IGEMS) discovered the loss of a radioactive barium source at the Radlett, England facility. The lost source, used to calibrate nuclear camera detectors, emits a very low level of radiation. IGEMS immediately reported the loss as required by the U.K. Radioactive Substances Act. An ensuing investigation, conducted in cooperation with government authorities, failed to locate the source. On July 21, 1994, Her Majesty's Inspectorate of Pollution (HMIP) charged IGEMS with violating the Radioactive Substances Act by failing to comply with a condition of registration. The Act provides that a registrant like IGEMS, which "does not comply with a limitation or condition subject to which (it) is so registered ... shall be guilty of (a criminal) offense." Condition 7 of IGEMS' registration states that it "shall so far as is reasonably practicable prevent ... loss of any registered source." At the beginning of trial on February 24, 1995, IGEMS entered a guilty plea and agreed to pay of fine of 5,000L and assessed costs of 5,754L. The prosecutors presentation focused primarily on the 1991 change in internal IGEMS procedures and, in particular, the source logging procedure. The prosecutor complimented IGEMS' investigation and efforts to locate the source and advised the court that IGEMS had no previous violations of the Radioactive Substances Act. He also told the court that the Radlett plant had been highlighted as an exemplary facility to HMIP inspectors as part of their training. In mitigation, IGEMS emphasized the significant infrastructure and expense undertaken by IGEMS to provide security for radiation sources and the significant effort and expense incurred in attempting to locate the missing source. 2. Except for the foregoing, GE has not and, to the best of GE's knowledge, none of the directors and executive officers of GE has been, during the last five years, convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). 3. GE has not and, to the best of GE's knowledge, none of the directors and executive officers of GE has been, during the last five years, a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. October 21, 1997 EX-3.2 2 EXH. 3.2 - CERT OF DESIGNATION SERIES B INSIGHT HEALTH SERVICES CORP. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF CONVERTIBLE PREFERRED STOCK, SERIES B (Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware.) InSight Health Services Corp., a corporation organized and existing under the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the certificate of incorporation of the Company, as amended, the Board unanimously adopted the following resolutions on October 14, 1997 authorizing the issuance of the Series B Convertible Preferred Stock of the Company, which resolutions are still in full force and effect and are not in conflict with any provisions of the Certificate of Incorporation or Bylaws of the Company: RESOLVED, that pursuant to authority vested in the Board by the Certificate of Incorporation, the Board does hereby establish a series of preferred stock of the Company from the Company's authorized class of 3,500,000 shares of $.001 par value preferred shares, such series to consist of 25,000 shares, and does hereby fix and state the voting rights, designation, powers, preferences and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereof, as follows: SECTION 1. DESIGNATION. The Preferred Stock created and authorized hereby shall be designated as the "Convertible Preferred Stock, Series B" (hereinafter called the "SERIES B PREFERRED STOCK"). The number of shares of Series B Preferred Stock shall be 25,000 and no more. SECTION 2. RANK. The Series B Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank senior to all classes of Common Equity of the Company, and to each other class or series of Capital Stock of the Company (except for the Convertible Preferred Stock, Series A (hereinafter called the "SERIES A PREFERRED STOCK")) the terms of which do not expressly provide that it ranks senior to or on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to with the Common Equity of the Company as "JUNIOR SECURITIES"). The Series B Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank on a parity with any class or series of Capital Stock hereafter created which expressly provides that it ranks on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (shares of such a class or series, together with shares of the Series A Preferred Stock, shares of the Convertible Preferred Stock, Series C (the "SERIES C PREFERRED STOCK"), and shares of the Convertible Preferred Stock, Series D (the "SERIES D PREFERRED STOCK") are, collectively, the "PARITY SECURITIES"); provided that any purported Parity Securities that were not created, authorized or issued in accordance with Section 11 hereof shall be deemed to be Junior Securities and not Parity Securities. The Series B Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank junior to each class or series of Capital Stock hereafter issued in accordance with Section 11 hereof and which expressly provides that it ranks senior to the Series B Preferred Stock as to dividend distributions or distributions upon the liquidation, winding up and dissolution of the Company ("SENIOR SECURITIES"). Any purported Supervoting Securities that were not created, authorized or issued in accordance with Section 11 hereof shall be deemed for all purposes related to voting rights to be identical to Common Stock, including, without limitation, as to voting rights with respect to the election of directors and all other matters submitted to a vote of stockholders. SECTION 3. DIVIDENDS. (a) The Company may (when, as and if declared by the Board of Directors of the Company) declare and pay dividends, out of the entire assets and funds of the Company legally available therefor to the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the common stock, $.001 par value per share, of the Company (the "COMMON STOCK") ratably based on the number of shares of Common Stock held by each such Holder (assuming full conversion of all such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock into Common Stock); PROVIDED, HOWEVER, that no dividend whatsoever shall be paid, and no distribution shall be made, on any Common Stock unless and until each holder of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock shall have been paid in full its respective pro rata portion of such dividend. (b) Holders of shares of the Series B Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof in preference to and in priority over any dividends upon any of the Junior Securities, except for the Common Stock. (c) Holders of shares of the Series B Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof on a pro rata basis with respect to any dividends upon any Parity Securities. SECTION 4. LIQUIDATION PREFERENCE. (a) Upon any Liquidating Event with respect to the Company, the Holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, $1,000 per share of Series B Preferred Stock (the "LIQUIDATION PREFERENCE"), plus an amount in cash equal to any declared but unpaid dividends thereon, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities, including, without limitation, Common Stock. Except as provided in the preceding sentence, holders of shares of Series B Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the 2 Company. If the assets of the Company are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series B Preferred Stock and all Parity Securities, then the holders of all such shares shall share equally and ratably in such distribution of assets of the Company in accordance with the amounts which would be payable on such distribution if the amount to which the holders of outstanding shares of Series B Preferred Stock and the holders of outstanding shares of all Parity Securities are entitled were paid in full. (b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of the following events: (i) the commencement by such Person of a voluntary case under the bankruptcy laws of the United States, as now or hereafter in effect, or the commencement of an involuntary case against such Person with respect to which the petition shall not be controverted within 15 days, or be dismissed within 60 days, after commencement thereof; (ii) the appointment of a custodian for, or the taking charge by a custodian of, all or substantially all of the property of such Person; (iii) the commencement by such Person 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 such Person; (iv) the commencement against such Person of any proceeding set forth in the preceding clause (iii), which is not controverted within 10 days thereof and dismissed within 60 days after the commencement thereof; (v) the adjudication of such Person insolvent or bankrupt, or the adoption by such Person of a plan of liquidation; (vi) the occurrence of any Change of Control with respect to such Person or (vii) the filing of a certificate of dissolution in respect of the Company with the Secretary of State of the State of Delaware; in any of cases (i) through (vi) above, in a single transaction or series of related transactions. SECTION 5. TYPE A CONVERSION (a) Each holder of Series B Preferred Stock shall have the right, at its option, at any time, to convert, subject to the terms and provisions of this Section 5, all, but not less than all, of its Series B Preferred Stock then outstanding into such number of fully paid and non-assessable shares of Common Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of all shares of Series B Preferred Stock to be converted plus (B) any declared but unpaid dividends on such shares, by (ii) the applicable Conversion Price on the Conversion Date. In addition, and without limiting the right to conversion in whole set forth above, substantially contemporaneously with any Partial Conversion Event, each holder of Series B Preferred Stock shall have the right, at its option, to convert (which conversion, if such option is exercised, shall be deemed to occur on such Partial Conversion Event), subject to the terms and provisions of this Section 5, all or any part of its Series B Preferred Stock then outstanding into such number of fully paid and non-assessable shares of Common Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of all shares of Series B Preferred Stock to be converted plus (B) any declared but unpaid dividends on such shares, by (ii) the applicable Conversion Price (as defined below) on the Conversion Date. The person or persons entitled to receive the shares of Common Stock upon conversion of such shares of Series B Preferred Stock shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock on the Conversion Date and such conversion shall be at the Conversion Price in effect at such time. 3 (b) In order to convert all or any portion of its outstanding Series B Preferred Stock into shares of Common Stock pursuant to this Section 5, the holder of such Series B Preferred Stock shall deliver certificates representing the shares of Series B Preferred Stock to be converted to the Company at its principal office, together with written notice that it elects to convert those shares of Series B Preferred Stock into shares of Common Stock in accordance with the provisions of this Section 5. Such notice shall specify the number of shares of Series B Preferred Stock to be converted and the name or names in which the holder wishes the certificates for shares of Common Stock to be registered. (c) Upon any Type A Conversion, pursuant to this Section 5 and Section 5 of the certificate of designation of Series C Preferred Stock, 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. SECTION 6. TYPE B CONVERSION (a) The right to conversion set forth in this Section 6 shall be in addition to, and not in lieu of, the conversion rights set forth in Section 5. (b) At any time on or after the Type B Trigger Date, the Majority Holders may elect to deliver an irrevocable Type B Conversion notice (the "TYPE B CONVERSION NOTICE") to the Company; PROVIDED, HOWEVER, that no such Type B Conversion Notice shall be effective unless substantially contemporaneously with the delivery of such Type B Conversion Notice, Majority Holders of the Series C Preferred Stock shall deliver a Type B Conversion Notice (as defined in the Certificate of Designation relating to the Series C Preferred Stock) to the Company. The date of delivery to the Company of a Type B Conversion Notice shall be denominated herein a "TYPE B EVENT DATE" or a "CONVERSION DATE". Upon receipt of a Type B Conversion Notice, the Company shall as soon as practicable deliver a copy of such Type B Conversion Notice to each holder of Series B Preferred Stock and each holder of Series C Preferred Stock. (c) On the Type B Event Date, each share of Series B Preferred Stock then outstanding shall automatically be converted into such number of fully paid and non-assessable shares of Series D Preferred Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of such share of Series B Preferred Stock plus (B) any declared but unpaid dividends on such share, by (ii) the product of ten (10) times the applicable Conversion Price on the Conversion Date. The person or persons entitled to receive the shares of Series D Preferred Stock upon conversion of such shares of Series B Preferred Stock shall be treated for all purposes (including without limitation voting rights) as having become the record holder or holders of such shares of Series D Preferred Stock on the Type B Event Date, whether or not such person or persons deliver its certificates for shares of Series B Preferred Stock to the Company on the Type B Event Date. 4 (d) As soon as practicable after the Type B Event Date, each holder of Series B Preferred Stock shall deliver its certificates for shares of Series B Preferred Stock to the Company at its principal office. Except as provided in this Certificate of Designation, all rights with respect to such Series B Preferred Stock shall terminate on the Type B Event Date, and on such Type B Event Date the holders of the shares of Series D Preferred Stock into which the shares of Series B Preferred Stock were converted shall have all of the rights accorded to holders of the Company's Series D Preferred Stock. (e) The rights of holders of shares of Series B Preferred Stock pursuant to this Section 6 shall not be transferable, except to an Initial Purchaser Affiliate. SECTION 7. GENERAL PROVISIONS RELATING TO CONVERSION The following provisions shall be applicable to any conversion pursuant to either Section 5 or Section 6 hereof. (a) As promptly as practicable after the surrender as hereinabove provided of certificates representing shares of Series B Preferred Stock converted or to be converted into shares of Common Stock or Series D Preferred Stock, the Company shall deliver or cause to be delivered to the holder, or the holder's designee, certificates representing the number of fully paid and non-assessable shares of Common Stock or Series D Preferred Stock into which the shares of Series B Preferred Stock are converted (including any adjustment pursuant to Section 8(b) below) and, if less than the entire number of shares of Series B Preferred Stock represented by the certificate or certificates surrendered is to be converted, a new certificate for the number of shares of Series B Preferred Stock not so converted. So long as any shares of Series B Preferred Stock remain outstanding, the Company shall not close its Common Stock transfer books. The issuance of certificates representing shares of Common Stock or Series D Preferred Stock issued upon the conversion of shares of Series B Preferred Stock shall be made without charge to the holder of Series B Preferred Stock for any tax in respect of the issuance of such certificates (other than any transfer, withholding or other tax if the shares of Common Stock or Series D Preferred Stock are to be registered in a name different from that of the registered holder of Series B Preferred Stock). (b) No fractional shares of Common Stock or scrip representing fractional shares of Common Stock or Series D Preferred Stock shall be issued upon any conversion of any shares of Series B Preferred Stock, and the number of shares of Common Stock or Series D Preferred Stock to be issued shall be rounded up to a whole share. (c) 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 the Series C Preferred Stock and the issuance of Common Stock in respect of the Warrants and the GE Warrants, the full number of whole shares of Common Stock and Series D Preferred Stock then deliverable upon the conversion of all shares of Series B Preferred Stock and Series C Preferred Stock then outstanding and the issuance of Common Stock in respect of the Warrants and the GE Warrants. The Company shall take at all times such corporate action as shall be necessary in 5 order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock or Series D Preferred Stock upon the conversion of shares of Series B Preferred Stock in accordance with the provisions of Section 5 and Section 6, the conversion of shares of Series C Preferred Stock and the issuance of Common Stock in respect of the Warrants and the GE 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, the conversion of all then outstanding shares of Series C Preferred Stock and the issuance of Common Stock in respect of the Warrants and the GE Warrants, in addition to such other remedies as shall be available to the holders of the Series B 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 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. (d) If any shares of Common Stock or Series D Preferred Stock to be reserved for the purpose of conversion of Series B Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange, NASD Inc., Nasdaq or other regulatory body under any federal or state law, federal or state regulation, rule of NASD Inc., Nasdaq or otherwise, before such shares may be validly issued or delivered upon conversion, the Company shall, in good faith and as expeditiously as practicable, endeavor to secure such registration, listing or approval, as the case may be. (e) All shares of Common Stock or Series D Preferred Stock that may be issued upon conversion of the Series B Preferred Stock shall upon issuance by the Company be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (f) In the event of any taking by the Company of a record of the holders of any class of Capital Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of Capital Stock or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series B Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 6 (g) The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 7 and Sections 5, 6 and 8 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the shares of Series B Preferred Stock against impairment of any kind. SECTION 8. CONVERSION PRICE. (a) As used herein, the "Conversion Price" shall initially be $8.375 per share of Common Stock, subject to adjustment as set forth below. In order to prevent the dilution of the rights granted hereunder, the Conversion Price shall be subject to adjustment from time to time as provided in this Section 8. (b) If and whenever the Company issues or sells or, in accordance with Section 8(c), is deemed to have issued or sold, any share of Common Equity without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, the Conversion Price in effect immediately prior to such time shall immediately be reduced to the price determined by dividing (i) an amount equal to the sum of (A) the number of shares of Common Equity outstanding immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, and (B) the consideration, if any, received by the Company upon such issuance, by (ii) the total number of shares of Common Equity outstanding immediately after such issuance. Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price with respect to (i) the granting of stock options to employees of the Company authorized but not granted as of the Initial Issue Date for an aggregate of up to 300,000 shares of Common Equity (as such number of shares is equitably adjusted for subsequent stock splits reclassifications, stock combinations, stock dividends and recapitalizations), or (ii) the issuance upon exercise of up to 300,000 shares of Common Equity (as such number of shares is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations) in connection with the stock options described in clause (i) of this sentence. (c) For purposes of determining the adjusted Conversion Price under Section 8(b) above, the following shall be applicable: (1) CONSIDERATION. If any Common Equity, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the cash amount received by the Company therefor (which, in the case of any public offering of such securities for cash, shall not be reduced for any underwriters discount, and in no event shall be reduced by the amount of any reasonable expenses actually paid by the Company in connection therewith). In case any Common Equity, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by 7 the Company shall be the fair market value of such consideration. In case any Common Equity, Options or Convertible Securities are issued to the owners of the other constituent entity in connection with any merger in which the Company or any Subsidiary of the Company is a constituent entity, the amount of consideration for such Common Equity, Options or Convertible Securities shall be deemed to be the fair market value of such portion of the net assets and business of such other constituent entity as is fairly attributable to such Common Equity, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash shall be determined jointly by the Company and the Majority Holders. If such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser jointly selected by the Company and the Majority Holders. If such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser reasonably selected by the Company and reasonably approved by the Majority Holders. The determination of such appraiser shall be final and binding on the Company and the holders of the shares of Series B Preferred Stock, and the fees and expenses of such appraiser shall be paid by the Company, unless the fair market value determined by such appraiser is less than five percent (5%) above the value proposed in writing by the Company and rejected by the Majority Holders prior to the selection of such appraiser, in which event the fees and expenses of such appraiser shall be for the account of the holders of the then outstanding shares of Series B Preferred Stock (on a pro rata basis). (2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting or sale of any Option or Convertible Security (whether or not at the time convertible, exercisable or exchangeable): (A) the aggregate maximum number of shares of Common Equity deliverable, directly or indirectly, upon exercise of any Option shall be deemed to have been issued at the time such Option was granted and for a consideration equal to the (i) consideration (determined in the manner provided in subsection (1) above), if any, received by the Company upon the issuance of such Option plus (ii) the minimum purchase price provided in such Option for the Common Equity covered thereby, up to an amount equal to the Conversion Price in effect at the time such Option was granted; (B) the aggregate maximum number of shares of Common Equity deliverable upon conversion of or in exchange for any such Convertible Security, or upon the exercise of any Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such Convertible Security was issued or such Option was issued and for a consideration equal to the consideration, if any, received by the Company for any such Convertible Security and any related Option, plus the additional consideration (determined in the manner provided in subsection (1) 8 above), if any, to be received by the Company upon the conversion or exchange of such Convertible Security, or upon the exercise of any related Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof; (C) on any change in the number of shares of Common Equity deliverable, directly or indirectly, upon conversion, exercise or exchange of any such Option or Convertible Security or any change in the consideration to be received by the Company upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such Option or Convertible Security upon the basis of such change; (D) if the Conversion Price shall have been adjusted upon the issuance of any such Option or Convertible Security, no further adjustment of the Conversion Price shall be made for the actual issuance of Common Equity upon any exercise, conversion, or exchange thereof; provided, however, that none of the events set forth in Section 8(c)(2)(A) through 8(c)(2)(D), inclusive, shall result in any increase in the Conversion Price. (3) INTEGRATED TRANSACTION. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. (4) TREASURY SHARES. The number of shares of Common Equity outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Equity. (5) RECORD DATE. If the Company takes a record of the holders of Common Equity for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Equity, Options or in Convertible Securities or (B) to subscribe for or purchase Common Equity, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Equity deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (d) If the Company at any time subdivides (by any stock split, stock dividend, reclassification, recapitalization or otherwise) one or more classes of its outstanding shares of Common Equity into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced. If the Company at any time combines 9 (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (e) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Equity are entitled to receive (either directly or upon subsequent liquidation) stock, securities, cash, debt instruments or assets with respect to or in exchange for Common Equity is referred to herein as a "CORPORATE CHANGE." In case of any Corporate Change, each share of Series B Preferred Stock then outstanding will become convertible only into the kind and amount of securities, cash and other property receivable upon such Corporate Change by the holder of the number of shares of Common Stock into which such share of Series B Preferred Stock was convertible immediately prior thereto (assuming such holder of Common Stock failed to exercise any rights of election). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument the obligation to deliver to the holders of shares of Series B Preferred Stock such shares of stock, securities, cash, debt instruments or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (f) If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the shares of Series B Preferred Stock; provided that no such adjustment shall increase the Conversion Price obtainable as otherwise determined pursuant to this Section 8. (g) If the Company declares or pays a dividend upon the Common Equity payable otherwise than out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share of Series B Preferred Stock at the time of payment thereof the Liquidating Dividend which would have been paid to such holder on the Common Stock such holder would have owned had such holder fully exercised its right to convert the shares of Series B Preferred Stock into shares of Common Stock immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Equity entitled to such dividends are to be determined; provided, however, that if a Liquidating Dividend would involve the declaration or payment as a dividend of at least the lesser of (i) twenty percent (20%) of the Company's assets and (ii) Five Million Dollars ($5,000,000), then such Liquidating Dividend shall, at the option of the Majority Holders, be deemed to be a Liquidating Event and the rights of the holders of the shares of Series B Preferred Stock upon such Liquidating Event shall be governed by Section 4 hereof. 10 (h) Any transaction approved by the unanimous vote of the Acquisitions Committee or the unanimous vote of the Board pursuant to Section 10(c)(4) hereof shall not result in any adjustment to the Conversion Price in effect as of the closing of such transaction. SECTION 9. NO REDEMPTION. The shares of Series B Preferred Stock shall not be subject to mandatory redemption by the Company. 11 SECTION 10. VOTING RIGHTS AND RELATED PROVISIONS. (a) The Holders of shares of the Series B Preferred Stock will have the right to vote with the holders of Common Stock and the holders of the Series C Preferred Stock with respect to all matters submitted to a shareholder vote, except for the election of directors, which will be governed by Section 10(b) below. Each Holder of Series B Preferred Stock will have one vote for every share of Common Stock into which each share of Series B Preferred Stock is convertible pursuant to Sections 5 and 7 hereof as of the record date for such vote; provided, however, that the aggregate number of votes under this Section 10(a), when combined with the aggregate number of votes attributable to the holders of the Series C Preferred Stock pursuant to Section 10(a) of the Certificate of Designation with respect to the Series C Preferred Stock, with respect to any given matter submitted to a shareholder vote, shall not exceed 37% of the total number of votes eligible to be cast with respect to such matter (the "AGGREGATE VOTING LIMITATION"). In order to effectuate the Aggregate Voting Limitation, the eligible votes allocable to each holder of shares of Series B Preferred Stock and Series C Preferred Stock shall be reduced, on a pro rata basis based on the percentage of aggregate Series B Preferred Stock and Series C Preferred Stock liquidation preference attributable to the shares owned by such holder, to the highest whole number consistent with the Aggregate Voting Limitation. Any shares of Series B Preferred Stock or Series C Preferred Stock held by the Company or any Subsidiary of the Company shall not have voting rights hereunder and shall not be counted in determining the presence of a quorum or in calculating any percentage of shares under this Section 10. (b) The provisions set forth in this Section 10(b) shall govern the rights of the holders of the Series B Preferred Stock to elect directors of the Company: (1) SERIES B DIRECTORS; JOINT DIRECTOR. (A) The number of directors of the Company shall be as from time to time fixed by, or determined in the manner provided in, the Certificate of Incorporation and the Bylaws of the Company (subject, in all respects, to the protective provisions contained in Section 11 hereof). Prior to a Type B Event Date, the number of directors shall be no less than eight (8) nor more than nine (9), of which one member shall be the Joint Director. Two of such directors shall be designated as "SERIES B DIRECTORS" and shall be elected by the Majority Holders and one such director shall be designated as "Joint Director" and shall be an Independent director nominated by the Majority Holders of the Series B Preferred Stock and the Majority Holders of the Series C Preferred Stock, approved by the Board of Directors in its sole discretion. Unless a Type B Conversion Notice has been given, one Series B Director shall automatically be removed if the aggregate liquidation preference with respect to the Series B Preferred Stock owned by the Initial Purchaser and the Initial Purchaser Affiliates, taken as a whole, falls below 50% but is no less than 25% of the total liquidation preference of the shares of Series B Preferred Stock outstanding on the Initial Issue Date. Unless a Type B Conversion Notice has been given, both Series B Directors shall automatically be removed if the aggregate liquidation preference with respect to the Series B Preferred Stock owned by the Initial Purchaser and the Initial Purchaser Affiliates, taken as a whole, falls below 12 25% of the total liquidation preference of the shares of Series B Preferred Stock outstanding on the Initial Issue Date. Prior to a Type B Event Date, the Majority Holders shall have the exclusive right to remove such Series B Director or Series B Directors without cause at any time and to designate another person or persons as the Series B Director or Series B Directors. (B) The Preferred Stock Directors shall be divided into three (3) classes as nearly equal in number as possible, with the term of office of the first Preferred Stock Director to be nominated and elected by the holders of the Series B Preferred Stock, at their option at any time after the initial issuance of the shares of Series B Preferred Stock, to expire at the annual meeting of stockholders held in 1998, the term of office of the second Preferred Stock Director to be nominated and elected by the holders of the Series B Preferred Stock upon initial issuance of the shares of Series B Preferred Stock to expire at the annual meeting of stockholders held in 2000, the term of office of the Preferred Stock Director to be nominated and elected by the holders of the Series C Preferred Stock upon initial issuance of the shares of Series C Preferred Stock to expire at the annual meeting of stockholders held in 1999, and the term of office of the Joint Director to expire at the annual meeting of stockholders for 1997. At each annual meeting of stockholders after such initial classification and election, directors elected to succeed those directors whose terms expire at such annual meeting shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. (C) Upon a Type B Event Date, any Series B Director already serving as a member of the Board shall continue to serve in such position until the expiration of his term and the election of his successor or until his earlier death, removal, resignation or retirement. After a Type B Event Date, the Joint Director and the Series B Director or Directors shall be subject to removal only for cause and only by the affirmative vote of eighty percent (80%) of the combined voting power of the outstanding shares of the Corporation entitled to vote. The Preferred Stock Directors and the Joint Director shall not be removed without cause otherwise than as described in this Section 10(b)(1). (D) After a Type B Event Date, the Board of Directors shall comprise: (i) one Joint Director, until the expiration of his term, as provided herein; (ii) three Preferred Stock Directors, until the expiration of their respective terms, after which time such positions previously elected by holders of the series of Preferred Stock that gave the Type B Conversion Notice shall be subject to election by holders of shares of Series D Preferred Stock, subject to the limitations contained in the Series D Certificate of Designation; (iii) not less than four (4) nor more than five (5) additional directors elected by holders of shares of Common Equity and Series D Preferred Stock, subject to the limitations contained in the Series D Certificate of Designation; and (iv) such number of other directors (the "Conversion Directors") elected following a Type B Event Date by the holders of shares of Series D Preferred Stock as is determined pursuant to the Series D Certificate of Designation. 13 (2) With respect to filling the vacancy on the Board of Directors with the initial Joint Director, the holders of shares of Series B Preferred Stock and Series C Preferred Stock shall give written notice to the Secretary of the Company of the identity of the person nominated by such holders. Such written notice shall be executed, manually, or by photocopy or facsimile, in any number of counterparts, by the Majority Holders of the Series B Preferred Stock and by the Majority Holders of the Series C Preferred Stock. The person so nominated shall be "independent," which means that such person shall not be a director, officer, or employee or affiliate (as defined in Section 203(c) of the Delaware General Corporation Law) of any of the holders of Series B Preferred Stock or Series C Preferred Stock or the Company. Upon receipt of such written notice, the Board of Directors shall have ten (10) business days in which to approve or disapprove such nominee. If the Board of Directors approves such nominee, such nominee shall immediately fill such vacancy. If the Board of Directors disapproves such nominee, the Secretary of the Company shall immediately give written notice thereof to all of the holders of shares of Series B Preferred Stock and Series C Preferred Stock. If such a written notice from the Secretary has not been received by such holders twelve (12) business days after the receipt by the Company of such written notice of nomination, then the Board of Directors shall be conclusively deemed to have approved such nominee and such nominee shall immediately fill such vacancy. If such written notice from the Secretary has been so received within such twelve (12) business days, such holders may nominate another independent person by written notice to the Secretary, subject to the same approval process as hereinabove provided. Such process of nomination and approval or disapproval shall continue until an independent person is nominated who is approved or deemed to be approved by the Board of Directors. No nominations for such director shall be made or received other than as described in this Section 10(b)(2). (3) With respect to the nomination and election of succeeding Joint Directors, the holders of shares of Series B Preferred Stock and Series C Preferred Stock shall give timely written notice to the Secretary of the Company of the identity of the person nominated by such holders. Such written notice shall be executed, manually, or by photocopy or facsimile, in any number of counterparts, by the Majority Holders of the Series B Preferred Stock and by the Majority Holders of the Series C Preferred Stock. Such written notice shall be timely if received at the principal executive office of the Company not less than 60 days nor more than 120 days before the meeting of shareholders at which such director is to be elected. The person so nominated shall be "independent," which means that such person shall not be a director, officer, employee or affiliate (as defined in Section 203(c) of the Delaware General Corporation Law) of any of the holders of Series B Preferred Stock or Series C Preferred Stock or the Company. Upon receipt of such written notice, the Board of Directors shall have ten (10) business days in which to approve or disapprove such nominee. If the Board of Directors disapproves such nominee, the Secretary of the Company shall immediately give written notice thereof to all of the holders of shares of Series B Preferred Stock and Series C Preferred Stock. If such a written notice from the Secretary has not been received by such holders twelve (12) business days after the receipt by the Company of such written 14 notice of nomination, then the Board of Directors shall be conclusively deemed to have approved such nominee. If such written notice from the Secretary has been so received within such twelve (12) business days, such holders may nominate another independent person by written notice to the Secretary, subject to the same approval process as hereinabove provided. Such process of nomination and approval or disapproval shall continue until an independent person is nominated who is approved or deemed to be approved by the Board of Directors. No nominations for such director shall be made or received other than as described in this Section 10(b)(3). Election of such person shall be by the holders of shares of the Company's Common Stock. (4) Prior to a Type B Event Date, a vacancy of a Preferred Stock Director position shall be filled only by a majority vote of or written consent of holders of a majority of the then outstanding shares of the series of Preferred Stock that elected the director whose death, resignation, retirement, disqualification or removal from office caused the vacancy. Prior to a Type B Event Date, a vacancy of the position of Joint Director shall be filled only by the Board of Directors, following nomination by holders of a majority of the then outstanding shares of Series B Preferred Stock and holders of a majority of the then outstanding shares of the Series C Preferred Stock, pursuant to the procedure described in Section 10(b)(2). Directors chosen pursuant to any of the foregoing provisions shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and have qualified or until their earlier resignation or removal. If holders of shares of Series B Preferred Stock shall, pursuant to the certificate of incorporation, cease to have the right to elect two Preferred Stock Directors but still shall have the right to elect one Preferred Stock Director, then holders of a majority of the then outstanding shares of Series B Preferred Stock shall promptly designate by written notice to the Company one of the two Preferred Stock Directors elected by holders of shares of Series B Preferred Stock as the director to be retained, and the other such director shall be deemed to have resigned immediately upon receipt by the Company of such written notice. If holders of shares of Series B Preferred Stock shall, pursuant to the certificate of incorporation, but not as a result of a Type B Conversion, cease to have the right to elect any Preferred Stock Directors, then the two directors elected by holders of shares of Series B Preferred Stock shall be deemed to have resigned immediately upon such cessation. Upon the occurrence of any such deemed resignation referred to in the immediately preceding two sentences, the directorship previously held by the director deemed to have resigned shall automatically become a vacancy to be filled by the Board of Directors. (5) Shares of Series B Preferred Stock shall be deemed to be shares "entitled to vote" or "entitled to vote in the election of directors" for purposes of the provisions of the Certificate of Incorporation that employ such terms, and, for purposes of such provisions at any time, each outstanding share of Series B Preferred Stock shall count as such number of shares of Common Stock into which such share of Series B Preferred Stock is then convertible pursuant to Sections 5 and 7 hereof (subject to the percentage 15 limitation set forth in Section 10(a) hereof as such percentage limitation would otherwise apply pursuant to such Section). (c) Immediately following the initial issuance of shares of Series B Preferred Stock, the Board of Directors shall appoint the following committees of the Board of Directors with the respective duties, membership and voting requirements stated below. After such appointment and until a Type B Event Date, the following matters shall be deemed approved by the Board of Directors only upon receiving the affirmative vote of a majority of the 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: (A) a decision to eliminate or discharge the Audit Committee, Compensation Committee, Executive Committee or the Acquisitions Committee, as described more fully below (such committees are the "Committees"), (B) a decision to reduce, narrow, attenuate or otherwise weaken the delegation of powers by the Board of Directors to any of the Committees, unless such reduction, narrowing, attenuation or other weakening is the transfer of delegated powers from the Compensation Committee or the Acquisitions Committee to the Executive Committee, (C) a decision to change the number of members of any Committee, the identity of the persons or entities entitled to select each of the members of any Committee, the size of the required vote for approval by any Committee and the size of the required vote of the Board of Directors necessary to approve actions that failed to obtain the required approval vote on the appropriate Committee; and (D) a decision to create any new committee. If the holders of the Series B Preferred Stock shall cease to have the right to nominate and elect any director at all, otherwise than as a result of the conversion of their shares of Series B Preferred Stock in a Type B Conversion, then such holders shall no longer have the right to select any member of any of the committees set forth below and the member or members of such committees selected by such holders shall automatically cease to be a member or members of such committees. (1) COMPENSATION COMMITTEE. The Compensation Committee shall consist of three (3) members, at least one (1) of whom shall be selected jointly by the Series B Directors and director elected by holders of the Series C Preferred Stock (the "SERIES C DIRECTOR"), and who shall be a director. 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 nominated by the Series B Directors and the Series C Director receive adequate notice of and an opportunity to participate in any meetings of the Compensation Committee; (2) AUDIT COMMITTEE. The Audit Committee 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. (3) EXECUTIVE COMMITTEE. The Executive Committee shall consist of four (4) members, one (1) of whom shall be selected by the Series B Directors (and shall be a Series B Director), one (1) of whom shall be the Series C Director 16 and two (2) of whom shall be selected by the Board of Directors. The members selected by the Series B Directors and the Series C Director may be removed only by the Series B Directors and the Series C Director, respectively. 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 (4) ACQUISITIONS COMMITTEE. The Acquisitions Committee shall consist of four (4) members, one (1) of whom shall be selected by the Series B Directors (and shall be a Series B Director), one (1) of whom shall be the Series C Director, and two (2) of whom shall be selected by the Board of Directors (and shall be directors). The Acquisitions Committee shall have the right to approve any transaction of the types described in Section 11(n), (o), (p) and (q) 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 Section 10(d)(5) below, 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. (5) CERTAIN TRANSACTIONS. 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 Section 11(n), (o) (which, only for purposes of this clause, shall also apply to Capital Expenditures made by the Company in the ordinary course of business), (p) and (q), 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 Equity 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. (d) Prior to a Type B Event Date, the following matters shall be deemed approved by the Board of Directors only upon a Supermajority Vote in respect of any such matter: 17 (1) Approving the annual Capital Budget Plan; and (2) Approving the Company entering into any financing activity not approved by the Executive Committee. (e) The bylaws of the Company may be altered, amended, or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular or special meeting of the stockholders or the Board of Directors, but only if such alteration, amendment, repeal, or adoption has been approved: (1) in case of adoption by the Board of Directors prior to the First Meeting following a Type B Event Date, by a majority of the Preferred Stock Directors and either (A) a majority of the entire Board of Directors (if such alteration, amendment, repeal, or adoption does not increase the number of directors) or (B) by at least 80% of the members of the entire Board of Directors (if such alteration, amendment, repeal, or adoption does increase the number of directors); (2) in case of adoption by the stockholders at any meeting of stockholders (other than the First Meeting following a Type B Event Date) with a record date on or prior to a Type B Event Date, by holders of at least eighty percent (80%) of the outstanding shares of the Corporation entitled to vote in the election of directors, voting as one class, and by holders of a majority of the shares, outstanding as of such record date, of whichever (or both) of Series B Preferred Stock and Series C Preferred Stock continued (as of such record date) to have the right under the certificate of incorporation to elect one or more Preferred Stock Directors. (f) If a Type B Event Date occurs prior to October 14, 1999, then the following provisions shall apply: (1) From such Type B Event Date until the second subsequent annual stockholders meeting 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 Initial Purchaser nor any Initial Purchaser Affiliates 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 Person which obtained its equity interest in the Company as a result of a transfer of securities from the Initial Purchaser or any Initial Purchaser Affiliate beneficially owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of the Company entitled to vote: (A) any merger or consolidation of the Company or any of its Subsidiaries with or into such other Person; 18 (B) 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 such other Person; (C) the issuance or delivery of any voting securities of the Company or any of its Subsidiaries to such other Person in exchange for cash, other assets or securities, or a combination thereof; or (D) any dissolution or liquidation of the Company; PROVIDED, HOWEVER, that such prohibition shall not apply with respect to any such action or transaction approved by (I) the affirmative vote of not less than eighty percent (80%) 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 the Joint Director, nor any of such Common Stock Directors continue to serve on the Board of Directors at such time). For purposes of this Section 10(f), 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. (2) No transfer of Series C Preferred Stock may be made by the Initial Purchaser or any Initial Purchaser Affiliate (other than a transfer permitted under Rule 144 under the Securities Act or a transfer pursuant to a registered offering under registration rights from the Company) unless prior thereto, the transferee in such transfer shall have agreed to be bound by the terms of Section 10(f)(1). SECTION 11. PROTECTIVE PROVISIONS. Without limiting the provisions of any other Series of Preferred Stock, for so long as the Initial Purchaser and the Initial Purchaser Affiliates, taken as a whole, owns or own at least 33% in total liquidation preference, taken as a whole, of the outstanding shares of Series B 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 B Preferred Stock then outstanding: 19 (a) alter, change or amend (by merger or otherwise) any of (i) the rights, preferences and privileges of the Series B Preferred Stock or any other class of Capital Stock, or (ii) the terms or provisions of any Option or Convertible Security; (b) enter into any transaction or event that could result 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, amendment, 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 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) amend, restate, alter, modify or repeal (by merger or otherwise) or permit any Subsidiary to amend, restate, alter, modify or repeal (by merger or otherwise) the certificate of incorporation, other organizational documents, or bylaws of any Subsidiary in any material respect; (f) 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, as provided in the Certificate of Incorporation, Amended Bylaws, Series B Preferred Stock Certificate of Designation, Series C Preferred Stock Certificate of Designation and Series D Preferred Stock Certificate of Designation; (g) 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 Initial Issue Date; (h) 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; (i) create, authorize or issue any shares of Series B Preferred Stock or any class or series of Senior Securities, Parity Securities or Supervoting Securities or shares of any such class or series; 20 (j) 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 such class or series; (k) increase or decrease the authorized number of shares of Series B Preferred Stock or any class or series of Senior Securities or Parity Securities or shares of any such class or series; (l) issue any equity security below either the then current Market Price (without deduction for any underwriters' discount) or the then-applicable Conversion Price other than for (A) 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, (B) 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 certain members of senior management of the Company shall participate, and (C) the Common Stock underlying such management stock options and other stock options outstanding as of October 14, 1997; (m) 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 (including without limitation any Option or Convertible Security) directly or indirectly, whether in cash, obligations or shares of the Company or other property; (n) 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 equal to or greater than $15 million; (o) acquire any asset or assets of any Person in any transaction or transactions, where 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), whether such transaction is effected in a single transaction or series of related transactions, is 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; (p) 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 the subject Person immediately prior to the consummation of such transaction shall receive (directly or indirectly) aggregate consideration payable in connection with such 21 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, (q) cause or permit any Subsidiary to merge or consolidate with any Person (other than the Company or a wholly-owned Subsidiary of the Company), 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; (r) substantially and materially engage in, either through acquisition or internal development, any business other than the business of providing diagnostic services to the healthcare industry; (s) make or permit any of its Subsidiaries to make Capital Expenditures any fiscal year in excess, in the aggregate, of two percent (2%) above the approved Capital Budget Plan for such fiscal year of the Company unless such expenditure is approved by the Executive Committee of the Board of Directors or a Supermajority Vote of the Board of Directors of the Company; (t) (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 Initial Issue 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 22 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 Initial Issue Date, taken as a whole and including such transaction, is or would become as a result of such transaction greater than $20 million; (u) permit any Subsidiary of the Company 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 holders of the shares of Series B Preferred Stock, 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 (v) issue any share of Series D Preferred Stock, otherwise than pursuant to a Type B Conversion. The rights provided to holders of shares of Series B Preferred Stock in this Section 11 shall be in addition to and not in lieu of the other rights and protections granted to the holders of the shares of Series B Preferred Stock hereunder. SECTION 12. REISSUANCE OF SERIES B PREFERRED STOCK. Shares of Series B Preferred Stock that have been issued and reacquired or converted in any manner, including shares purchased, redeemed, exchanged, or converted into shares of Common Equity, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, provided that such shares may not in any event be reissued as Series B Preferred Stock. SECTION 13. BUSINESS DAY. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. SECTION 14. CERTAIN NOTIFICATION OBLIGATIONS. The Company will notify the Initial Purchaser of each subsequent sale or disposition of any assets or properties of either the Company or any Subsidiary (other than in the Ordinary Course of Business) once the aggregate consideration payable in connection with all such sales or dispositions for the Company and its Subsidiaries outside the Ordinary Course of Business 23 (including without limitation cash consideration, the fair market value of any securities and the net present value of any deferred consideration) exceeds $10,000,000 in any fiscal year. SECTION 15. PREEMPTIVE RIGHTS (a) Subject to the terms and conditions specified in this Section 15, the Company hereby grants to each holder of shares of Series B Preferred Stock a right of first offer with respect to future sales in any transaction or proposed transaction not involving a public offering by the Company of its shares of Common Equity or any securities convertible or exchangeable, directly or indirectly, into Common Equity (collectively, "PREEMPTIVE SECURITIES"). Preemptive Securities shall include, without limitation, all shares of Common Stock and all Convertible Securities. (b) Each time the Company proposes to offer any Preemptive Securities in a transaction not involving a public offering of such Preemptive Securities, the Company shall first make an offering of such Preemptive Securities to each holder of shares of Series B Preferred Stock in accordance with the following provisions: (1) The Company shall deliver a notice by certified mail (the "PREEMPTIVE NOTICE") to each holder of shares of Series B Preferred Stock stating (i) its bona fide intention to offer Preemptive Securities, (ii) the number of such Preemptive Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Preemptive Securities. In addition, the Preemptive Notice will contain all other information which would be provided to prospective purchasers with respect to the proposed offering. (2) With respect to any Type A Offering of Preemptive Securities, by written notification given by each holder of shares of Series B Preferred Stock within 15 Business Days from the date of the Preemptive Notice, each holder may elect to purchase or obtain, at the price and on the terms specified in the Preemptive Notice, up to that portion of such Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock then held by such holder bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all convertible securities, including without limitation the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock). (3) With respect to any Type B Offering of Preemptive Securities, by written notification given by each holder of shares of Series B Preferred Stock within 15 Business Days from the date of the Preemptive Notice, each holder may elect to purchase or obtain, at the price and on the terms specified in the Preemptive Notice, up to that portion of such Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock then held by such holder bears to the number of shares of Common Stock of the Company into which the outstanding shares of Series B Preferred Stock and the outstanding shares of Series B Preferred Stock are then convertible. 24 (4) If any of the holders of Series B Preferred Stock decline to exercise any right of refusal with respect to any offering to such holders of Series B Preferred Stock of any Preemptive Securities, such holders (the "DECLINING SERIES B HOLDERS") shall give written notification of such election to decline to exercise such rights to the Company within 15 Business Days from the date of the Preemptive Notice. Within 3 Business Days thereafter, the Company shall give written notification (the "DECLINED PREEMPTIVE SECURITIES NOTICE") to each holder of Series B Preferred Stock of the following: (i) the total number of shares of Preemptive Securities which the Declining Series B Holders declined to purchase (collectively, the "DECLINED PREEMPTIVE SECURITIES"), and (ii) the price and terms specified in the Preemptive Notice relating to such Declined Preemptive Securities. (5) By written notification given by each holder of shares of Series B Preferred Stock within 3 Business Days from the date of the Declined Preemptive Securities Notice, each holder of Series B Preferred Stock may elect to purchase or obtain, at the price and on the terms specified by the Company for such sale of such Preemptive Securities, such Declined Preemptive Securities at the price and on the terms specified in the Preemptive Notice; PROVIDED, HOWEVER, that if the total number of Declined Preemptive Securities so elected to be purchased by such holders of Series B Preferred Stock pursuant hereto (collectively, the "ELECTING HOLDERS") exceeds the total number of Declined Preemptive Securities, each such Electing Holder shall purchase, and the Company shall sell to such Electing Holder, that portion of the total number of Declined Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock then held by such holder bears to the number of shares of Common Stock of the Company into which the outstanding shares of all Electing Holders are then convertible. (6) If all Preemptive Securities referred to in any Preemptive Notice are not elected to be obtained as provided in Section 15(b)(2) or 15(b)(3), or Section 15(b)(4) or 15(b)(5), as applicable, the Company may, at any time after the latest date set forth above for the exercise of the right to purchase any such Preemptive Securities by any holder of Series B Preferred Stock (the "PREEMPTIVE RIGHT EXPIRATION DATE") to the date sixty (60) days from the Preemptive Right Expiration Date offer the remaining unsubscribed portion of such Preemptive Securities to any Person or Persons at a price equal to the price specified in the relevant Preemptive Notice. If the Company does not enter into an agreement for the sale of the Preemptive Securities within sixty (60) days after the Preemptive Right Expiration Date, or if such agreement is not consummated within ninety (90) days of the Preemptive Right Expiration Date, the right provided under this Section 15 shall be deemed to be revived and such Preemptive Securities shall not be offered unless first reoffered to each holder of shares of Series B Preferred Stock in accordance herewith. (7) The rights set forth in this Section 15 shall not be applicable to the issuance or sale of shares of Common Stock pursuant to Options approved by the Board 25 to officers, directors and employees of the Company for the primary purpose of soliciting or retaining their employment or services. SECTION 16. DEFINITIONS. As used in this Certificate, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified 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; provided that beneficial ownership of a majority or more of the voting securities of a Person shall be deemed to be control. "AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as in effect from time to time. "AGGREGATE VOTING LIMITATION" has the meaning set forth in Section 10(a). "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL BUDGET PLAN" means, for each fiscal year of the Company, 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 of the Company. "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 26 Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "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 A, Series B, Series C and the Series D Certificates of Designation. "CHANGE OF CONTROL" with respect to a Person shall be deemed to have occurred (i) at such time as any person (as defined in Section 13(d)(3) of the Securities and Exchange Act of 1934) at any time shall directly or indirectly acquire more than 40% in outstanding voting power of such Person, (ii) at such time as during any one year period, individuals who at the beginning of such period constitute such Person's Board of Directors or other governing body cease to constitute at least a majority of such board or governing body (provided, however, that a change in directors upon a Type B Event Date shall not be deemed to cause a Change in Control pursuant to this clause (ii)), (iii) upon consummation of a merger or consolidation of such Person into or with another Person in which the shareholders of the subject Person immediately prior to the consummation of such transaction shall own less than Fifty Percent (50%) of the voting securities of the surviving Person (or the parent corporation of the surviving Person where the surviving Person 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 such Person, 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 the Initial Purchaser or any Affiliate thereof or the Majority Holders 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 C 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. "COMMITTEES" has the meaning set forth in Section 10(e). "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. "COMMON STOCK" has the meaning set forth in Section 3(a). "COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event Date, any director other than the Joint Director or a director elected by the holders of the Series B Preferred Stock or the Series C Preferred Stock. "COMPANY" means InSight Health Services Corp., a Delaware corporation. 27 "CONVERSION DATE" means (i) in the event of a Type A Conversion, the date set forth in Section 5(a) (in the event of a partial conversion relating to a Partial Conversion Event) or Section 5(b) (in the event of any other conversion pursuant to Section 5), and (ii) in the event of a Type B Conversion, the date of receipt by the Company of the relevant Type B Conversion Notice. "CONVERSION DIRECTORS" has the meaning set forth in Section 10. "CONVERSION PRICE" has the meaning set forth in Section 8. "CONVERTIBLE SECURITY" means any stock or securities, directly or indirectly, convertible into or exchangeable for Common Equity, including without limitation any exchangeable debt securities. "CORPORATE CHANGE" has the meaning set forth in Section 8(e). "CREDIT FACILITY" means a credit facility to which the Company is a party with NationsBank, N.A. "DECLINED PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(b)(4). "DECLINED PREEMPTIVE SECURITIES NOTICE" has the meaning set forth in Section 15(b)(4). "DECLINING SERIES B HOLDERS" has the meaning set forth in Section 15(b)(4). "ELECTING HOLDERS" has the meaning set forth in Section 15(b)(5). "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. "FIRST MEETING" means the meeting of the newly constituted Board of Directors to be held two calendar days after a Type B Event Date, at the principal offices of the Corporation. "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. "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 or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect as of the Initial Issue Date. 28 "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 obligations in respect of deferred taxes and deferred employee compensation and benefits, and anything in the nature of capital stock, surplus capital and retained earnings; (b) the amount available for drawing under all letters of credit issued for the account of such Person; (c) Capital Lease Obligations of such Person; and (d) 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. "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. "INITIAL ISSUE DATE" means October 14, 1997. "INITIAL PURCHASER" shall mean the Persons to whom shares of Series B Preferred Stock are initially issued by the Company. "INITIAL PURCHASER AFFILIATE" means the Initial Purchaser, the general partner of any Initial Purchaser, and any investor in any Initial Purchaser or in the general partner of any Initial Purchaser, in any case, as of the date hereof. "JOINT DIRECTOR" has the meaning set forth in Section 10(b)(4). "JUNIOR SECURITIES" has the meaning set forth in Section 2. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in the Company's principal place of business, the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "LIQUIDATING DIVIDEND" has the meaning set forth in Section 8(g). "LIQUIDATING EVENT" has the meaning set forth in Section 4(b). 29 "LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a). "MAJORITY HOLDERS," at any time, and with respect to any class or series of Capital Stock of the Company, means holders of a majority of the shares of such class or series then outstanding. If the term is used without reference to a particular class or series of Capital Stock of the Company, it means Majority Holders of the Series B Preferred Stock. "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 market, the "Market Price" shall be the fair value thereof determined by the Company and approved by the Majority Holders; 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 Majority Holders. The determination of such appraiser shall be final and binding on the Company and holders of the shares of Series B Preferred Stock, and the fees and expenses of such appraiser shall be paid by the Company. "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" shall mean the ordinary course of business for a company engaged in the business of providing diagnostic services to the healthcare industry as so provided by the Company as of the Initial Issue Date; provided, that all sales by the Company 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. "PARTIAL CONVERSION EVENT" means (i) the consummation of the sale by any holder of its shares of Series B Preferred Stock to a third party at any time approved by the Board, (ii) the 30 consummation of a public offering of the Common Stock at any time and (iii) at any time following April 14, 1999, the consummation of a private sale of Common Stock. "PARTIAL SUBSIDIARY" has the meaning set forth in Section 11(u). "PERSON" means any individual, corporation, 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). "PREEMPTIVE NOTICE" has the meaning set forth in Section 15(b). "PREEMPTIVE RIGHT EXPIRATION DATE" has the meaning set forth in Section 15(b)(6). "PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(a). "PREFERRED STOCK DIRECTORS" means the Series B Directors and the Series C Director. "SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement dated as of October 14, 1997 between the Company and the Initial Purchaser. "SENIOR SECURITIES" has the meaning set forth in Section 2. "SERIES A PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES B DIRECTOR" has the meaning set forth in Section 10. "SERIES B PREFERRED STOCK" has the meaning set forth in Section 1. "SERIES C DIRECTOR" has the meaning set forth in Section 10. "SERIES C PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES D PREFERRED STOCK" has the meaning set forth in Section 2. "SPECIAL CORPORATE EVENT" with respect to a Person shall be deemed to have occurred (i) at such time as any person (as defined in Section 13(d)(3) of the Securities and Exchange Act of 1934) at any time shall directly or indirectly acquire more than 20% in outstanding voting power of such Person, (ii) at such time as during any one year period, individuals who at the beginning of such period constitute such Person's Board of Directors or other governing body cease to constitute at least a majority of such board or governing body (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 such Person into or with another Person in which the shareholders of the subject Person immediately prior to the consummation of such transaction shall own less than Fifty Percent (50%) of the voting securities of the surviving Person (or the parent corporation of the surviving Person where the surviving Person is wholly-owned by the parent corporation) immediately following the 31 consummation of such transaction or (iv) the sale, transfer or lease of all or substantially all of the assets of such Person, in any of cases (i), (ii), (iii) or (iv) in a single transaction or series of related transactions; provided, that no Special Corporate Event hereunder with respect to the Company shall be deemed to occur solely by reason of the ownership by the Initial Purchaser or any Affiliate thereof or the Majority Holders of the Series C Preferred Stock or any Affiliate thereof of any Capital Stock of the Company. "SUBSIDIARY" means, with respect to any Person, (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 such Person, by one or more Subsidiaries of such Person or by such Person and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such person and one or more Subsidiaries of such Person, 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 such Person consistent with GAAP. "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. "TYPE A CONVERSION" means a conversion of shares of Series B Preferred Stock into shares of Common Stock pursuant to Section 5 hereof. "TYPE A OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by the Company of Preemptive Securities in which the proposed sale price reflects a price per share of Common Stock at or above the higher of (i) the Market Price per share of Common Stock, determined as of the date of the Preemptive Notice relating to such offering and (ii) $8.375 per share of Common Stock. "TYPE B CONVERSION" means a conversion of shares of Series B Preferred Stock into shares of Series D Preferred Stock pursuant to Section 6 hereof. "TYPE B CONVERSION NOTICE" has the meaning set forth in Section 6(b). "TYPE B EVENT DATE" has the meaning set forth in Section 6(b). "TYPE B OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by the Company of Preemptive Securities in which the proposed sale price reflects a price per share of Common Stock below the higher of (i) the Market Price per share of Common Stock, determined 32 as of the date of the Preemptive Notice relating to such offering and (ii) $8.375 per share of Common Stock. "TYPE B TRIGGER DATE" means the date one year after the initial borrowing of funds under the Credit Facility. 33 IN WITNESS WHEREOF, InSight Health Services Corp. has caused this Certificate to be executed by its Executive Vice President and Secretary this 14th day of October, 1997. INSIGHT HEALTH SERVICES CORP. By: /s/ Thomas V. Croal ---------------------------------- Name: Thomas V. Croal Office: Executive Vice President and Secretary 34 EX-3.3 3 EXH. 3.3 - CERT OF DESIGNATION SERIES C INSIGHT HEALTH SERVICES CORP. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF CONVERTIBLE PREFERRED STOCK, SERIES C (Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware.) InSight Health Services Corp., a corporation organized and existing under the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the certificate of incorporation of the Company, as amended, the Board unanimously adopted the following resolutions on October 14, 1997 authorizing the issuance of the Series C Convertible Preferred Stock of the Company, which resolutions are still in full force and effect and are not in conflict with any provisions of the certificate of incorporation or bylaws of the Company: RESOLVED, that pursuant to authority vested in the Board by the Certificate of Incorporation, the Board does hereby establish a series of preferred stock of the Company from the Company's authorized class of 3,500,000 shares of $.001 par value preferred shares, such series to consist of 27,953 shares, and does hereby fix and state the voting rights, designation, powers, preferences and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereof, as follows: SECTION 1. DESIGNATION. The Preferred Stock created and authorized hereby shall be designated as the "Convertible Preferred Stock, Series C" (hereinafter called the "SERIES C PREFERRED STOCK"). The number of shares of Series C Preferred Stock shall be 27,953 and no more. SECTION 2. RANK. The Series C Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank senior to all classes of Common Equity of the Company, and to each other class or series of Capital Stock of the Company (except for the Convertible Preferred Stock, Series A (hereinafter called the "SERIES A PREFERRED STOCK")) the terms of which do not expressly provide that it ranks senior to or on a parity with the Series C Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to with the Common Equity of the Company as "JUNIOR SECURITIES"). The Series C Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank on a parity with any class or series of Capital Stock hereafter created which expressly provides that it ranks on a parity with the Series C Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (shares of such a class or series, together with shares of the Series A Preferred Stock, shares of the Convertible Preferred Stock, Series B (the "SERIES B PREFERRED STOCK"), and shares of the Convertible Preferred Stock, Series D (the "SERIES D PREFERRED STOCK") are, collectively, the "Parity Securities"); provided that any purported Parity Securities that were not created, authorized or issued in accordance with Section 11 hereof shall be deemed to be Junior Securities and not Parity Securities. The Series C Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank junior to each class or series of Capital Stock hereafter issued in accordance with Section 11 hereof and which expressly provides that it ranks senior to the Series C Preferred Stock as to dividend distributions or distributions upon the liquidation, winding up and dissolution of the Company ("SENIOR SECURITIES"). Any purported Supervoting Securities that were not created, authorized or issued in accordance with Section 11 hereof shall be deemed for all purposes related to voting rights to be identical to Common Stock, including, without limitation, as to voting rights with respect to the election of directors and all other matters submitted to a vote of stockholders. SECTION 3. DIVIDENDS. (a) The Company may (when, as and if declared by the Board of Directors of the Company) declare and pay dividends, out of the entire assets and funds of the Company legally available therefor, to the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the common stock, $.001 par value per share, of the Company (the "COMMON STOCK") ratably based on the number of shares of Common Stock held by each such Holder (assuming full conversion of all such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock into Common Stock); PROVIDED, HOWEVER, that no dividend whatsoever shall be paid, and no distribution shall be made, on any Common Stock unless and until each holder of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall have been paid in full its respective pro rata portion of such dividend. (b) Holders of shares of the Series C Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof in preference to and in priority over any dividends upon any of the Junior Securities, except for the Common Stock. (c) Holders of shares of the Series C Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof on a pro rata basis with respect to any dividends upon any Parity Securities. SECTION 4. LIQUIDATION PREFERENCE. (a) Upon any Liquidating Event with respect to the Company, the Holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, $1,000 per share of Series C Preferred Stock (the "LIQUIDATION PREFERENCE"), plus an amount in cash equal to any declared but unpaid dividends thereon, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities, including, without limitation, Common Stock. Except as provided in the preceding sentence, holders of shares of Series C Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the 2 Company. If the assets of the Company are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series C Preferred Stock and all Parity Securities, then the holders of all such shares shall share equally and ratably in such distribution of assets of the Company in accordance with the amounts which would be payable on such distribution if the amount to which the holders of outstanding shares of Series C Preferred Stock and the holders of outstanding shares of all Parity Securities are entitled were paid in full. (b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of the following events: (i) the commencement by such Person of a voluntary case under the bankruptcy laws of the United States, as now or hereafter in effect, or the commencement of an involuntary case against such Person with respect to which the petition shall not be controverted within 15 days, or be dismissed within 60 days, after commencement thereof; (ii) the appointment of a custodian for, or the taking charge by a custodian of, all or substantially all of the property of such Person; (iii) the commencement by such Person 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 such Person; (iv) the commencement against such Person of any proceeding set forth in the preceding clause (iii), which is not controverted within 10 days thereof and dismissed within 60 days after the commencement thereof; (v) the adjudication of such Person insolvent or bankrupt, or the adoption by such Person of a plan of liquidation; (vi) the occurrence of any Change of Control with respect to such Person or (vii) the filing of a certificate of dissolution in respect of the Company with the Secretary of State of the State of Delaware; in any of cases (i) through (vi) above, in a single transaction or series of related transactions. SECTION 5. TYPE A CONVERSION (a) Each holder of Series C Preferred Stock shall have the right, at its option, at any time, to convert, subject to the terms and provisions of this Section 5, all, but not less than all, of its Series C Preferred Stock then outstanding into such number of fully paid and non-assessable shares of Common Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of all shares of Series C Preferred Stock to be converted plus (B) any declared but unpaid dividends on such shares, by (ii) the applicable Conversion Price on the Conversion Date. In addition, and without limiting the right to conversion in whole set forth above, substantially contemporaneously with any Partial Conversion Event, each holder of Series C Preferred Stock shall have the right, at its option, to convert (which conversion, if such option is exercised, shall be deemed to occur on such Partial Conversion Event), subject to the terms and provisions of this Section 5, all or any part of its Series C Preferred Stock then outstanding into such number of fully paid and non-assessable shares of Common Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of all shares of Series C Preferred Stock to be converted plus (B) any declared but unpaid dividends on such shares, by (ii) the applicable Conversion Price (as defined below) on the Conversion Date. The person or persons entitled to receive the shares of Common Stock upon conversion of such shares of Series C Preferred Stock shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock on the Conversion Date and such conversion shall be at the Conversion Price in effect at such time. 3 (b) In order to convert all or any portion of its outstanding Series C Preferred Stock into shares of Common Stock pursuant to this Section 5, the holder of such Series C Preferred Stock shall deliver certificates representing the shares of Series C Preferred Stock to be converted to the Company at its principal office, together with written notice that it elects to convert those shares of Series C Preferred Stock into shares of Common Stock in accordance with the provisions of this Section 5. Such notice shall specify the number of shares of Series C Preferred Stock to be converted and the name or names in which the holder wishes the certificates for shares of Common Stock to be registered. (c) Upon any Type A Conversion, pursuant to this Section 5 and Section 5 of the certificate of designation of Series B Preferred Stock, 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. SECTION 6. TYPE B CONVERSION (a) The right to conversion set forth in this Section 6 shall be in addition to, and not in lieu of, the conversion rights set forth in Section 5. (b) At any time on or after the Type B Trigger Date, the Majority Holders may elect to deliver an irrevocable Type B Conversion notice (the "TYPE B CONVERSION NOTICE") to the Company; PROVIDED, HOWEVER, that no such Type B Conversion Notice shall be effective unless substantially contemporaneously with the delivery of such Type B Conversion Notice, Majority Holders of the Series B Preferred Stock shall deliver a Type B Conversion Notice (as defined in the Certificate of Designation relating to the Series B Preferred Stock) to the Company. The date of delivery to the Company of a Type B Conversion Notice shall be denominated herein a "TYPE B EVENT DATE" or a "CONVERSION DATE". Upon receipt of a Type B Conversion Notice, the Company shall as soon as practicable deliver a copy of such Type B Conversion Notice to each holder of Series C Preferred Stock and each holder of Series B Preferred Stock. (c) On the Type B Event Date, each share of Series C Preferred Stock then outstanding shall automatically be converted into such number of fully paid and non-assessable shares of Series D Preferred Stock as results from dividing (i) the sum of (A) the aggregate Liquidation Preference of such share of Series C Preferred Stock plus (B) any declared but unpaid dividends on such share, by (ii) the product of ten (10) times the applicable Conversion Price on the Conversion Date. The person or persons entitled to receive the shares of Series D Preferred Stock upon conversion of such shares of Series C Preferred Stock shall be treated for all purposes (including without limitation voting rights) as having become the record holder or holders of such shares of Series D Preferred Stock on the Type B Event Date, whether or not such person or persons deliver its certificates for shares of Series C Preferred Stock to the Company on the Type B Event Date. 4 (d) As soon as practicable after the Type B Event Date, each holder of Series C Preferred Stock shall deliver its certificates for shares of Series C Preferred Stock to the Company at its principal office. Except as provided in this Certificate of Designation, all rights with respect to such Series C Preferred Stock shall terminate on the Type B Event Date, and on such Type B Event Date the holders of the shares of Series D Preferred Stock into which the shares of Series C Preferred Stock were converted shall have all of the rights accorded to holders of the Company's Series D Preferred Stock. (e) The rights of holders of shares of Series C Preferred Stock pursuant to this Section 6 shall not be transferable, except to an Affiliate as of the Initial Issue Date of the holder. SECTION 7. GENERAL PROVISIONS RELATING TO CONVERSION The following provisions shall be applicable to any conversion pursuant to either Section 5 or Section 6 hereof. (a) As promptly as practicable after the surrender as hereinabove provided of certificates representing shares of Series C Preferred Stock converted or to be converted into shares of Common Stock or Series D Preferred Stock, the Company shall deliver or cause to be delivered to the holder, or the holder's designee, certificates representing the number of fully paid and non-assessable shares of Common Stock or Series D Preferred Stock into which the shares of Series C Preferred Stock are converted (including any adjustment pursuant to Section 8(b) below) and, if less than the entire number of shares of Series C Preferred Stock represented by the certificate or certificates surrendered is to be converted, a new certificate for the number of shares of Series C Preferred Stock not so converted. So long as any shares of Series C Preferred Stock remain outstanding, the Company shall not close its Common Stock transfer books. The issuance of certificates representing shares of Common Stock or Series D Preferred Stock issued upon the conversion of shares of Series C Preferred Stock shall be made without charge to the holder of Series C Preferred Stock for any tax in respect of the issuance of such certificates (other than any transfer, withholding or other tax if the shares of Common Stock or Series D Preferred Stock are to be registered in a name different from that of the registered holder of Series C Preferred Stock). (b) No fractional shares of Common Stock or scrip representing fractional shares of Common Stock or Series D Preferred Stock shall be issued upon any conversion of any shares of Series C Preferred Stock, and the number of shares of Common Stock or Series D Preferred Stock to be issued shall be rounded up to a whole share. (c) 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 C Preferred Stock and Series B 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 the conversion of all shares of Series B Preferred Stock and Series C Preferred Stock then outstanding and the issuance of Common Stock in respect of the Warrants and the Carlyle Warrants. The Company shall take at all times such corporate action as shall be 5 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 upon the conversion of shares of Series B Preferred Stock and Series C Preferred Stock in accordance with the provisions of Section 5 and Section 6, and the issuance of Common Stock in respect of the Warrants and the 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 and the Series C Preferred Stock and the issuance of Common Stock in respect of the Warrants and the GE Warrants, in addition to such other remedies as shall be available to the holders of the Series C Preferred Stock, the Company shall forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock and 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 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. (d) If any shares of Common Stock or Series D Preferred Stock to be reserved for the purpose of conversion of Series C Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange, NASD Inc., Nasdaq or other regulatory body under any federal or state law, federal or state regulation, rule of NASD Inc., Nasdaq or otherwise, before such shares may be validly issued or delivered upon conversion, the Company shall, in good faith and as expeditiously as practicable, endeavor to secure such registration, listing or approval, as the case may be. (e) All shares of Common Stock or Series D Preferred Stock that may be issued upon conversion of the Series C Preferred Stock shall upon issuance by the Company be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (f) In the event of any taking by the Company of a record of the holders of any class of Capital Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of Capital Stock or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series C Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 6 (g) The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 7 and Sections 5, 6 and 8 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the shares of Series C Preferred Stock against impairment of any kind. SECTION 8. CONVERSION PRICE. (a) As used herein, the "Conversion Price" shall initially be $8.375 per share of Common Stock, subject to adjustment as set forth below. In order to prevent the dilution of the rights granted hereunder, the Conversion Price shall be subject to adjustment from time to time as provided in this Section 8. (b) If and whenever the Company issues or sells or, in accordance with Section 8(c), is deemed to have issued or sold, any share of Common Equity without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, the Conversion Price in effect immediately prior to such time shall immediately be reduced to the price determined by dividing (i) an amount equal to the sum of (A) the number of shares of Common Equity outstanding immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, and (B) the consideration, if any, received by the Company upon such issuance, by (ii) the total number of shares of Common Equity outstanding immediately after such issuance. Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price with respect to (i) the granting of stock options to employees of the Company authorized but not granted as of the Initial Issue Date for an aggregate of up to 300,000 shares of Common Equity (as such number of shares is equitably adjusted for subsequent stock splits, reclassifications, stock combinations, stock dividends and recapitalizations), or (ii) the issuance upon exercise of up to 300,000 shares of Common Equity (as such number of shares is equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations) in connection with the stock options described in clause (i) of this sentence. (c) For purposes of determining the adjusted Conversion Price under Section 8(b) above, the following shall be applicable: (1) CONSIDERATION. If any Common Equity, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the cash amount received by the Company therefor (which, in the case of any public offering of such securities for cash, shall not be reduced for any underwriters discount, and in no event shall be reduced by the amount of any reasonable expenses actually paid by the Company in connection therewith). In case any Common Equity, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by 7 the Company shall be the fair market value of such consideration. In case any Common Equity, Options or Convertible Securities are issued to the owners of the other constituent entity in connection with any merger in which the Company or any Subsidiary of the Company is a constituent entity, the amount of consideration for such Common Equity, Options or Convertible Securities shall be deemed to be the fair market value of such portion of the net assets and business of such other constituent entity as is fairly attributable to such Common Equity, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash shall be determined jointly by the Company and the Majority Holders. If such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser jointly selected by the Company and the Majority Holders. If such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser reasonably selected by the Company and reasonably approved by the Majority Holders. The determination of such appraiser shall be final and binding on the Company and the holders of the shares of Series C Preferred Stock, and the fees and expenses of such appraiser shall be paid by the Company, unless the fair market value determined by such appraiser is less than five percent (5%) above the value proposed in writing by the Company and rejected by the Majority Holders prior to the selection of such appraiser, in which event the fees and expenses of such appraiser shall be for the account of the holders of the then outstanding shares of Series C Preferred Stock (on a pro rata basis). (2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting or sale of any Option or Convertible Security (whether or not at the time convertible, exercisable or exchangeable): (A) the aggregate maximum number of shares of Common Equity deliverable, directly or indirectly, upon exercise of any Option shall be deemed to have been issued at the time such Option was granted and for a consideration equal to the (i) consideration (determined in the manner provided in subsection (1) above), if any, received by the Company upon the issuance of such Option plus (ii) the minimum purchase price provided in such Option for the Common Equity covered thereby, up to an amount equal to the Conversion Price in effect at the time such Option was granted; (B) the aggregate maximum number of shares of Common Equity deliverable upon conversion of or in exchange for any such Convertible Security, or upon the exercise of any Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such Convertible Security was issued or such Option was issued and for a consideration equal to the consideration, if any, received by the Company for any such Convertible Security and any related Option, plus the additional consideration (determined in the manner provided in subsection (1) 8 above), if any, to be received by the Company upon the conversion or exchange of such Convertible Security, or upon the exercise of any related Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof; (C) on any change in the number of shares of Common Equity deliverable, directly or indirectly, upon conversion, exercise or exchange of any such Option or Convertible Security or any change in the consideration to be received by the Company upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such Option or Convertible Security upon the basis of such change; (D) if the Conversion Price shall have been adjusted upon the issuance of any such Option or Convertible Security, no further adjustment of the Conversion Price shall be made for the actual issuance of Common Equity upon any exercise, conversion, or exchange thereof; provided, however, that none of the events set forth in Section 8(c)(2)(A) through 8(c)(2)(D), inclusive, shall result in any increase in the Conversion Price. (3) INTEGRATED TRANSACTION. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. (4) TREASURY SHARES. The number of shares of Common Equity outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Equity. (5) RECORD DATE. If the Company takes a record of the holders of Common Equity for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Equity, Options or in Convertible Securities or (B) to subscribe for or purchase Common Equity, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Equity deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (d) If the Company at any time subdivides (by any stock split, stock dividend, reclassification, recapitalization or otherwise) one or more classes of its outstanding shares of Common Equity into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced. If the Company at any time combines 9 (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (e) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Equity are entitled to receive (either directly or upon subsequent liquidation) stock, securities, cash, debt instruments or assets with respect to or in exchange for Common Equity is referred to herein as a "CORPORATE CHANGE." In case of any Corporate Change, each share of Series C Preferred Stock then outstanding will become convertible only into the kind and amount of securities, cash and other property receivable upon such Corporate Change by the holder of the number of shares of Common Stock into which such share of Series C Preferred Stock was convertible immediately prior thereto (assuming such holder of Common Stock failed to exercise any rights of election). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument the obligation to deliver to the holders of shares of Series C Preferred Stock such shares of stock, securities, cash, debt instruments or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (f) If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the shares of Series C Preferred Stock; provided that no such adjustment shall increase the Conversion Price obtainable as otherwise determined pursuant to this Section 8. (g) If the Company declares or pays a dividend upon the Common Equity payable otherwise than out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share of Series C Preferred Stock at the time of payment thereof the Liquidating Dividend which would have been paid to such holder on the Common Stock such holder would have owned had such holder fully exercised its right to convert the shares of Series C Preferred Stock into shares of Common Stock immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Equity entitled to such dividends are to be determined; provided, however, that if a Liquidating Dividend would involve the declaration or payment as a dividend of at least the lesser of (i) twenty percent (20%) of the Company's assets and (ii) Five Million Dollars ($5,000,000), then such Liquidating Dividend shall, at the option of the Majority Holders, be deemed to be a Liquidating Event and the rights of the holders of the shares of Series C Preferred Stock upon such Liquidating Event shall be governed by Section 4 hereof. 10 (h) Any transaction approved by the unanimous vote of the Acquisitions Committee or the unanimous vote of the Board pursuant to Section 10(c)(4) hereof shall not result in any adjustment to the Conversion Price in effect as of the closing of such transaction. SECTION 9. NO REDEMPTION. The shares of Series C Preferred Stock shall not be subject to mandatory redemption by the Company. SECTION 10. VOTING RIGHTS AND RELATED PROVISIONS. (a) The Holders of shares of the Series C Preferred Stock will have the right to vote with the holders of Common Stock and the holders of the Series B Preferred Stock with respect to all matters submitted to a shareholder vote, except for the election of directors, which will be governed by Section 10(b) below. Each Holder of Series C Preferred Stock will have one vote for every share of Common Stock into which each share of Series C Preferred Stock is convertible pursuant to Sections 5 and 7 hereof as of the record date for such vote; provided, however, that the aggregate number of votes under this Section 10(a), when combined with the aggregate number of votes attributable to the holders of the Series B Preferred Stock pursuant to Section 10(a) of the Certificate of Designation with respect to the Series C Preferred Stock, with respect to any given matter submitted to a shareholder vote, shall not exceed 37% of the total number of votes eligible to be cast with respect to such matter (the "AGGREGATE VOTING LIMITATION"). In order to effectuate the Aggregate Voting Limitation, the eligible votes allocable to each holder of shares of Series B Preferred Stock and Series C Preferred Stock shall be reduced, on a pro rata basis based on the percentage of aggregate Series B Preferred Stock and Series C Preferred Stock liquidation preference attributable to the shares owned by such holder, to the highest whole number consistent with the Aggregate Voting Limitation. Any shares of Series B Preferred Stock or Series C Preferred Stock held by the Company or any Subsidiary of the Company shall not have voting rights hereunder and shall not be counted in determining the presence of a quorum or in calculating any percentage of shares under this Section 10. (b) The provisions set forth in this Section 10(b) shall govern the rights of the holders of the Series C Preferred Stock to elect directors of the Company: (1) SERIES C DIRECTOR; JOINT DIRECTOR. (A) The number of directors of the Company shall be as from time to time fixed by, or determined in the manner provided in, the Certificate of Incorporation and the Bylaws of the Company (subject, in all respects, to the protective provisions contained in Section 11 hereof). Prior to a Type B Event Date, the number of directors shall be no less than eight (8) nor more than nine (9), of which one member shall be the Joint Director. One such director shall be designated as "SERIES C DIRECTOR" and shall be elected by the Majority Holders and one such director shall be designated as "JOINT DIRECTOR" and shall be an Independent director nominated by the Majority Holders of the Series B Preferred Stock and the Majority Holders of the Series C Preferred Stock, 11 approved by the Board of Directors in its sole discretion. Unless a Type B Conversion Notice has been given, the Series C Director shall automatically be removed if the aggregate liquidation preference with respect to the Series C Preferred Stock owned by the Initial Purchaser and any Affiliate as of the Initial Issue Date of the Initial Purchaser, taken as a whole, falls below 25% of the total liquidation preference of the shares of Series C Preferred Stock and shares of Series A Preferred Stock outstanding on the Initial Issue Date. Prior to a Type B Event Date, the Majority Holders shall have the exclusive right to remove such Series C Director without cause at any time and to designate another person as the Series C Director. (B) The Preferred Stock Directors shall be divided into three (3) classes as nearly equal in number as possible, with the term of office of the first Preferred Stock Director to be nominated and elected by the holders of the Series B Preferred Stock, at their option at any time after the initial issuance of the shares of Series B Preferred Stock, to expire at the annual meeting of stockholders held in 1998, the term of office of the second Preferred Stock Director to be nominated and elected by the holders of the Series B Preferred Stock upon initial issuance of the shares of Series B Preferred Stock to expire at the annual meeting of stockholders held in 2000, the term of office of the Preferred Stock Director to be nominated and elected by the holders of the Series C Preferred Stock upon initial issuance of the shares of Series C Preferred Stock to expire at the annual meeting of stockholders held in 1999, and the term of office of the Joint Director to expire at the annual meeting of stockholders held in 1997. At each annual meeting of stockholders after such initial classification and election, directors elected to succeed those directors whose terms expire at such annual meeting shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. (C) Upon a Type B Event Date, any Series C Director already serving as a member of the Board shall continue to serve in such position until the expiration of his term and the election of his successor or until his earlier death, removal, resignation or retirement. After a Type B Event Date, the Joint Director and the Series C Director shall be subject to removal only for cause and only by the affirmative vote of eighty percent (80%) of the combined voting power of the outstanding shares of the Corporation entitled to vote. The Preferred Stock Directors and the Joint Director shall not be removed without cause otherwise than as described in this Section 10(b)(1). (D) After a Type B Event Date, the Board of Directors shall comprise: (i) one Joint Director, until the expiration of his term, as provided herein; (ii) three Preferred Stock Directors, until the expiration of their respective terms, after which time such positions previously elected by holders of the series of Preferred Stock that gave the Type B Conversion Notice shall be subject to election by holders of shares of Series D Preferred Stock, subject to the limitations contained in the Series D Certificate of Designation; (iii) not less than four (4) nor more than five (5) additional directors elected by holders of shares of Common Equity and Series D Preferred Stock, subject to the limitations contained in the Series D Certificate of Designation; and (iv) such number of other directors (the "CONVERSION DIRECTORS") elected following a Type B Event Date by 12 the holders of shares of Series D Preferred Stock as is determined pursuant to the Series D Certificate of Designation. (2) With respect to filling the vacancy on the Board of Directors with respect to the initial Joint Director, the holders of shares of Series B Preferred Stock and Series C Preferred Stock shall give written notice to the Secretary of the Company of the identity of the person nominated by such holders. Such written notice shall be executed, manually, or by photocopy or facsimile, in any number of counterparts, by the Majority Holders of the Series B Preferred Stock and by the Majority Holders of the Series C Preferred Stock. The person so nominated shall be "independent," which means that such person shall not be a director, officer, or employee or affiliate (as defined in Section 203(c) of the Delaware General Corporation Law) of any of the holders of Series B Preferred Stock or Series C Preferred Stock or of the Company. Upon receipt of such written notice, the Board of Directors shall have ten (10) business days in which to approve or disapprove such nominee. If the Board of Directors approves such nominee, such nominee shall immediately fill such vacancy. If the Board of Directors disapproves such nominee, the Secretary of the Company shall immediately give written notice thereof to all of the holders of shares of Series B Preferred Stock and Series C Preferred Stock. If such a written notice from the Secretary has not been received by such holders twelve (12) business days after the receipt by the Company of such written notice of nomination, then the Board of Directors shall be conclusively deemed to have approved such nominee and such nominee shall immediately fill such vacancy. If such written notice from the Secretary has been so received within such twelve (12) business days, such holders may nominate another independent person by written notice to the Secretary, subject to the same approval process as hereinabove provided. Such process of nomination and approval or disapproval shall continue until an independent person is nominated who is approved or deemed to be approved by the Board of Directors. No nominations for such director shall be made or received other than as described in this Section 10(b)(2). (3) With respect to the nomination and election of succeeding Joint Directors, the holders of shares of Series B Preferred Stock and Series C Preferred Stock shall give timely written notice to the Secretary of the Company of the identity of the person nominated by such holders. Such written notice shall be executed, manually, or by photocopy or facsimile, in any number of counterparts, by the Majority Holders of the Series B Preferred Stock and by the Majority Holders of the Series C Preferred Stock. Such written notice shall be timely if received at the principal executive office of the Company not less than 60 days nor more than 120 days before the meeting of shareholders at which such director is to be elected. The person so nominated shall be "independent," which means that such person shall not be a director, officer, employee or affiliate (as defined in Section 203(c) of the Delaware General Corporation Law) of any of the holders of Series B Preferred Stock or Series C Preferred Stock or the Company. Upon receipt of such written notice, the Board of Directors shall have ten (10) business days in which to approve or disapprove such nominee. If the Board of Directors disapproves such nominee, the Secretary of the Company shall immediately give written 13 notice thereof to all of the holders of shares of Series B Preferred Stock and Series C Preferred Stock. If such a written notice from the Secretary has not been received by such holders twelve (12) business days after the receipt by the Company of such written notice of nomination, then the Board of Directors shall be conclusively deemed to have approved such nominee. If such written notice from the Secretary has been so received within such twelve (12) business days, such holders may nominate another independent person by written notice to the Secretary, subject to the same approval process as hereinabove provided. Such process of nomination and approval or disapproval shall continue until an independent person is nominated who is approved or deemed to be approved by the Board of Directors. No nominations for such director shall be made or received other than as described in this Section 10(b)(3). Election of such person shall be by the holders of shares of the Company's Common Stock. (4) Prior to a Type B Event Date, a vacancy of a Preferred Stock Director position shall be filled only by a majority vote of or written consent of holders of a majority of the then outstanding shares of the series of Preferred Stock that elected the director whose death, resignation, retirement, disqualification or removal from office caused the vacancy. Prior to a Type B Event Date, a vacancy of the position of Joint Director shall be filled only by the Board of Directors, following nomination by holders of a majority of the then outstanding shares of Series B Preferred Stock and holders of a majority of the then outstanding shares of the Series C Preferred Stock, pursuant to the procedure described in Section 10(b)(2). Directors chosen pursuant to any of the foregoing provisions shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which they have been elected expires and until their successors are duly elected and have qualified or until their earlier resignation or removal. If holders of shares of Series C Preferred Stock shall, pursuant to the Certificate of Incorporation, but not as a result of a Type B Conversion, cease to have the right to elect any Preferred Stock Directors, then the director elected by holders of shares of Series C Preferred Stock shall be deemed to have resigned immediately upon such cessation. Upon the occurrence of any such deemed resignation referred to in the immediately preceding two sentences, the directorship previously held by the director deemed to have resigned shall automatically become a vacancy to be filled by the Board of Directors. (5) Shares of Series C Preferred Stock shall be deemed to be shares "entitled to vote" or entitled to vote in the election of directors for purposes of the provisions of the Certificate of Incorporation that employ such terms, and, for purposes of such provisions at any time, each outstanding share of Series C Preferred Stock shall count as such number of shares of Common Stock into which such share of Series C Preferred Stock is then convertible pursuant to Sections 5 and 7 hereof (subject to the percentage limitation set forth in Section 10(a) hereof as such percentage limitation would otherwise apply pursuant to such Section 10(a)). (c) Immediately following the initial issuance of shares of Series B Preferred Stock, the Board of Directors shall appoint the following committees of the Board of Directors with the 14 respective duties, membership and voting requirements stated below. After such appointment and until a Type B Event Date, the following matters shall be deemed approved by the Board of Directors only upon receiving the affirmative vote of a majority of the 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: (A) a decision to eliminate or discharge the Audit Committee, Compensation Committee, Executive Committee or the Acquisitions Committee, as described more fully below (such committees are the "COMMITTEES"), (B) a decision to reduce, narrow, attenuate or otherwise weaken the delegation of powers by the Board of Directors to any of the Committees, unless such reduction, narrowing, attenuation or other weakening is the transfer of delegated powers from the Compensation Committee or the Acquisitions Committee to the Executive Committee, (C) a decision to change the number of members of any Committee, the identity of the persons or entities entitled to select each of the members of any Committee, the size of the required vote for approval by any Committee and the size of the required vote of the Board of Directors necessary to approve actions that failed to obtain the required approval vote on the appropriate Committee; and (D) a decision to create any new committee. If the holders of the Series C Preferred Stock shall cease to have the right to nominate and elect any director at all, otherwise than as a result of the conversion of their shares of Series C Preferred Stock in a Type B Conversion, then such holders shall no longer have the right to select any member of any of the committees set forth below and the member or members of such committees selected by such holders shall automatically cease to be a member or members of such committees. (1) COMPENSATION COMMITTEE. The Compensation Committee shall consist of three (3) members, at least one (1) of whom shall be selected jointly by the Series C Director and directors elected by holders of the Series B Preferred Stock (the "SERIES B DIRECTORS"), and who shall be a director. 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 nominated by the Series B Directors and the Series C Director receive adequate notice of and an opportunity to participate in any meetings of the Compensation Committee; (2) AUDIT COMMITTEE. The Audit Committee 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. (3) EXECUTIVE COMMITTEE. The Executive Committee shall consist of four (4) members, one (1) of whom shall be the Series C Director, one (1) of whom shall be selected by the Series B Directors (and shall be a Series B Director) and two (2) of whom shall be selected by the Board of Directors (and shall be directors). The members selected by the Series B Directors and the Series C Director may be removed only by the Series B Directors and the Series C Director, respectively. The Executive Committee shall, in addition to the customary duties of an executive committee, have the right to approve any 15 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 (4) ACQUISITIONS COMMITTEE. The Acquisitions Committee shall consist of four (4) members, one (1) of whom shall be the Series C Director, one (1) of whom shall be selected by the Series B Directors (and shall be a Series B Director), and two (2) of whom shall be selected by the Board of Directors (and shall be directors). The Acquisitions Committee shall have the right to approve any transaction of the types described in Section 11(n), (o), (p) and (q) 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 Section 10(d)(5) below, 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. (5) CERTAIN TRANSACTIONS. 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 Section 11(n), (o) (which, only for purposes of this clause, shall also apply to Capital Expenditures made by the Company in the ordinary course of business), (p) and (q), 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 Equity 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. (d) Prior to a Type B Event Date, the following matters shall be deemed approved by the Board of Directors only upon a Supermajority Vote in respect of any such matter: (A) Approving the annual Capital Budget Plan; and 16 (B) Approving the Company entering into any financing activity not approved by the Executive Committee. (e) The bylaws of the Company may be altered, amended, or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular or special meeting of the stockholders or the Board of Directors, but only if such alteration, amendment, repeal, or adoption has been approved: (1) in case of adoption by the Board of Directors prior to the First Meeting following a Type B Event Date, by a majority of the Preferred Stock Directors and either (A) a majority of the entire Board of Directors (if such alteration, amendment, repeal, or adoption does not increase the number of directors) or (B) by at least 80% of the members of the entire Board of Directors (if such alteration, amendment, repeal, or adoption does increase the number of directors); (2) in case of adoption by the stockholders at any meeting of stockholders (other than the First Meeting following a Type B Event Date) with a record date on or prior to a Type B Event Date, by holders of at least eighty percent (80%) of the outstanding shares of the Corporation entitled to vote in the election of directors, voting as one class, and by holders of a majority of the shares, outstanding as of such record date, of whichever (or both) of Series B Preferred Stock and Series C Preferred Stock continued (as of such record date) to have the right under the certificate of incorporation to elect one or more Preferred Stock Directors. (f) If a Type B Event Date occurs prior to October 14, 1999, then the following provisions shall apply: (1) From such Type B Event Date until the second subsequent annual stockholders meeting 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 Initial Purchaser nor any other holder of shares of Series D Preferred Stock (other than a holder pursuant to either a transfer permitted under Rule 144 under the Securities Act of 1933, as amended or a transfer pursuant to a registered offering under registration rights from the Company) 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 Person which obtained its equity interest in the Company as a result of a transfer of securities from the Initial Purchaser or any other Person referred to in clauses (A) through (D) 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: (A) any merger or consolidation of the Company or any of its Subsidiaries with or into such other Person; 17 (B) 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 such other Person; (C) the issuance or delivery of any voting securities of the Company or any of its Subsidiaries to such other Person in exchange for cash, other assets or securities, or a combination thereof; or (D) any dissolution or liquidation of the Company; PROVIDED, HOWEVER, that such prohibition shall not apply with respect to any such action or transaction approved by (I) the affirmative vote of not less than eighty percent (80%) 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 the Joint Director, nor any of such Common Stock Directors continue to serve on the Board of Directors at such time). For purposes of this Section 10(f), 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. (2) No transfer of Series C Preferred Stock may be made by the Initial Purchaser or any Affiliate of the Initial Purchaser (other than a transfer permitted under Rule 144 under the Securities Act or a transfer pursuant to a registered offering under registration rights from the Company) 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 Section 10(f)(1). (g) The Majority Holders shall have the right to appoint one (1) observer (who may be, but shall not be required to be, an employee of the Initial Purchaser) to attend each meeting of the Board of Directors of the Company and each meeting of any committee of the Board of Directors (the "Board Observer") The Board Observer shall be entitled to a copy of all written materials (including Board meeting agendas and background materials) distributed to each member of the Board of Directors of the Company as and when so distributed. SECTION 11. PROTECTIVE PROVISIONS. 18 Without limiting the provisions of any other Series of Preferred Stock, for so long as the Initial Purchaser and any Affiliate as of the Initial Date of the Initial Purchaser, taken as a whole, owns or own at least 33% in total liquidation preference, taken as a whole, of the outstanding shares of Series C Preferred Stock and 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 (i) the rights, preferences and privileges of the Series C Preferred Stock or any other class of Capital Stock, or (ii) the terms or provisions of any Option or Convertible Security; (b) enter into any transaction or event that could result 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, amendment, 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 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) amend, restate, alter, modify or repeal (by merger or otherwise) or permit any Subsidiary to amend, restate, alter, modify or repeal (by merger or otherwise) the certificate of incorporation, other organizational documents, or bylaws of any Subsidiary in any material respect; (f) 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, as provided in the Certificate of Incorporation, Amended Bylaws, Series B Preferred Stock Certificate of Designation, Series C Preferred Stock Certificate of Designation and Series D Preferred Stock Certificate of Designation; (g) 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 Initial Issue Date; 19 (h) 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; (i) create, authorize or issue any shares of Series C Preferred Stock or any class or series of Senior Securities, Parity Securities or Supervoting Securities or shares of any such class or series; (j) reclassify any authorized stock of the Company into Series C Preferred Stock or any class or series of Senior Securities, Parity Securities, Supervoting Securities or shares of such class or series; (k) increase or decrease the authorized number of shares of Series C Preferred Stock or any class or series of Senior Securities or Parity Securities or shares of any such class or series; (l) issue any equity security below either the then current Market Price (without deduction for any underwriters' discount) or the then-applicable Conversion Price other than for (A) 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, (B) 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 certain members of senior management of the Company shall participate, and (C) the Common Stock underlying such management stock options and other stock options outstanding as of October 14, 1997; (m) 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 (including without limitation any Option or Convertible Security) directly or indirectly, whether in cash, obligations or shares of the Company or other property; (n) 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 equal to or greater than $15 million; (o) acquire any asset or assets of any Person in any transaction or transactions, where 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), whether such transaction is effected in a single transaction or a series of related transactions, is 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; 20 (p) 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 either 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, (q) cause or permit any Subsidiary to merge or consolidate with any Person (other than the Company or a wholly-owned Subsidiary of the Company), 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; (r) substantially and materially engage in, either through acquisition or internal development, any business other than the business of providing diagnostic services to the healthcare industry; (s) make or permit any of its Subsidiaries to make Capital Expenditures any fiscal year in excess, in the aggregate, of two percent (2%) above the approved Capital Budget Plan for such fiscal year of the Company unless such expenditure is approved by the Executive Committee of the Board of Directors or a Supermajority Vote of the Board of Directors of the Company; (t) (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 Initial Issue 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 21 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; or (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 Initial Issue Date, taken as a whole, and including such transaction, is greater than $20 million; (u) permit any Subsidiary of the Company 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 holders of the shares of Series C Preferred Stock, 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 (v) issue any share of Series D Preferred Stock, otherwise than pursuant to a Type B Conversion. The rights provided to holders of shares of Series C Preferred Stock in this Section 11 shall be in addition to and not in lieu of the other rights and protections granted to the holders of the shares of Series C Preferred Stock hereunder. SECTION 12. REISSUANCE OF SERIES C PREFERRED STOCK. Shares of Series C Preferred Stock that have been issued and reacquired or converted in any manner, including shares purchased, redeemed, exchanged, or converted into shares of Common Equity, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, provided that such shares may not in any event be reissued as Series C Preferred Stock. SECTION 13. BUSINESS DAY. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. 22 SECTION 14. CERTAIN NOTIFICATION OBLIGATIONS. The Company will notify the Initial Purchaser of each subsequent sale or disposition of any assets or properties of either the Company or any Subsidiary (other than in the Ordinary Course of Business) once the aggregate consideration payable in connection with all such sales or dispositions for the Company and its Subsidiaries outside the Ordinary Course of Business (including without limitation cash consideration, the fair market value of any securities and the net present value of any deferred consideration) exceeds $10,000,000 in any fiscal year. SECTION 15. PREEMPTIVE RIGHTS (a) Subject to the terms and conditions specified in this Section 15, the Company hereby grants to each holder of shares of Series C Preferred Stock a right of first offer with respect to future sales in any transaction or proposed transaction not involving a public offering by the Company of its shares of Common Equity or any securities convertible or exchangeable, directly or indirectly, into Common Equity (collectively, "PREEMPTIVE SECURITIES"). Preemptive Securities shall include, without limitation, all shares of Common Stock and all Convertible Securities. (b) Each time the Company proposes to offer any Preemptive Securities in a transaction not involving a public offering of such Preemptive Securities, the Company shall first make an offering of such Preemptive Securities to each holder of shares of Series C Preferred Stock in accordance with the following provisions: (1) The Company shall deliver a notice by certified mail (the "PREEMPTIVE NOTICE") to each holder of shares of Series C Preferred Stock stating (i) its bona fide intention to offer Preemptive Securities, (ii) the number of such Preemptive Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Preemptive Securities. In addition, the Preemptive Notice will contain all other information which would be provided to prospective purchasers with respect to the proposed offering. (2) With respect to any Type A Offering of Preemptive Securities, by written notification given by each holder of shares of Series C Preferred Stock within 15 Business Days from the date of the Preemptive Notice, each holder may elect to purchase or obtain, at the price and on the terms specified in the Preemptive Notice, up to that portion of such Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock then held by such holder bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all convertible securities, including without limitation the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock). (3) With respect to any Type B Offering of Preemptive Securities, by written notification given by each holder of shares of Series C Preferred Stock within 15 Business Days from the date of the Preemptive Notice, each holder may elect to purchase 23 or obtain, at the price and on the terms specified in the Preemptive Notice, up to that portion of such Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock then held by such holder bears to the number of shares of Common Stock of the Company into which the outstanding shares of Series B Preferred Stock and the outstanding shares of Series C Preferred Stock are then convertible. (4) If any of the holders of Series B Preferred Stock decline to exercise any right of refusal with respect to any offering to such holders of Series B Preferred Stock of any Preemptive Securities, such holders (the "DECLINING SERIES B HOLDERS") shall give written notification of such election to decline to exercise such rights to the Company within 15 Business Days from the date of the Preemptive Notice. Within 3 Business Days thereafter, the Company shall give written notification (the "DECLINED PREEMPTIVE SECURITIES NOTICE") to each holder of Series C Preferred Stock of the following: (i) the total number of shares of Preemptive Securities which the Declining Series C Holders declined to purchase (collectively, the "DECLINED PREEMPTIVE SECURITIES"), and (ii) the price and terms specified in the Preemptive Notice relating to such Declined Preemptive Securities. (5) By written notification given by each holder of shares of Series C Preferred Stock within 3 Business Days from the date of the Declined Preemptive Securities Notice, each holder of Series C Preferred Stock may elect to purchase or obtain, at the price and on the terms specified by the Company for such sale of such Preemptive Securities, such Declined Preemptive Securities at the price and on the terms specified in the Preemptive Notice; PROVIDED, HOWEVER, that if the total number of Declined Preemptive Securities so elected to be purchased by such holders of Series C Preferred Stock pursuant hereto (collectively, the "ELECTING HOLDERS") exceeds the total number of Declined Preemptive Securities, each such Electing Holder shall purchase, and the Company shall sell to such Electing Holder, that portion of the total number of Declined Preemptive Securities which equals the proportion that the number of shares of Common Stock issuable upon conversion of the shares of Series C Preferred Stock then held by such holder bears to the number of shares of Common Stock of the Company into which the outstanding shares of all Electing Holders are then convertible. (6) If all Preemptive Securities referred to in any Preemptive Notice are not elected to be obtained as provided in Section 15(b)(2) or 15(b)(3), or Section 15(b)(4) or 15(b)(5), as applicable, the Company may, at any time after the latest date set forth above for the exercise of the right to purchase any such Preemptive Securities by any holder of Series C Preferred Stock (the "PREEMPTIVE RIGHT EXPIRATION DATE") to the date sixty (60) days from the Preemptive Right Expiration Date offer the remaining unsubscribed portion of such Preemptive Securities to any Person or Persons at a price equal to the price specified in the relevant Preemptive Notice. If the Company does not enter into an agreement for the sale of the Preemptive Securities within sixty (60) days after the Preemptive Right Expiration Date, or if such agreement is not consummated within ninety (90) days of the Preemptive Right Expiration Date, the right provided under this 24 Section 15 shall be deemed to be revived and such Preemptive Securities shall not be offered unless first reoffered to each holder of shares of Series C Preferred Stock in accordance herewith. (7) The rights set forth in this Section 15 shall not be applicable to the issuance or sale of shares of Common Stock pursuant to Options approved by the Board to officers, directors and employees of the Company for the primary purpose of soliciting or retaining their employment or services. SECTION 16. DEFINITIONS. As used in this Certificate, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified 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; provided that beneficial ownership of a majority or more of the voting securities of a Person shall be deemed to be control. "AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as in effect from time to time. "AGGREGATE VOTING LIMITATION" has the meaning set forth in Section 10(a). "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. "BOARD OBSERVER" has the meaning set forth in Section 10(g). "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL BUDGET PLAN" means, for each fiscal year of the Company, 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 of the Company. "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. 25 "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. "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 A, Series B, Series C and Series D Certificates of Designation. "CHANGE OF CONTROL" with respect to a Person shall be deemed to have occurred (i) at such time as any person (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) at any time shall directly or indirectly acquire more than 40% in outstanding voting power of such Person, (ii) at such time as during any one year period, individuals who at the beginning of such period constitute such Person's Board of Directors or other governing body cease to constitute at least a majority of such board or governing body (provided, however, that a change in directors upon a Type B Event Date shall not be deemed to cause a Change in Control pursuant to this clause (ii)), (iii) upon consummation of a merger or consolidation of such Person into or with another Person in which the shareholders of the subject Person immediately prior to the consummation of such transaction shall own less than Fifty Percent (50%) of the voting securities of the surviving Person (or the parent corporation of the surviving Person where the surviving Person 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 such Person, 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 the Initial Purchaser or any Affiliate thereof or the Majority Holders 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 C 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. "COMMITTEES" has the meaning set forth in Section 10(e). "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. 26 "COMMON STOCK" has the meaning set forth in Section 3(a). "COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event Date, any director other than the Joint Director or a director elected by the holders of the Series B Preferred Stock or the Series C Preferred Stock. "COMPANY" means InSight Health Services Corp., a Delaware corporation. "CONVERSION DATE" means (i) in the event of a Type A Conversion, the date set forth in Section 5(a) (in the event of a partial conversion relating to a Partial Conversion Event) or Section 5(b) (in the event of any other conversion pursuant to Section 5), and (ii) in the event of a Type B Conversion, the date of receipt by the Company of the relevant Type B Conversion Notice. "CONVERSION DIRECTORS" has the meaning set forth in Section 10. "CONVERSION PRICE" has the meaning set forth in Section 8. "CONVERTIBLE SECURITY" means any stock or securities, directly or indirectly, convertible into or exchangeable for Common Equity, including without limitation any exchangeable debt securities. "CORPORATE CHANGE" has the meaning set forth in Section 8(e). "CREDIT FACILITY" means a credit facility to which the Company is a party with NationsBank, N.A. "DECLINED PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(b)(4). "DECLINED PREEMPTIVE SECURITIES NOTICE" has the meaning set forth in Section 15(b)(4). "DECLINING SERIES B HOLDERS" has the meaning set forth in Section 15(b)(4). "ELECTING HOLDERS" has the meaning set forth in Section 15(b)(5). "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. "FIRST MEETING" means the meeting of the newly constituted Board of Directors to be held two calendar days after a Type B Event Date, at the principal offices of the Corporation. "FISCAL YEAR" means each year ending June 30, or any other fiscal year as approved by the Board of Directors. 27 "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. "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 or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect as of the Initial Issue Date. "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 obligations in respect of deferred taxes and deferred employee compensation and benefits, and anything in the nature of capital stock, surplus capital and retained earnings; (b) the amount available for drawing under all letters of credit issued for the account of such Person; (c) Capital Lease Obligations of such Person; and (d) 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. "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. "INITIAL ISSUE DATE" means October 14, 1997. "INITIAL PURCHASER" shall mean the Person to whom shares of Series C Preferred Stock are initially issued by the Company. "JOINT DIRECTOR" has the meaning set forth in Section 10(b)(4). "JUNIOR SECURITIES" has the meaning set forth in Section 2. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in the Company's principal place of business, the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 28 "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "LIQUIDATING DIVIDEND" has the meaning set forth in Section 8(g). "LIQUIDATING EVENT" has the meaning set forth in Section 4(b). "LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a). "MAJORITY HOLDERS," at any time, and with respect to any class or series of Capital Stock of the Company, means holders of a majority of the shares of such class or series then outstanding. If the term is used without reference to a particular class or series of Capital Stock of the Company, it means Majority Holders of the Series C Preferred Stock. "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 market, the "Market Price" shall be the fair value thereof determined by the Company and approved by the Majority Holders; 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 Majority Holders. The determination of such appraiser shall be final and binding on the Company and holders of the shares of Series C Preferred Stock, and the fees and expenses of such appraiser shall be paid by the Company. "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" shall mean the ordinary course of business for a company engaged in the business of providing diagnostic services to the healthcare industry as so provided by the Company as of the Initial Issue Date; provided, that all sales by the Company or any 29 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. "PARTIAL CONVERSION EVENT" means (i) the consummation of the sale by any holder of its shares of Series C Preferred Stock to a third party at any time approved by the Board, (ii) the consummation of a public offering of the Common Stock at any time and (iii) at any time following April 14, 1999, the consummation of a private sale of Common Stock. "PARTIAL SUBSIDIARY" has the meaning set forth in Section 11(u). "PERSON" means any individual, corporation, 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). "PREEMPTIVE NOTICE" has the meaning set forth in Section 15(b). "PREEMPTIVE RIGHT EXPIRATION DATE" has the meaning set forth in Section 15(b)(6). "PREEMPTIVE SECURITIES" has the meaning set forth in Section 15(a). "PREFERRED STOCK DIRECTORS" means the Series B Director and the Series C Directors. "SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement dated as of October 14, 1997 between the Company and the Initial Purchaser. "SENIOR SECURITIES" has the meaning set forth in Section 2. "SERIES A PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES B DIRECTOR" has the meaning set forth in Section 10. "SERIES B PREFERRED STOCK" has the meaning set forth in Section 1. "SERIES C DIRECTOR" has the meaning set forth in Section 10. "SERIES C PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES D PREFERRED STOCK" has the meaning set forth in Section 2. "SPECIAL CORPORATE EVENT" with respect to a Person shall be deemed to have occurred (i) at such time as any person (as defined in Section 13(d)(3) of the Securities and Exchange Act of 1934) at any time shall directly or indirectly acquire more than 20% in outstanding voting power of such Person, (ii) at such time as during any one year period, individuals who at the beginning of such period constitute such Person's Board of Directors or other governing body cease to 30 constitute at least a majority of such board or governing body (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 such Person into or with another Person in which the shareholders of the subject Person immediately prior to the consummation of such transaction shall own less than Fifty Percent (50%) of the voting securities of the surviving Person (or the parent corporation of the surviving Person where the surviving Person 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 such Person, in any of cases (i), (ii), (iii) or (iv) in a single transaction or series of related transactions; provided, that no Special Corporate Event hereunder with respect to the Company shall be deemed to occur solely by reason of the ownership by the Initial Purchaser or any Affiliate thereof or the Majority Holders of the Series C Preferred Stock or any Affiliate thereof of any Capital Stock of the Company. "SUBSIDIARY" means, with respect to any Person, (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 such Person, by one or more Subsidiaries of such Person or by such Person and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such person and one or more Subsidiaries of such Person, 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 such Person consistent with GAAP. "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. "TYPE A CONVERSION" means a conversion of shares of Series C Preferred Stock into shares of Common Stock pursuant to Section 5 hereof. "TYPE A OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by the Company of Preemptive Securities in which the proposed sale price reflects a price per share of Common Stock at or above the higher of (i) the Market Price per share of Common Stock, determined as of the date of the Preemptive Notice relating to such offering and (ii) $8.375 per share of Common Stock. "TYPE B CONVERSION" means a conversion of shares of Series C Preferred Stock into shares of Series D Preferred Stock pursuant to Section 6 hereof. "TYPE B CONVERSION NOTICE" has the meaning set forth in Section 6(b). 31 "TYPE B EVENT DATE" has the meaning set forth in Section 6(b). "TYPE B OFFERING OF PREEMPTIVE SECURITIES" means any proposed offering by the Company of Preemptive Securities in which the proposed sale price reflects a price per share of Common Stock below the higher of (i) the Market Price per share of Common Stock, determined as of the date of the Preemptive Notice relating to such offering and (ii) $8.375 per share of Common Stock. "TYPE B TRIGGER DATE" means the date one year after the initial borrowing of funds under the Credit Facility. IN WITNESS WHEREOF, InSight Health Services Corp. has caused this Certificate to be executed by its Executive Vice President and Secretary this 14th day of October, 1997. INSIGHT HEALTH SERVICES CORP. By: /s/ Thomas V. Croal ---------------------------------- Name: Thomas V. Croal Office: Executive Vice President and Secretary 32 EX-3.4 4 EXH. 3.4 - CERT OF DESIGNATION SERIES D INSIGHT HEALTH SERVICES CORP. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF CONVERTIBLE PREFERRED STOCK, SERIES D (Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware.) InSight Health Services Corp., a corporation organized and existing under the laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY THAT, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the certificate of incorporation of the Company, as amended, the Board unanimously adopted the following resolutions on October 14, 1997 authorizing the issuance of the Series D Convertible Preferred Stock of the Company, which resolutions are still in full force and effect and are not in conflict with any provisions of the certificate of incorporation or bylaws of the Company: RESOLVED, that pursuant to authority vested in the Board by the Certificate of Incorporation, the Board does hereby establish a series of preferred stock of the Company from the Company's authorized class of 3,500,000 shares of $.001 par value preferred shares, such series to consist of 632,266 shares, and does hereby fix and state the voting rights, designation, powers, preferences and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereof, as follows: SECTION 1. DESIGNATION. The Preferred Stock created and authorized hereby shall be designated as the "Convertible Preferred Stock, Series D" (hereinafter called the "SERIES D PREFERRED STOCK"). The number of shares of Series D Preferred Stock shall be 632,266 and no more, provided, however, that the Board of Directors of the Company may increase the number of shares of Series D Preferred Stock pursuant to Section 151(g) of the Delaware General Corporation Law, but only in accordance with the provisions of Section 7(c) of the Series B Certificate of Designation and Section 7(c) of the Series C Certificate of Designation. SECTION 2. RANK. The Series D Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank senior to all classes of Common Equity of the Company, and to each other class or series of Capital Stock of the Company (except for the Convertible Preferred Stock, Series A (hereinafter called the "SERIES A PREFERRED STOCK")) the terms of which do not expressly provide that it ranks senior to or on a parity with the Series D Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to with the Common Equity of the Company as "JUNIOR SECURITIES"). The Series D Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank on a parity with any class or series of Capital Stock hereafter created which expressly provides that it ranks on a parity with the Series D Preferred Stock as to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company (shares of such a class or series, together with shares of the Series A Preferred Stock, shares of the Convertible Preferred Stock, Series B (the "SERIES B PREFERRED STOCK"), and shares of the Convertible Preferred Stock, Series C (the "SERIES C PREFERRED STOCK") are, collectively, the "PARITY SECURITIES"). The Series D Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding up and dissolution of the Company, rank junior to each class or series of Capital Stock hereafter issued in accordance with Section 10 hereof and which expressly provides that it ranks senior to the Series D Preferred Stock as to dividend distributions or distributions upon the liquidation, winding up and dissolution of the Company ("SENIOR SECURITIES"). Any purported Supervoting Securities that were not created, authorized or issued in accordance with Section 10 hereof shall be deemed for all purposes related to voting rights to be identical to Common Stock, including, without limitation, as to voting rights with respect to the election of directors and all other matters submitted to a vote of stockholders. SECTION 3. DIVIDENDS. (a) The Company may (when, as and if declared by the Board of Directors of the Company) declare and pay dividends, out of the entire assets and funds of the Company legally available therefor, to the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the common stock, $.001 par value per share, of the Company (the "COMMON STOCK") ratably based on the number of shares of Common Stock held by each such Holder (assuming full conversion of all such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock into Common Stock). (b) Holders of shares of the Series D Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof in preference to and in priority over any dividends upon any of the Junior Securities, except for the Common Stock. (c) Holders of shares of the Series D Preferred Stock shall be entitled to receive the dividends provided for in Section 3(a) hereof on a pro rata basis with respect to any dividends upon any Parity Securities. SECTION 4. LIQUIDATION PREFERENCE. (a) Upon any Liquidating Event with respect to the Company, the Holders of shares of Series D Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution to its stockholders, $.001 per share of Series D Preferred Stock (the "LIQUIDATION PREFERENCE"), plus an amount in cash equal to any declared but unpaid dividends thereon, before any payment shall be made or any assets distributed to the holders of any of the Junior Securities, including, without limitation, Common Stock. In addition, holders of shares of Series D Preferred Stock shall be entitled to receive any distribution in the event of liquidation, dissolution or winding up of the affairs of the Company pari passu with shares of Common Stock, on a pro rata basis (assuming full conversion of all shares of Series D Preferred Stock into Common Stock). If the assets of the Company are not sufficient to pay in full the 2 liquidation payments payable to the holders of outstanding shares of the Series D Preferred Stock and all Parity Securities, then the holders of all such shares shall share equally and ratably in such distribution of assets of the Company in accordance with the amounts which would be payable on such distribution if the amount to which the holders of outstanding shares of Series D Preferred Stock and the holders of outstanding shares of all Parity Securities are entitled were paid in full. (b) "LIQUIDATING EVENT" shall mean, with respect to any Person, any of the following events: (i) the commencement by such Person of a voluntary case under the bankruptcy laws of the United States, as now or hereafter in effect, or the commencement of an involuntary case against such Person with respect to which the petition shall not be controverted within 15 days, or be dismissed within 60 days, after commencement thereof; (ii) the appointment of a custodian for, or the taking charge by a custodian of, all or substantially all of the property of such Person; (iii) the commencement by such Person 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 such Person; (iv) the commencement against such Person of any proceeding set forth in the preceding clause (iii), which is not controverted within 10 days thereof and dismissed within 60 days after the commencement thereof; (v) the adjudication of such Person insolvent or bankrupt, or the adoption by such Person of a plan of liquidation; (vi) the occurrence of any Change of Control with respect to such Person or (vii) the filing of a certificate of dissolution in respect of the Company with the Secretary of State of the State of Delaware; in any of cases (i) through (vi) above, in a single transaction or series of related transactions. SECTION 5. CONVERSION (a) Each holder of Series D Preferred Stock shall have the right, at its option, to convert, subject to the terms and provisions of this Section 5, all or any part of its Series D Preferred Stock then outstanding into such number of fully paid and non-assessable shares of Common Stock as results from multiplying the number of shares of Series D Preferred Stock to be converted by the Conversion Multiple. The person or persons entitled to receive the shares of Common Stock upon conversion of such shares of Series D Preferred Stock shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock on the date such holder or holders deliver certificates representing the shares of Series D Preferred Stock to be converted to the Company as set forth in Section 5(b) below (the "CONVERSION DATE"). (b) In order to convert all or any portion of its outstanding Series D Preferred Stock into shares of Common Stock, the holder of such Series D Preferred Stock shall deliver certificates representing the shares of Series D Preferred Stock to be converted to the Company at its principal office, together with written notice that it elects to convert those shares of Series D Preferred Stock into shares of Common Stock in accordance with the provisions of this Section 5. Such notice shall specify the number of shares of Series D Preferred Stock to be converted and the name or names in which the holder wishes the certificates for shares of Common Stock to be registered. 3 SECTION 6. GENERAL PROVISIONS RELATING TO CONVERSION The following provisions shall be applicable to any conversion pursuant to Section 5 hereof. (a) As promptly as practicable after the surrender as hereinabove provided of certificates representing shares of Series D Preferred Stock converted or to be converted into shares of Common Stock, the Company shall deliver or cause to be delivered to the holder, or the holder's designee, certificates representing the number of fully paid and non-assessable shares of Common Stock into which the shares of Series D Preferred Stock are converted, and, if less than the entire number of shares of Series D Preferred Stock represented by the certificate or certificates surrendered is to be converted, a new certificate for the number of shares of Series D Preferred Stock not so converted. So long as any shares of Series D Preferred Stock remain outstanding, the Company shall not close its Common Stock transfer books. The issuance of certificates representing shares of Common Stock issued upon the conversion of shares of Series D Preferred Stock shall be made without charge to the holder of Series D Preferred Stock for any tax in respect of the issuance of such certificates (other than any transfer, withholding or other tax if the shares of Common Stock are to be registered in a name different from that of the registered holder of Series D Preferred Stock). (b) No fractional shares of Common Stock or scrip representing fractional shares of Common Stock shall be issued upon any conversion of any shares of Series D Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded up to a whole share. (c) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of shares of Series D Preferred Stock and the exercise of the Warrants and the GE Warrants, the full number of whole shares of Common Stock then deliverable upon the conversion of all shares of Series D Preferred Stock then outstanding and the issuance of Common Stock in respect of the Warrants and the GE Warrants. The Company shall take at all times such corporate action as shall be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of shares of Series D Preferred Stock and the exercise of the then outstanding Warrants and GE Warrants. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Stock and the exercise of all the then outstanding Warrants and GE 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 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, 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 validly adopted resolution of the Board of Directors setting forth the amendment proposed and 4 declaring its advisability, all in accordance with Section 242 of the Delaware General Corporation Law. (d) If any shares of Common Stock to be reserved for the purpose of conversion of Series D Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange, NASD, Inc., Nasdaq or other regulatory body under any federal or state law, federal or state regulation, rule of NASD, Inc., Nasdaq or otherwise, before such shares may be validly issued or delivered upon conversion, the Company shall, in good faith and as expeditiously as practicable, endeavor to secure such registration, listing or approval, as the case may be. (e) All shares of Common Stock that may be issued upon conversion of the Series D Preferred Stock shall upon issuance by the Company be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. (f) In the event of any taking by the Company of a record of the holders of any class of Capital Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of Capital Stock or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series D Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (g) The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 6 and Sections 5 and 7 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the shares of Series D Preferred Stock against impairment of any kind. SECTION 7. CONVERSION MULTIPLE. (a) As used herein, the "CONVERSION MULTIPLE" shall initially be ten (10), subject to adjustment as set forth below. (b) If the Company at any time subdivides (by any stock split, stock dividend, reclassification, recapitalization or otherwise) one or more classes or series of its outstanding shares of Common Equity into a greater number of shares, the Conversion Multiple in effect immediately prior to such subdivision shall be proportionately increased. If the Company at any time combines (by reverse stock split or otherwise) one or more classes or series of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Multiple in effect immediately prior to such combination shall be proportionately decreased. 5 (c) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Equity are entitled to receive (either directly or upon subsequent liquidation) stock, securities, cash, debt instruments or assets with respect to or in exchange for Common Equity is referred to herein as a "CORPORATE CHANGE." In case of any Corporate Change, each share of Series D Preferred Stock then outstanding will become convertible only into the kind and amount of securities, cash and other property receivable upon such Corporate Change by the holder of the number of shares of Common Stock into which such share of Series D Preferred Stock was convertible immediately prior thereto (assuming such holder of Common Stock failed to exercise any rights of election). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from such consolidation or merger or the entity purchasing such assets assumes by written instrument the obligation to deliver to the holders of shares of Series D Preferred Stock such shares of stock, securities, cash, debt instruments or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (d) If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions, then the Company's Board of Directors shall make an appropriate adjustment in the Conversion Multiple so as to protect the rights of the holders of the shares of Series D Preferred Stock; provided that no such adjustment shall decrease the Conversion Multiple obtainable as otherwise determined pursuant to this Section 7. (e) If the Company declares or pays a dividend upon the Common Equity payable otherwise than out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "LIQUIDATING DIVIDEND"), then the Company shall pay to each holder of a share of Series D Preferred Stock at the time of payment thereof the Liquidating Dividend which would have been paid to such holder on the Common Stock such holder would have owned had such holder fully exercised its right to convert the shares of Series D Preferred Stock into shares of Common Stock immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Equity entitled to such dividends are to be determined. SECTION 8. NO REDEMPTION. The shares of Series D Preferred Stock shall not be subject to mandatory redemption by the Company. SECTION 9. VOTING RIGHTS AND RELATED PROVISIONS. (a) Shares of Series D Preferred Stock (i) shall only be issuable to holders of shares of Series B Preferred Stock and Series C Preferred Stock and (ii) shall only be issuable upon the terms and conditions set forth in the Series B Certificate of Designation and Series C Certificate of Designation. The holders of shares of the Series D Preferred Stock shall have the right to vote with the holders of Common Stock with respect to all matters submitted to a shareholder vote (except for the election of directors, which will be governed by Sections 9(b) through 9(f) 6 below), with each share of Series D Preferred Stock having the number of votes equal to the number of shares of Common Stock into which such share of Series D Preferred Stock then is convertible. (b) Upon a Type B Event Date, without any action on the part of the Company or the Board, the number of members of the Board shall be increased automatically by the smallest whole number that will result in at least the Type B Percentage (but less than 66 2/3%) of the members of the Board being Series D Directors. Immediately following such Type B Event Date, the holders of Series D Preferred Stock shall have the right to elect all of such number of new directors (the "CONVERSION DIRECTORS"), such election to occur pursuant to the Series D Selection Procedure. The Conversion Directors shall immediately upon such election become members of the Board of Directors as Series D Directors. The term of the Conversion Directors shall run until the third annual meeting of stockholders following the Type B Event Date. "SERIES D DIRECTORS" shall mean, collectively, any Preferred Stock Directors and any Conversion Directors. After a Type B Event Date and until the expiration of the terms of office of directors serving as members of the board of directors immediately prior to the second annual meeting of stockholders following a Type B Event Date, the board of directors shall comprise: (i) one Joint Director; (ii) three Preferred Stock Directors; (iii) not less than four (4) nor more than five (5) additional directors elected by holders of shares of Common Equity and (iv) the Conversion Directors. At and after the second annual meeting of stockholders after the Type B Event Date, upon expiration of the term of any director, such position shall be subject to election by holders of shares of Common Stock and Series D Preferred Stock, voting as a class, with each share of Series D Preferred Stock having the number of votes equal to the number of shares of Common Stock into which such share of Series D Preferred Stock then is convertible; the directors so elected shall not be designated as to series or class of Capital Stock. Upon the expiration of the terms of the Conversion Directors, their successors shall be classified into three (3) classes as nearly equal in number as possible, with appropriate terms of office. (c) Immediately following a Type B Event Date, any Preferred Stock Director already serving as a member of the Board shall continue to serve in such position until the expiration of his term and the election and qualification of a successor, or until his earlier death, resignation or retirement. Any vacancy, for any reason, in the position of a Series D Director prior to the second annual meeting of stockholders after a Type B Event Date, shall be filled by majority vote of the Series D Directors then serving. Until the second annual meeting following a Type B Event Date, election of Series D Directors to succeed those whose terms expire prior to such second annual meeting shall be solely by holders of the Series D Preferred Stock, and shall follow the Series D Selection Procedure. A Series D Director may be removed, with or without cause, by the holders of Series D Preferred Stock, in compliance with the requirements of Section 141(k)(2) of the Delaware General Corporation Law. A Series D Director shall not be removed, with or without cause, otherwise than as described in this Section 9(c). (d) Until the second annual meeting after the Type B Event Date, upon expiration of the term of the Joint Director, such position shall be subject to nomination, approval by the board of directors and election by the holders of Common Stock in the same fashion as provided in the Series B and C Certificates of Designation for the period before a Type B Event Date, except that 7 until the second annual meeting after the Type B Event Date, such nomination shall be by holders of a majority of the then outstanding shares of Series D Preferred Stock. Until the second annual meeting after the Type B Event Date, any vacancy in the position of Joint Director shall be filled in the same fashion as provided in the Series B and C Certificates of Designation for the period before a Type B Event Date. (e) Until the second annual meeting after the Type B Event Date, upon expiration of the term of any director who is neither a Series D Director nor the Joint Director, such position shall be subject to election by holders of shares of Common Stock only. (f) Shares of Series D Preferred Stock shall be deemed to be shares "entitled to vote" or entitled to vote in the election of directors" for purposes of the provisions of the Certificate of Incorporation that employ such terms, and, for purposes of such provisions at any time, each outstanding share of Series D Preferred Stock shall count as such number of shares of Common Stock into which such share of Series D Preferred Stock is then convertible pursuant to Sections 5 and 6 hereof. (g) If a Type B Event Date occurs prior to October 14, 1999, then the following provisions shall apply: (1) From such Type B Event Date until the second subsequent annual stockholders meeting 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 Initial Purchaser nor any other holder of shares of Series D Preferred Stock (other than a holder pursuant to either a transfer permitted under Rule 144 under the Securities Act of 1933, as amended, or a transfer pursuant to a registered offer under registration rights from the Company) 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 Person which obtained its equity interest in the Company as a result of a transfer of securities from the Initial Purchaser or any other Person referred to in clauses (A) through (D) 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: (A) any merger or consolidation of the Company or any of its Subsidiaries with or into such other Person; (B) 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 such other Person; (C) the issuance or delivery of any voting securities of the Company or any of its Subsidiaries to such other Person in exchange for cash, other assets or securities, or a combination thereof; or 8 (D) any dissolution or liquidation of the Company; PROVIDED, HOWEVER, that such prohibition shall not apply with respect to any such action or transaction approved by (I) the affirmative vote of not less than eighty percent (80%) 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 of (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 the Joint Director, nor any of such Common Stock Directors continue to serve on the Board of Directors at such time). For purposes of this Section 9(g) 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 D Preferred Stock may be made by a Person who obtained shares of Series D Preferred Stock upon conversion of Series B Preferred Stock or Series C Preferred Stock, 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 9(g). Notwithstanding anything to the contrary contained in this Section 9(g), such Person shall not need any approval by any directors, the Board of Directors or any stockholders under this Section 9 in order to transfer, sell or assign any of its Series D Conversion Shares in any of the following transactions (i) a transfer to an Initial Purchaser Affiliate (as defined in the Series B Certificate of Designation) or an Affiliate of the Initial Purchaser (as defined in the Series C Certificate of Designation, in either case as of the Initial Issue Date, (provided that prior to any such transfer such Initial Purchaser Affiliate or such Affiliate of the Initial Purchaser shall have delivered to the Company its written agreement to be bound by the terms of this Section 9(g); (ii) a transfer permitted under Rule 144 under the Securities Act of 1933, as amended; or (iii) a transfer pursuant to a registered offering under registration rights from the Company. SECTION 10. PROTECTIVE PROVISIONS. Without limiting the provisions of any other Series of 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 D Preferred Stock then outstanding: 9 (a) create, authorize or issue any shares of Series D Preferred Stock or any class or series of Supervoting Securities or shares of any such class or series; (b) reclassify any authorized stock of the Company into Series D Preferred Stock or any class or series of Supervoting Securities or shares of such class or series; (c) increase or decrease the authorized number of shares of Series D Preferred Stock or any class or series of Supervoting Securities or shares of any such class or series. The rights provided to holders of shares of Series D Preferred Stock in this Section 10 shall be in addition to and not in lieu of the other rights and protections granted to the holders of the shares of Series D Preferred Stock hereunder. SECTION 11. REISSUANCE OF SERIES D PREFERRED STOCK. Shares of Series D Preferred Stock that have been issued and reacquired or converted in any manner, including shares purchased, redeemed, exchanged, or converted into shares of Common Equity, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, provided that such shares may not in any event be reissued as Series D Preferred Stock. SECTION 12. BUSINESS DAY. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. SECTION 13. DEFINITIONS. As used in this Certificate, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified 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; provided that beneficial ownership of a majority or more of the voting securities of a Person shall be deemed to be control. "AMENDED BYLAWS" means the Amended and Restated Bylaws of the Company, as in effect from time to time. 10 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. "BUSINESS DAY" means any day other than a Legal Holiday. "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. "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 A, Series B, Series C and Series D Certificates of Designation. "CHANGE OF CONTROL" with respect to a Person shall be deemed to have occurred (i) at such time as any person (as defined in Section 13(d)(3) of the Securities and Exchange Act of 1934) at any time shall directly or indirectly acquire more than 40% in outstanding voting power of such Person, (ii) at such time as during any one year period, individuals who at the beginning of such period constitute such Person's board of directors or other governing body cease to constitute at least a majority of such board or governing body (provided, however, that a change in directors upon a Type B Event Date shall not be deemed to cause a Change in Control pursuant to this clause (ii)), (iii) upon consummation of a merger or consolidation of such Person into or with another Person in which the shareholders of the subject Person immediately prior to the consummation of such transaction shall own less than Fifty Percent (50%) of the voting securities of the surviving Person (or the parent corporation of the surviving Person where the surviving Person 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 such Person, 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 the Majority Holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or any Affiliate thereof of any Capital Stock of the Company or (y) the conversion of shares of Series D Preferred Stock into Common Stock. "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. "COMMON STOCK" has the meaning set forth in Section 3(a). 11 "COMMON STOCK DIRECTOR" means, for any period prior to any Type B Event Date, any director other than the Joint Director or a director elected by the holders of the Series B Preferred Stock or the Series C Preferred Stock. "COMPANY" means InSight Health Services Corp., a Delaware corporation. "CONVERSION DATE" has the meaning set forth in Section 5(a). "CONVERSION MULTIPLE" has the meaning set forth in Section 7(a). "CONVERSION DIRECTORS" has the meaning set forth in Section 9(b). "CORPORATE CHANGE" has the meaning set forth in Section 7(c). "FISCAL YEAR" means each year ending June 30, or any other fiscal year as approved by the Board of Directors. "INITIAL ISSUE DATE" means October 14, 1997. "INITIAL PURCHASER" means the Initial Purchasers of the Series B Preferred Stock and the Series C Preferred Stock (as defined in the respective Certificates of Designation). "JOINT DIRECTOR" has the meaning set forth in the Series B Certificate of Designation and the Series C Certificate of Designation. "JUNIOR SECURITIES" has the meaning set forth in Section 2. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in the Company's principal place of business, the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "LIQUIDATING DIVIDEND" has the meaning set forth in Section 7(e). "LIQUIDATING EVENT" has the meaning set forth in Section 4(b). "LIQUIDATION PREFERENCE" has the meaning set forth in Section 4(a). "MAJORITY HOLDERS," at any time, and with respect to any class or series of Capital Stock of the Company, means holders of a majority of the shares of such class or series then outstanding. If the term is used without reference to a particular class or series of Capital Stock of the Company, it means Majority Holders of the Series D Preferred Stock. "PARITY SECURITIES" has the meaning set forth in Section 2. 12 "PERSON" means any individual, corporation, 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). "PREFERRED STOCK DIRECTORS" means the Series B Directors and the Series C Director. "SENIOR SECURITIES" has the meaning set forth in Section 2. "SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of Designation, Preferences and Rights of the Series A Preferred Stock. "SERIES A PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES B CERTIFICATE OF DESIGNATION" means the Certificate of Designation, Preferences and Rights of the Series B Preferred Stock. "SERIES B DIRECTOR" has the meaning set forth in the Series B Certificate of Designation. "SERIES B PREFERRED STOCK" has the meaning set forth in Section 1. "SERIES C CERTIFICATE OF DESIGNATION" means the Certificate of Designation, Preferences and Rights of the Series C Preferred Stock. "SERIES C DIRECTOR" has the meaning set forth in the Series C Certificate of Designation. "SERIES C PREFERRED STOCK" has the meaning set forth in Section 2. "SERIES D CERTIFICATE OF DESIGNATION" means this document. "SERIES D DIRECTOR" has the meaning set forth in Section 9(b). "SERIES D PREFERRED STOCK" has the meaning set forth in Section 1. "SERIES D SELECTION PROCEDURE" shall mean selection of the Series D Directors by the holders of the shares of Series D Preferred Stock, which election shall employ cumulative voting of the shares of Series D Preferred Stock. "SUBSIDIARY" means, with respect to any Person, (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 such Person, by one or more Subsidiaries of such Person or by such Person and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has an 13 ownership interest and one hundred percent (100%) of the revenue of which is included in the consolidated financial reports of such Person consistent with GAAP. "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. "TYPE B EVENT DATE" has the meaning set forth in Section 6 of the Series C Certificate of Designation and the Series B Certificate of Designation. "TYPE B PERCENTAGE" means a percentage equal to (i) the number of shares of Common Stock held by all holders of Series B Preferred Stock and Series C Preferred Stock as of a Type B Event Date (assuming full conversion of all such shares of Series B Preferred Stock and Series C Preferred Stock into Common Stock) divided by (ii) the total number of shares of Common Stock outstanding as of a Type B Event Date (assuming full conversion of all convertible shares of Preferred Stock as of such Type B Event Date); PROVIDED, HOWEVER, that the maximum Type B Percentage shall be sixty-four percent (64%). 14 IN WITNESS WHEREOF, InSight Health Services Corp. has caused this Certificate to be executed by its Executive Vice President and Secretary this 14th day of October, 1997. INSIGHT HEALTH SERVICES CORP. By: /s/ Thomas V. Croal ---------------------------------- Name: Thomas V. Croal Office: Executive Vice President and Secretary 15 EX-10.19 5 EXH. 10.19 - WARRANT AGMT BET SERVICES CORP. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WARRANT AGREEMENT BETWEEN INSIGHT HEALTH SERVICES CORP. AND GENERAL ELECTRIC COMPANY DATED AS OF OCTOBER 14, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WARRANT AGREEMENT THIS WARRANT AGREEMENT (the "Agreement") is made as of October 14, 1997 (the "Effective Date"), between InSight Health Services Corp., a Delaware corporation (the "Company"), and General Electric Company, a New York corporation (together with its Affiliates, "GE" or the "Warrant Holder"). W I T N E S S E T H : WHEREAS, the Company has entered into (i) that certain Securities Purchase Agreement with the Warrant Holder dated as of October 14, 1997 (the "Purchase Agreement"), pursuant to which the Company agrees, among other things, to issue to the Warrant Holder warrants (the "Warrants") to purchase up to an aggregate of two hundred fifty thousand (250,000) shares of common stock, $.001 par value per share, of the Company (the "Common Stock," and the Common Stock issuable upon exercise of the Warrants being herein referred to as the "Warrant Shares"), and (ii) that certain Securities Purchase Agreement with Carlyle Partners II, L.P., a Delaware limited partnership ("CP II"), Carlyle Partners III, L.P., a Delaware limited partnership ("CP III"), Carlyle International Partners II, L.P., a Cayman Islands exempted limited partnership (CIP II"), Carlyle International Partners III, L.P., a Cayman Islands exempted limited partnership ("CIP III"), C/S International Partners, a Cayman Islands general partnership ("C/S"), the State Board of Administration of Florida ("SBAF"), Carlyle Investment Group, L.P., a Delaware limited partnership ("CIG"), Carlyle-Insight International Partners, L.P., a Cayman Islands exempted limited partnership ("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware limited partnership ("C-IP") (CP II, CP III, CIP II, CIP III, C/S, SBAF, CIG, C-IIP and C-IP collectively the "Carlyle Investors"), dated as of October __, 1997, pursuant to which the Company agrees, among other things, to issue to the Carlyle Investors warrants (the "Carlyle Investors' Warrants") to purchase up to an aggregate of two hundred fifty hundred thousand (250,000) shares of Common Stock of the Company. Each Warrant shall be a warrant to purchase one (1) Warrant Share, unless and until adjusted pursuant to Section 10 hereof. Certain terms used herein and not elsewhere defined are defined in the Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, and for other good and lawful consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. WARRANT CERTIFICATE. The certificates evidencing the Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement shall be in registered form only and shall be substantially in the form set forth in Exhibit A attached hereto. SECTION 2. EXECUTION OF WARRANT CERTIFICATE. (a) The Warrant Certificates shall be signed on behalf of the Company by its Chairman of the Board of Directors (the "Board") or its President or a Vice President, and by its Secretary or an Assistant Secretary under its corporate seal. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, President, Vice President, Secretary or Assistant Secretary, as the case may be, and may be imprinted or otherwise reproduced on the 1 Warrant Certificates. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant Certificates. (b) In case any officer of the Company who shall have signed any Warrant Certificate shall cease to be such officer before the Warrant Certificate so signed shall have been disposed of by the Company, such Warrant Certificate nevertheless may be delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Agreement any such person was not such an officer. SECTION 3. REGISTRATION. The Company shall register the Warrant Certificates in a Warrant register to be maintained by the Company (the "Warrant Register") when Warrants are issued. The Company may deem and treat the registered holders of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary. SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) The Company shall from time to time register the transfer of any outstanding Warrant Certificate in the Warrant Register upon surrender thereof accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, duly executed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee and the surrendered Warrant Certificate shall be canceled and disposed of by the Company. (b) The Warrant Holder agrees that prior to any proposed transfer of the Warrants or of the Warrant Shares, which transfer shall not be to any Person engaged in the Business, if such transfer is not made pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), the Warrant Holder will, if requested by the Company, deliver to the Company: (1) an investment representation letter reasonably satisfactory to the Company signed by the proposed transferee; (2) an agreement by such transferee to the impression of the restrictive investment legend set forth below in Section 4(c) on the Warrants or the Warrant Shares; (3) an agreement by such transferee that the Company may place a notation in the stock books of the Company or a "stop transfer order" with any transfer agent or registrar with respect to the Warrant Shares; (4) an agreement by such transferee to be bound by the provisions of this Section 4 relating to the transfer of such Warrants or Warrant Shares; and (5) 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 such Warrants or Warrant Shares, the written opinion of reputable legal counsel in form reasonably 2 acceptable to the Company that such sale or transfer is being made in compliance with applicable federal securities laws. (c) The Warrant Holder agrees that each certificate representing Warrants or Warrant Shares will bear the following legend until such Warrants or Warrant Shares have been sold pursuant to an effective registration statement under the Securities Act: "THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN THE CASE OF A SALE OF THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A VALID REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144 PROMULGATED UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION THE WRITTEN OPINION OF REPUTABLE LEGAL COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE WITH APPLICABLE FEDERAL SECURITIES LAWS." (d) A Warrant Certificate may be exchanged at the option of the holder thereof, when surrendered to the Company at its office for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate a like number of Warrants. A Warrant Certificate surrendered for exchange shall be canceled and disposed of by the Company SECTION 5. WARRANTS; EXERCISE OF WARRANTS. (a) Subject to the terms of this Agreement, the Warrant Holder shall have the right, which may be exercised during the period commencing on the Effective Date until 5:00 p.m., Washington, D.C. time, on the fifth anniversary of the Effective Date (the "Exercise Period"), to receive from the Company the number of fully paid and non-assessable Warrant Shares that the Warrant Holder may at the time be entitled to receive on exercise of the number of Warrants that the Warrant Holder elects to exercise and payment of the Exercise Price (as defined below) then in effect for such Warrant Shares. In the alternative, the Warrant Holder may exercise its right, during the Exercise Period, to receive Warrant Shares on a net basis, such that, without payment of any funds kind, the Warrant Holder receives that number of Warrant Shares equal to the number of Warrants being exercised times the quotient of (i) the "fair market value" of a Warrant Share (as defined below) minus the Exercise Price, divided by (ii) the fair market value of a Warrant Share. For purposes of the foregoing sentence, "fair market value" of a Warrant Share shall mean the average of the closing prices of the Common Stock's sales on all domestic securities exchanges on 3 which such Common Stock 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 Common Stock is not so listed, the average of the representative bid and asked prices quoted on Nasdaq as of 4:00 P.M., New York time, on such day, or, if on any day such Common Stock is not quoted on 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 the "fair market value" of the Warrant Shares is being determined and the twenty (20) consecutive business days prior to such day; provided that if such Common Stock 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 Common Stock is not listed on any domestic securities exchange or quoted on Nasdaq or the domestic over-the-counter market, the "fair market value" of the Warrant Shares shall be the fair value thereof determined by the Company and approved by the Warrant Holder; provided that if such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser reasonably selected by the Company and reasonably approved by the Warrant Holder. The determination of such appraiser shall be final and binding on the Company and the Warrant Holder, and the fees and expenses of such appraiser shall be paid by the Company, unless the fair market value determined by such appraiser is less than five percent (5%) above the value proposed in writing by the Company and rejected by the Warrant Holder prior to the selection of such appraiser, in which event the fees and expenses of such appraiser shall be for the Warrant Holder's account. Each Warrant not exercised prior to 5:00 p.m., Washington, D.C. time, on the fifth anniversary of the Effective Date shall become void and all rights thereunder and all rights in respect thereof under this agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants. (b) A Warrant may be exercised upon surrender to the Company at its office designated for such purpose (the address of which is set forth in Section 14 hereof) of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, and upon (i) payment to the Company of the exercise price of ten dollars ($10.00) per Warrant Share, as adjusted as herein provided (as so adjusted, the "Exercise Price"), for the number of Warrant Shares in respect of which such Warrants are then exercised, or (ii) the Warrant Holder's exercise of its right to receive Warrant Shares on a net basis, as more fully described in Section 5(a). Payment of the aggregate Exercise Price shall be made (i) in cash or by certified or official bank check payable to the order of the Company or (ii) in the manner provided in subsection (a) of this Section 5. (c) Subject to the provisions of Section 6 hereof, upon such surrender of Warrants and payment of the Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Warrant Holder and in such name or names as the Warrant Holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants together with cash as provided in Section 11; PROVIDED, HOWEVER, that if any consolidation, merger, or sale or other transfer of all or substantially all of the assets of the Company is proposed to be effected by the Company, or a tender offer or an exchange offer for shares of Common Stock of the Company shall be made, upon such surrender of Warrants and payment of the Exercise Price as aforesaid, the Company shall, as soon as practicable, but in any event not later than five business days thereafter, issue and cause to be delivered the full number of Warrant Shares issuable upon the exercise of such Warrants in the manner described in this sentence together with cash as provided in Section 11. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price. 4 (d) The Warrants shall be exercisable, at the election of the holder thereof, either in full or from time to time in part and, in the event that a Warrant Certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new Warrant Certificate evidencing the remaining Warrant or Warrants will be issued and delivered by the Company and at its expense pursuant to the provisions of this Section and of Section 2 hereof. (e) All Warrant Certificates surrendered upon exercise of Warrants shall be canceled and disposed of by the Company. The Company shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Warrant Holder during normal business hours at its office. SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes or other similar taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificate or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company may issue, in exchange and substitution for, and upon cancellation of, the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of such Warrant Certificate and indemnity, if requested, also reasonably satisfactory to it. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. SECTION 8. RESERVATION OF WARRANT SHARES. (a) The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. (b) The Company or, if appointed, the transfer agent for the Common Stock (the "Transfer Agent") and every subsequent Transfer Agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented 5 by the Warrants. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each holder pursuant to Section 13 hereof. (c) Before taking any action which would cause an adjustment pursuant to Section 10 hereof to reduce the Exercise Price below the then par value (if any) of the Warrant Shares, the Company will take any corporate action which may, in the opinion of its counsel (which may be counsel employed by the Company), be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. (d) The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. SECTION 9. STOCK EXCHANGE LISTINGS. The Company will from time to time take all commercially reasonable action, at its expense, which may be necessary so that the Warrant Shares, immediately upon their issuance upon the exercise of Warrants, will be listed and maintained on the principal securities exchanges and markets within the United States of America, if any, on which other shares of Common Stock are then listed and registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or authorized for quotation on Nasdaq, provided, however, that the payment of any required listing or other fee shall always be deemed to be "commercially reasonable" for purposes of this Section 9. SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES ISSUABLE. (a) In order to prevent the dilution of the rights granted under this Agreement, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 10, and the number of shares of Common Stock obtainable upon exercise of the Warrants shall be subject to adjustment from time to time as provided in this Section 10. For purposes of this Section 10, "Trigger Price" shall be $6.75 per share of Common Equity; "Convertible Security" means any stock or securities, directly or indirectly, convertible into or exchangeable for Common Equity, including without limitation any exchangeable debt securities; "Option" shall mean any rights or options to subscribe for or purchase Common Equity or Convertible Securities. (b) If and whenever the Company issues or sells or, in accordance with Section 10(c), is deemed to have issued or sold, any share of Common Equity without consideration or for a net consideration per share less than the Trigger Price, then immediately upon such issuance or sale, the Exercise Price, which shall equal $10 per share until the first such issuance or sale below the Trigger Price, shall be reduced to the price per share determined by dividing (i) an amount equal to the sum of (A) the number of shares of Common Equity outstanding immediately prior to such issuance multiplied by the Exercise Price in effect immediately prior to such issuance, and (B) the consideration, if any, received by the Company upon such issuance, by (ii) the total number of shares of Common Equity outstanding immediately after such issuance. Notwithstanding the foregoing, there shall be no adjustment to the Exercise Price with respect to the granting of, or issuance of Common Equity upon exercise of, stock options to employees of the Company authorized but not granted as of the Effective Date for an aggregate of up to 300,000 shares of Common Equity (as such shares are equitably adjusted for subsequent stock splits, stock combinations, stock dividends and recapitalizations). For purposes of this Section 10, "Common Equity" means all shares 6 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 on or 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, and "Fully Diluted Equity" means, with respect to the Company at any given time, (A) the number of shares of Common Equity actually outstanding at such time, plus (B) the maximum number of shares of Common Equity that are issuable upon the exercise, exchange or conversion of any unexpired right or unexpired option (including the Warrants) to subscribe for, to purchase or to receive Common Equity or other securities convertible into or exchangeable for Common Equity, including without limitation any exchangeable debt securities, regardless of whether any of the foregoing are actually exercisable at such time; provided, however, the number of shares of Common Equity outstanding at any given time shall not include shares, directly or indirectly, owned or held by or for the account of the Company. (c) For purposes of determining the adjusted Exercise Price under Section 10(b) above, the following shall be applicable: (1) CONSIDERATION. If any Common Equity, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be (i) in the case of any public offering of such securities for cash, the gross proceeds of such offering (without deduction for any underwriters discount) and (ii) in the case of any other issuance, sale or deemed issuance or sale for cash, the gross amount received by the Company therefor. In case any Common Equity, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair market value of such consideration. In case any Common Equity, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair market value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Equity, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash shall be determined jointly by the Company and the Warrant Holder. If such parties are unable to reach agreement within a reasonable period of time, such fair market value shall be determined by an appraiser reasonably selected by the Company and reasonably approved by the Warrant Holder. The determination of such appraiser shall be final and binding on the Company and the Warrant Holder, and the fees and expenses of such appraiser shall be paid by the Company, unless the fair market value determined by such appraiser is less than five percent (5%) above the value proposed in writing by the Company and rejected by the Warrant Holder prior to the selection of such appraiser, in which event the fees and expenses of such appraiser shall be for the Warrant Holder's account. (2) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the granting or sale of any Option or Convertible Security (whether or not at the time convertible, exercisable or exchangeable): (A) the aggregate maximum number of shares of Common Equity deliverable, directly or indirectly, upon exercise of any Option shall be deemed to have been issued at the time such Option was granted and for a consideration equal to the consideration (determined in the manner provided in subsection (1) above), if any, received by the Company upon the issuance of such Option plus the 7 minimum purchase price provided in such Option for the Common Equity covered thereby; (B) the aggregate maximum number of shares of Common Equity deliverable upon conversion of or in exchange for any such Convertible Security, or upon the exercise of any Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such Convertible Security was issued or such Option was issued and for a consideration equal to the consideration, if any, received by the Company for any such Convertible Security and any related Option (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration (determined in the manner provided in subsection (1) above), if any, to be received by the Company upon the conversion or exchange of such Convertible Security, or upon the exercise of any related Option to purchase or acquire any Convertible Security and the subsequent conversion or exchange thereof; (C) on any change in the number of shares of Common Equity deliverable, directly or indirectly, upon conversion, exercise or exchange of any such Option or Convertible Security or any change in the consideration to be received by the Company upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Exercise Price as then in effect shall forthwith be readjusted to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such Option or Convertible Security upon the basis of such change; and (D) if the Exercise Price shall have been adjusted upon the issuance of any such Option or Convertible Security, no further adjustment of the Exercise Price shall be made for the actual issuance of Common Equity upon any exercise, conversion, or exchange thereof; provided, however, that none of the events set forth in Section 10(c)(2)(A) through 10(c)(2)(D), inclusive, shall result in any increase in the Exercise Price. (3) INTEGRATED TRANSACTION. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. (4) TREASURY SHARES. The number of shares of Common Equity outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Equity. (5) RECORD DATE. If the Company takes a record of the holders of Common Equity for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Equity, Options or in Convertible Securities or (B) to subscribe for or purchase Common Equity, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Equity deemed to have been issued or sold upon the 8 declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (d) If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Equity into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of the Warrant shall be proportionately increased. If the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased. (e) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Equity are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Equity is referred to herein as a "Corporate Change." Prior to the consummation of any Corporate Change, the Company shall make appropriate provision (in form and substance satisfactory to the Warrant Holder) to insure that the Warrant Holder shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the Warrant Shares acquirable and receivable upon the exercise of such holder's Warrants, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of Warrant Shares acquirable and receivable upon exercise of such holder's Warrant had such Corporate Change not taken place. In any such case, the Company shall make appropriate provision (in form and substance reasonably satisfactory to the Warrant Holder) with respect to such holder's rights and interests to insure that the provisions of this Agreement shall thereafter be applicable to the Warrants (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, any adjustment of the Exercise Price based on Section 10 hereof). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance reasonably satisfactory to the Warrant Holder), the obligation to deliver to the Warrant Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (f) If any event occurs of the type contemplated by the provisions of this Section 10 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Warrant Holder; provided that no such adjustment shall increase the Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 10. (g) If the Company declares or pays a dividend upon the Common Equity payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company shall pay to the Warrant Holder at the time of payment thereof the Liquidating Dividend which would have been paid to such Warrant Holder on the Common Stock had the Warrants been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Equity entitled to such dividends are to be determined. 9 SECTION 11. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Warrant Shares upon the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the Warrant Holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the "fair market value" (determined as provided in Section 5(a) above) of the Common Stock on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. SECTION 12. FINANCIAL STATEMENTS. (a) Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any of the Warrants remain outstanding, the Company shall furnish to the Warrant Holder (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing). (b) The Company shall, so long as any of the Warrants are outstanding, deliver to the Warrant Holder, forthwith upon any Executive Officer of the Corporation becoming aware of any default under this Agreement, an Officers' Certificate specifying such default and what action the Company is taking or proposes to take with respect thereto. SECTION 13. NOTICES TO WARRANT HOLDER. (a) Upon any adjustment of the Exercise Price or exercise privileges pursuant to Section 10, the Company shall promptly thereafter (i) cause to be filed with the Company a certificate of a firm of independent public accountants of recognized standing, selected by the Board (who may be the regular auditors of the Company) and acceptable to the Warrant Holder, setting forth the Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and setting forth the number of Warrant Shares (or portion thereof) issuable after such adjustment in the Exercise Price, which certificate shall be conclusive evidence of the correctness of the matters set forth therein, upon exercise of a Warrant and payment of the adjusted Exercise Price, and (ii) cause to be given to each of the registered holders of the Warrant Certificate(s), at his or her address appearing on the Warrant Register, written notice of such adjustments by first-class mail, postage prepaid. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 13. (b) In case: 10 (1) the Company shall authorize the issuance to all holders of shares of Common Stock of the Company rights to subscribe for, or to purchase shares of, Common Stock or of any other subscription rights or warrants; or (2) the Company shall authorize the distribution to all holders of shares of Common Stock of evidences of its indebtedness or assets; or (3) of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants, or a tender offer or exchange offer for shares of Common Stock; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company or a Liquidating Dividend; or (5) the Company proposes to take any action which would require an adjustment of the Exercise Price or the Warrant Shares pursuant to Section 10; then the Company shall cause to be given to each of the registered holders of the Warrant Certificates at his or her address appearing on the Warrant register, at least twenty (20) days prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights or distribution are to be determined, or (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 13 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. (c) Nothing contained in this Agreement or in the Warrant Certificate shall be construed as conferring upon the holders thereof the right to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of Directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. SECTION 14. NOTICES TO THE COMPANY AND THE WARRANT HOLDER. (a) 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 11 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 Warrant Holder: 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 Stanford, 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 Facsimile: 213.229-7250 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. SECTION 15. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement with the express written approval of the holder(s) of the Warrant Certificate(s) in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the 12 Company may deem necessary or desirable and which shall not in any way adversely affect the interests of the holder(s) of Warrant Certificate(s). SECTION 16. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company shall bind and inure to the benefit of its respective successors and assigns hereunder. All the covenants and provisions by or for the benefit of the Warrant Holder shall bind and inure to the benefit of its respective successors and assigns hereunder. SECTION 17. TERMINATION. This Agreement shall terminate at 5:00 p.m., Eastern Standard Time on the fifth anniversary of the Effective Date. Notwithstanding the foregoing, this Agreement will terminate on any earlier date if all Warrants have been exercised. SECTION 18. GOVERNING LAW. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the internal laws of said State. SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the registered holder(s) of the Warrant Certificate(s) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the registered holder(s) of the Warrant Certificate(s). SECTION 20. HSR ACT. The Company shall cooperate with any Warrant Holder, promptly after receipt of notice from any such Warrant Holder of its intention to exercise any Warrants, in making all filings required to be made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") in connection with such exercise; provided, however, that in no event shall such cooperation include payment of any fee which may be required to be paid. The applicable waiting period, including any extension thereof, under the HSR Act shall have expired or been terminated prior to the issuance of any Warrant Shares upon exercise of Warrants. SECTION 21. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written INSIGHT HEALTH SERVICES CORP., a Delaware corporation By ------------------------------- Name: ------------------------------- Title: ------------------------------- GENERAL ELECTRIC COMPANY, a New York corporation By ------------------------------- Name: ------------------------------- Title: ------------------------------- 1 EXHIBIT A [FORM OF WARRANT CERTIFICATE] [FACE] "THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER AND OF ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS." . IN THE CASE OF A SALE OF THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY, OTHER THAN A SALE PURSUANT TO A VALID REGISTRATION STATEMENT UNDER SAID ACT OR A SALE PURSUANT TO RULE 144 PROMULGATED UNDER SAID ACT, THE HOLDER OF THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY SHALL PROVIDE TO THE CORPORATION THE WRITTEN OPINION OF REPUTABLE LEGAL COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE CORPORATION THAT SUCH SALE OR TRANSFER IS BEING MADE IN COMPLIANCE WITH APPLICABLE FEDERAL SECURITIES LAWS." EXERCISABLE ON OR BEFORE OCTOBER __, 2002 No. _____ ______ Warrants WARRANT CERTIFICATE INSIGHT HEALTH SERVICES CORP. This Warrant Certificate certifies that ______________ or registered assigns, is the registered holder of ______ warrants (the "Warrants") expiring October ___, 2002 (the "Expiration Date") to purchase Common Stock, $.001 par value (the "Common Stock"), of InSight Health Services Corp., a Delaware corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company on or before 5:00 p.m., Washington, D.C. time, on the Expiration Date, one fully paid and non-assessable share of Common Stock (a "Warrant Share") at the initial exercise price of $10.00 per Warrant Share, subject to adjustment (as adjusted, the exercise price is the "Exercise Price") upon the occurrence of certain events set forth in the Warrant Agreement, upon surrender of this Warrant Certificate and payment of the Exercise Price, or as otherwise provided in the Warrant Agreement, at the office of the Company designated for such purpose, but only subject to the conditions set forth herein and in the Warrant Agreement dated as of October __, 1997 (the "Warrant Agreement"). The number and kind of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., Washington, D.C. time, on the Expiration Date, and to the extent not exercised by such time such Warrants shall become void. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. 2 This Warrant Certificate shall not be valid unless countersigned by the Company, as such term is used in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be signed by its President and by its Secretary and has caused its corporate seal to be affixed hereunto or imprinted hereon. Date: ___________________ INSIGHT HEALTH SERVICES CORP. By: ------------------------------------ President By: ------------------------------------ Secretary 3 [FORM OF WARRANT CERTIFICATE] [REVERSE] The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring on the Expiration Date, entitling the holder on exercise to receive shares of Common Stock, $.001 par value, of the Company (the "Common Stock"), and are issued or to be issued pursuant to the Warrant Agreement, duly executed and delivered by the Company, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants (the "Warrant Holders"). A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. Warrants may be exercised at any time on or before the Expiration Date. The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth herein properly completed and executed, together with payment of the Exercise Price in cash at the office of the Company designated for such purpose. In the alternative, each Warrant Holder may exercise its right, during the Exercise Period, as defined in the Warrant Agreement, to receive Warrant Shares on a net basis, such that, without the exchange of any funds, the Warrant Holder receives that number of Warrant Shares otherwise issuable (or payable) upon exercise of its Warrants less that number of Warrant Shares having an aggregate fair market value (as defined below) at the time of exercise equal to the aggregate Exercise Price that would otherwise have been paid by the Warrant Holder of the Warrant Shares. For purposes of the foregoing sentence, "fair market value" of the Warrant Shares will be determined in the manner set forth in the Warrant Agreement. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. Except as provided in Section 10 of the Warrant Agreement, no adjustment shall be made for any dividends on any Common Stock issuable upon exercise of this Warrant. The Warrant Agreement provides that, upon the occurrence of certain events, the Exercise Price and the number of Warrant Shares set forth on the face hereof may, subject to certain conditions, be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. The holders of the Warrants are entitled to certain registration rights with respect to the Common Stock purchasable upon exercise thereof. Said registration rights are set forth in full in a Registration Rights Agreement dated as of October __, 1997, between the Company and the Warrant Holder. A copy of the Registration Rights may be obtained by the holder hereof upon written request to the Company. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a 4 like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. 5 [FORM OF ELECTION TO PURCHASE] (TO BE EXECUTED UPON EXERCISE OF WARRANT) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive ___________ shares of Common Stock and herewith tenders payment for such shares to the order of InSight Health Services Corp. in the amount of $_______ or by delivery of ____ Warrants or in accordance with the terms hereof. The undersigned requests that a certificate for such shares be registered in the name of ___________________ whose address is __________________________________ and that such shares be delivered to _________________ whose address is __________________________________. If said number of shares is less than all of the shares of Common Stock purchasable hereunder after giving effect to any delivery of Warrants in payment of the Exercise Price, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of _______________, whose address is ________________________, and that such Warrant Certificate be delivered to _________________ whose address is _____________________. Signature: ---------------------- Date: ----------------- 6 EX-10.20 6 EXH. 10.20 - REGISTRATION RIGHTS AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT BETWEEN INSIGHT HEALTH SERVICES CORP. AND GENERAL ELECTRIC COMPANY DATED AS OF OCTOBER 14, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of October 14, 1997, between InSight Health Services Corp., a Delaware corporation (the "Company"), and General Electric Company, a New York corporation (together with its Affiliates, "GE"). In order to induce GE to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. The parties hereby agree as follows: Section 1. DEFINITIONS Capitalized terms not otherwise defined herein shall have the respective meanings given them in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings: "Board of Directors" shall mean the Board of Directors of the Company. "Carlyle Investors" shall mean Carlyle Partners II, L.P., a Delaware limited partnership ("CP II"), Carlyle Partners III, L.P., a Delaware limited partnership ("CP III"), Carlyle International Partners II, L.P., a Cayman Islands exempted limited partnership ("CIP II"), Carlyle International Partners III, L.P., a Cayman Islands exempted limited partnership ("CIP III"), C/S International Partners, a Cayman Islands general partnership ("C/S"), the State Board of Administration of Florida ("SBAF"), Carlyle Investment Group, L.P., a Delaware limited partnership ("CIG"), Carlyle-Insight International Partners, L.P., a Cayman Islands exempted limited partnership ("C-IIP"), and Carlyle-Insight Partners, L.P., a Delaware limited partnership ("C-IP"). "Carlyle Investors' Registrable Securities" shall mean (a) the shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock or Series D Preferred Stock, whether or not owned by the Carlyle Investors; (b) the shares of Common Stock issued or issuable upon exercise of any Carlyle Investors' Warrants, whether or not owned by Carlyle Investors; (c) any securities issued or issuable with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; and (d) any shares of Common Stock or securities issued or issuable with respect to such Common Stock as provided in (c) above, acquired by the Carlyle Investors from the Company subsequent to the date hereof, whether or not owned by the Carlyle Investors at the time of a Registration; provided that any such share or other security shall be deemed to be Registrable Securities only if and so long as it is a Transfer Restricted Security. "Carlyle Investors' Registration Rights Agreement" shall mean a Registration Rights Agreement substantially in the form of this Agreement entered into between the Carlyle Investors and the Company as of the date hereof. "Carlyle Investors' Warrants" shall mean the warrants to purchase Common Stock issued pursuant to a Warrant Agreement dated of even date herewith by and between the Company and the Carlyle Investors. "Claim" shall mean any loss, claim, damages, liability or expense (including the reasonable costs of investigation and reasonable legal fees and expenses). "Common Stock" shall mean the Common Stock, par value $.001 per share, of the Company. "Demand Registration" shall mean a registration pursuant to Section 2 hereof. "Equity Security" shall mean any capital stock of the Company or any security convertible, with or without consideration, into any such stock, or any security carrying any warrant or right to subscribe for or purchase any such stock, or any such warrant or right. "Exchange Act" shall mean the Securities Exchange Act of 1934, as from time to time amended. "Firm Commitment Underwritten Offering" shall mean an offering in which the underwriters agree to purchase securities for distribution pursuant to a Registration Statement under the Securities Act and in which the obligation of the underwriters is to purchase all the securities being offered if any are purchased. "Holder" shall mean the beneficial owner of a security. For all purposes of this Agreement, the Company shall be entitled to treat the record owner of a security as the beneficial owner of such security unless the Company has been given written notice of the existence and identity of a different beneficial owner. A Holder of Preferred Stock shall be deemed to be the Holder of the Common Stock into which such Preferred Stock could be converted. "Indemnified Holder" shall mean any Holder of Registrable Securities, any officer, director, employee or agent of any such Holder and any Person who controls any such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. "Misstatement" shall mean an untrue statement of a material fact or an omission to state a material fact required to be stated in a Registration Statement or Prospectus or necessary to make the statements in a Registration Statement, Prospectus or preliminary prospectus not misleading. "Person" shall mean a natural person, partnership, corporation, business trust, association, joint venture or other entity or a government or agency or political subdivision thereof. "Piggyback Registration" shall mean a registration pursuant to Section 3 hereof. "Preferred Stock" shall mean the Series A Preferred Stock, the Series C Convertible Preferred Stock of the Company being issued pursuant to the Purchase Agreement and Series D Preferred Stock of the Company issued or issuable upon conversion of the Series C Convertible Preferred Stock. 3 "Prospectus" shall mean the prospectus included in any Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all post-effective amendments and including all material incorporated by reference in such prospectus. "Purchase Agreement" shall mean that certain Securities Purchase Agreement dated as of the date hereof between the Company and GE. "Registrable Securities" shall mean (a) the shares of Common Stock issued or issuable upon conversion of the Preferred Stock, whether or not owned by GE, (b) the shares of Common Stock issued or issuable upon exercise of any Warrants, whether or not owned by GE, (c) any securities issued or issuable with respect to such Common Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; and (d) any shares of Common Stock or securities issued or issuable with respect to such Common Stock as provided in (c) above, acquired by GE from the Company subsequent to the date hereof, whether or not owned by GE at the time of a Registration; provided that any such share or other security shall be deemed to be Registrable Securities only if and so long as it is a Transfer Restricted Security. "Registration" shall mean a Demand Registration or a Piggyback Registration. "Registration Expenses" shall mean the out-of-pocket expenses of a Registration, including: (1) all registration and filing fees (including fees with respect to filings required to be made with the National Association of Securities Dealers); (2) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters or selling holders in connection with blue sky qualifications of the Registrable Securities and determinations of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or holders of a majority of the Registrable Securities being sold may designate); (3) printing, messenger, telephone and delivery expenses; (4) fees and disbursements of counsel for the Company and of not more than one firm of attorneys for the sellers of the Registrable Securities; (5) expenses of the underwriters and fees and disbursements of counsel for the underwriters, in each case, to the extent required to be paid pursuant to an underwriting agreement relating to a Registration; (6) fees and disbursements of all independent certified public accountants of the Company incurred in connection with such Registration (including the expenses of any special audit and "cold comfort" letters incident to such registration); 4 (7) premiums and other costs of securities acts liability insurance if the Company so desires or if the underwriters so require or selling holders of Registrable Securities reasonably so require; and (8) fees and expenses of any other Persons retained by the Company. "Registration Statement" shall mean any registration statement under the Securities Act on an appropriate form (which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required by the SEC to be filed therewith) which covers Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement. "Securities Act" shall mean the Securities Act of 1933, as from time to time amended. "SEC" shall mean the Securities and Exchange Commission. "Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock of the Company. "Series B Preferred Stock" shall mean the Series B Convertible Preferred Stock of the Company. "Series D Preferred Stock" shall mean the Series D Convertible Preferred Stock of the Company. "Transfer Restricted Security" shall mean a security that has not been sold to or through a broker, dealer or underwriter in a public distribution or other public securities transaction or sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Rule 144 promulgated thereunder (or any successor rule). The foregoing notwithstanding, a security shall remain a Transfer Restricted Security until all stop transfer instructions or notations and restrictive legends with respect to such security have been lifted or removed. "Underwriters' Commissions" shall mean discounts of and commissions to underwriters, selling brokers, dealer managers or similar securities professionals relating to the distribution of the Registrable Securities. "Underwritten Registration" or "Underwritten Offering" shall mean a registration in which securities of the Company are sold to an underwriter for distribution to the public. "Warrants" shall mean the warrants to purchase Common Stock issued pursuant to a Warrant Agreement dated of even date herewith by and between the Company and GE. 5 Section 2. DEMAND REGISTRATIONS (a) TIMING OF DEMAND REGISTRATIONS. GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities) may request at any time that the Company file a Registration Statement under the Securities Act on an appropriate form (which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required by the SEC to be filed herewith) covering the shares of Registrable Securities that are the subject of such request. (b) NUMBER OF DEMAND REGISTRATIONS; REQUIRED THRESHOLD. The Company shall be obligated to prepare, file and cause to become effective pursuant to this Section 2 no more than two (2) Registration Statements in the aggregate for GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities); provided, however, that a Registration Statement shall not be counted as one of the two (2) Demand Registrations hereunder unless it becomes effective and is maintained effective in accordance with the requirements specified in Section 5(a). The Company shall not be obligated to prepare, file and cause to become effective pursuant to this Section 2 a Registration Statement unless the proposed aggregate public offering price of the Registrable Securities to be included in such Demand Registration is at least $5 million. (c) DEFERRAL BY COMPANY. Notwithstanding anything in this Section 2 to the contrary, the Company shall not be obligated to prepare, file and cause to become effective pursuant to this Section 2 a Registration Statement if the Company furnishes GE a certificate signed by the President of the Company that in the good faith judgment of the Board of Directors it would be detrimental in any material respect to the Company and its shareholders for the Company to comply with the Demand Registration, and it is therefore essential to defer the filing of the Registration Statement relating thereto. Any such deferral shall be for a period of not more than six (6) months after the Company's receipt of GE's written request for registration pursuant to this Section 2; PROVIDED, HOWEVER, that the Company may not exercise this right more than once with respect to a Demand Registration and that any requested registration deferred, and not ultimately effected, by the Company pursuant to the provisions of this Section 2(c) shall thereafter not be deemed to be a requested registration for purposes of the limitation to two (2) Demand Registrations pursuant to Section 2(a) above. (d) PARTICIPATION. The Company shall promptly give written notice to all Holders of Registrable Securities and to the Carlyle Investors upon receipt of a request for a Demand Registration pursuant to Section 2(a) above. The Carlyle Investors may, by written notice to the Company and GE, within thirty (30) business days of the Company's notice, elect to join in a request for a Demand Registration pursuant to Section 2(a) above, with respect to a number of shares of the Carlyle 6 Investors' Registrable Securities that is less than or equal to the number of shares of Registrable Securities requested to be registered in such Demand Registration by GE. The Carlyle Investors' Registrable Securities being offered by the Carlyle Investors in such Demand Registration shall be treated pari passu with the Registrable Securities being offered by GE for all purposes including "underwriter's cutbacks" under subsection (e) of this Section and any such request by the Carlyle Investors shall not be treated as either a request for "piggyback" rights under Section 3 hereof or be treated as the exercise of a demand registration right by the Carlyle Investors under the Carlyle Investors' Registration Rights Agreement. In addition, the Company shall include in such Demand Registration such shares of Registrable Securities for which it has received written requests to register such shares within thirty (30) days after such written notice has been given. (e) UNDERWRITER'S CUTBACK. If the public offering of Registrable Securities and/or Carlyle Investors' Registrable Securities is to be underwritten and, in the good faith judgment of the managing underwriter, the inclusion of all the Registrable Securities and/or Carlyle Investors' Registrable Securities requested to be registered hereunder would interfere with the successful marketing of a smaller number of such shares of Registrable Securities and/or Carlyle Investors' Registrable Securities, the number of shares of Registrable Securities and/or Carlyle Investors' Registrable Securities to be included shall be reduced to such smaller number with the participation in such offering to be pro rata among the Holders of Registrable Securities and/or Carlyle Investors' Registrable Securities requesting such registration, based upon the number of shares of Registrable Securities and/or Carlyle Investors' Registrable Securities owned by such Holders. Any shares that are thereby excluded from the offering shall be withheld from the market by the Holders thereof for a period (not to exceed thirty (30) days prior to the effective date and one hundred twenty (120) days thereafter) that the managing underwriter reasonably determines is reasonably necessary in order to successfully market the securities to be offered in the Underwritten Offering. The Company and, subject to the requirements of Section 11 hereof, other Holders of securities of the Company may include such securities in such Registration if, but only if, the managing underwriter concludes that such inclusion will not interfere with the successful marketing of all the Registrable Securities requested to be included in such registration. (f) MANAGING UNDERWRITER. The managing underwriter or underwriters of any Underwritten Offering covered by a Demand Registration shall be selected by GE (if GE owns a majority of the shares of Common Stock to be offered therein), subject to the approval of the Board of Directors (by a majority of the Directors not elected by the holders of the Preferred Stock and the Series B Preferred Stock), which approval shall not be unreasonably withheld. 7 3. PIGGYBACK REGISTRATIONS (a) PARTICIPATION. Each time the Company decides to file a Registration Statement under the Securities Act (other than registrations on Forms S-4 or S-8 or any successor form thereto, and other than a Demand Registration) covering the offer and sale by it or any of its security holders of any of its securities for money, the Company shall give written notice thereof to all Holders of Registrable Securities. The Company shall include in such Registration Statement such shares of Registrable Securities for which it has received written requests to register such shares within twenty (20) days after such written notice has been given. If the Registration Statement is to cover an Underwritten Offering, such Registrable Securities shall be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. (b) UNDERWRITER'S CUTBACK. Subject to the requirements of Section 11 hereof, if in the good faith judgment of the managing underwriter of such offering the inclusion of all of the shares of Registrable Securities and any other Common Stock requested to be registered would interfere with the successful marketing of a smaller number of such shares, then the number of shares of Registrable Securities and other Common Stock to be included in the offering shall be reduced to such smaller number with the participation in such offering to be in the following order of priority: (1) first, the shares of Common Stock which the Company proposes to sell for its own account, (2) second, the shares of Registrable Securities of all Holders of Registrable Securities requested to be included, PARI PASSU with all shares of Carlyle Investors' Registrable Securities requested by the Carlyle Investors to be included and all shares of any Person granted "piggyback" registration rights by the Company prior to the date hereof with respect to the Company's securities, as set forth in Schedule A attached hereto, requested by such Person to be included, and (3) third, any other shares of Common Stock requested to be included. Any necessary allocation among the Holders of shares within each of the foregoing groups shall be pro rata among such Holders requesting such registration based upon the number of shares of Common Stock and Registrable Securities owned by such Holders. All shares so excluded from the Underwritten Offering shall be withheld from the market by the Holders thereof for a period (not to exceed thirty (30) days prior to the effective date and one hundred twenty (120) days thereafter) that the managing underwriter reasonably determines is reasonably necessary in order to successfully market the securities to be offered in the Underwritten Offering. (c) COMPANY CONTROL. The Company may decline to file a Registration Statement after giving notice to Holders pursuant to Section 3(a) above, or withdraw a Registration Statement after filing and after such notice, but prior to the effectiveness thereof; provided that the Company shall promptly notify each Holder of Registrable Securities in writing of any such action and provided further that the 8 Company shall bear all expenses incurred by each Holder or otherwise in connection with such withdrawn Registration Statement. 4. HOLD-BACK AGREEMENTS (a) BY HOLDERS OF REGISTRABLE SECURITIES Upon the written request of the managing underwriter of any Underwritten Offering of the Company's securities, a Holder of Registrable Securities shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such registration) without the prior written consent of such managing underwriter for a period (not to exceed thirty (30) days before the effective date and one hundred twenty (120) days thereafter) that such managing underwriter reasonably determines is necessary in order to effect the Underwritten Offering; provided that each of the officers and directors of the Company shall have entered into substantially similar holdback agreements with such managing underwriter covering at least the same period. (b) BY THE COMPANY AND OTHERS. The Company agrees: (1) not to effect any public or private sale or distribution of its Equity Securities during the 30-day period prior to, and during the 60-day period after, the effective date of each Underwritten Offering made pursuant to a Demand Registration or a Piggyback Registration, if so requested in writing by the managing underwriter (except as part of such Underwritten Offering, pursuant to registrations on Forms S-4 or S-8 or any successor forms thereto or private issuances of Equity Securities as consideration for any acquisition by the Company or a subsidiary of assets or capital stock of any unaffiliated third party), and (2) not to issue any Equity Securities other than for sale in a registered public offering unless each of the Persons to which such securities are issued has entered a written agreement binding on its transferees not to effect any public sale or distribution of such securities (except for employee stock options issued to Persons other than: directors or officers; or shareholders owning five percent (5%) or more of the Company's Equity Securities) during such period, including without limitation a sale pursuant to Rule 144 under the Securities Act (except as part of such Underwritten Registration, if and to the extent permitted hereunder). 5. REGISTRATION PROCEDURES If and whenever the Company is required to register Registrable Securities in a Demand Registration, the Company will use all commercially reasonable efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution thereof. With respect to both Demand Registrations and Piggyback Registrations (except as otherwise specifically provided), the Company will as expeditiously as practicable: 9 (a) prepare and file with the SEC as soon as practicable a Registration Statement with respect to such Registrable Securities and use all commercially reasonable efforts to cause such Registration Statement to become effective and remain continuously effective until the date that is the earlier to occur of (i) the date six months from the date such Registration Statement was declared effective, and (ii) the date the last of the Registrable Securities covered by such Registration Statement have been sold, provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to Holders of Registrable Securities covered by such Registration Statement and the underwriters, if any, draft copies of all such documents proposed to be filed, which documents will be subject to the review of GE and such underwriters, and the Company shall not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which GE or the underwriters, if any, shall reasonably object; (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be requested by any underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus; (c) promptly notify the selling Holders of Registrable Securities and the managing underwriter, if any, and (if requested by any such Person) confirm such advice in writing, (1) when the Prospectus or any supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by clause (1) of paragraph (o) below cease to be accurate in all material respects, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (6) of the existence of any fact which results in the Registration Statement, the Prospectus or any document incorporated therein by reference containing a Misstatement; 10 (d) make all commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest practicable time; (e) unless the Company objects in writing on reasonable grounds, if requested by the managing underwriter or GE (if GE holds more than 50% of the Registrable Securities then outstanding) (on behalf of itself and all permitted assignees who are Holders of Registrable Securities), as promptly as practicable incorporate in a supplement or post-effective amendment such information as the managing underwriter and GE agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number of shares of Registrable Securities being sold to underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the Underwritten Offering of the Registrable Securities to be sold in such offering; and make all required filings of such supplement or post-effective amendment as soon as notified of the matters to be incorporated in such supplement or post-effective amendment; (f) only with respect to Demand Registrations, promptly prior to the filing of any document which is to be incorporated by reference into the Registration Statement or the Prospectus (after initial filing of the Registration Statement) provide copies of such document to counsel to GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities) and to the managing underwriter, if any, and make the Company's representatives available for discussion of such document and make such changes in such document prior to the filing thereof as counsel for GE or underwriters may reasonably request; (g) furnish to each selling Holder of Registrable Securities and the managing underwriter, without charge, at least one signed copy of the Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (h) deliver to GE (on behalf of each selling Holder of Registrable Securities) and the underwriters, if any, without charge, as many copies of each Prospectus (and each preliminary prospectus) as such Persons may reasonably request (the Company hereby consenting to the use of each such Prospectus (or preliminary prospectus) by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus (or preliminary prospectus)); (i) prior to any public offering of Registrable Securities, use all commercially reasonable efforts to register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as GE or such underwriters may designate in writing and do anything else necessary or advisable to enable from a legal perspective the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; 11 (j) cooperate with the selling Holders of Registrable Securities and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold and cause such Registrable Securities to be in such denominations and registered in such names as the managing underwriter may request at least three business days prior to any sale of Registrable Securities to the underwriters; (k) use all commercially reasonable efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; (1) if the Registration Statement or the Prospectus contains a Misstatement, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain a Misstatement; (m) use all commercially reasonable efforts to cause all Registrable Securities covered by the Registration Statement to be listed on any national securities exchange on which the Company's securities are listed or authorized for quotation on Nasdaq, if requested by GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities) or the managing underwriter, if any; provided, however, that the payment of any required listing or other fee shall always be deemed to be "commercially reasonable" for purposes of this Section 5(m); (n) provide a CUSIP number for all Registrable Securities not later than the effective date of the Registration Statement; (o) enter into such agreements (including an underwriting agreement) and do anything else reasonably necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not the registration is an Underwritten Registration: (1) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to holders and underwriters, respectively, in similar Underwritten Offerings; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter, if any, and GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities)) addressed to each selling Holder and the underwriter, if any, covering the matters customarily covered in opinions delivered to holders and underwriters, respectively, in similar Underwritten Offerings and such other matters as may be reasonably requested by GE or such underwriters; 12 (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Registrable Securities and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to holders and underwriters, respectively, in connection with similar Underwritten Offerings; (4) if an underwriting agreement is entered into, cause the same to include customary indemnification and contribution provisions and procedures with respect to such underwriters; and (5) deliver such documents and certificates as may be reasonably requested by GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities) and the managing underwriter, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent otherwise reasonably requested by GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities); (p) make available for inspection by representatives of GE (on behalf of itself and all permitted assignees who are Holders of Registrable Securities), any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by the sellers or any such underwriter, all financial and other records and pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller or underwriter in connection with the Registration; provided that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; and (q) otherwise use all commercially reasonable efforts to comply with all applicable rules and regulations of the SEC relating to such Registration, and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than forty-five (45) days after the end of any 12-month period (or ninety (90) days, if such period is a fiscal year) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in an Underwritten Offering, or, if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12-month period. 13 6. REGISTRATION EXPENSES (a) DEMAND REGISTRATIONS. The Company shall bear all Registration Expenses incurred in connection with any Demand Registrations and of any Registrations which do not become or are not maintained effective in accordance with the requirements specified in Section 5(a) other than any Registration terminated prior to effectiveness at the request of, or primarily as a result of, the actions of Holders whose Registrable Securities are included in such registration. Notwithstanding the foregoing, the Underwriters' Commissions incurred in connection with a Demand Registration that becomes effective shall be shared by the Holders of the Registrable Securities whose Registrable Securities are included in such Registration and the Holders of the Carlyle Investors' Registrable Securities whose Carlyle Investors' Registrable Securities are included in such Registration, pro rata, in accordance with the aggregate amount of Registrable Securities and Carlyle Investors' Registrable Securities sold by such Holders. (b) PIGGYBACK REGISTRATIONS. The Company shall bear all Registration Expenses incurred in connection with any Piggyback Registrations, except that each Holder of the Registrable Securities whose Registrable Securities are included in such Registration shall pay its pro rata share of the Underwriters' Commissions incurred in such Registration, in accordance with the amount of Registrable Securities sold by all such Holders. (c) COMPANY EXPENSES. The Company also will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with any listing of the securities to be registered on a securities exchange, and the fees and expenses of any Person, including special experts, retained by the Company. 7. INDEMNIFICATION (a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and hold harmless each Indemnified Holder from and against all Claims arising out of or based upon any Misstatement or alleged Misstatement, except insofar as such Misstatement or alleged Misstatement was based upon information furnished in writing to the Company by such Indemnified Holder expressly for use in the document containing such Misstatement or alleged Misstatement. This indemnity shall not be exclusive and shall be in addition to any liability which the Company may otherwise have. The foregoing notwithstanding, the Company shall not be liable to the extent that any such Claim arises out of or is based upon a Misstatement or alleged Misstatement made in any preliminary prospectus if (i) such Indemnified Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable 14 Securities giving rise to such Claim and (ii) the Prospectus would have corrected such untrue statement or omission. In addition, the Company shall not be liable to the extent that any such Claim arises out of or is based upon a Misstatement or alleged Misstatement in a Prospectus, (x) if such Misstatement or alleged Misstatement is corrected in an amendment or supplement to such Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Indemnified Holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to or concurrently with the sale to the person who purchased a Registrable Security from such Indemnified Holder and who is asserting such Claim. The Company shall also provide customary indemnifications to underwriters, selling brokers, dealer managers and similar securities industry professionals participating in a distribution covered by a Registration Statement, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act). (b) INDEMNIFICATION PROCEDURES. If any action or proceeding (including any governmental investigation or inquiry) shall be brought or asserted against an Indemnified Holder in respect of which indemnity may be sought from the Company, such Indemnified Holder shall promptly notify the Company in writing, and the Company may assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Holder and the payment of all expenses. Such Indemnified Holder shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such separate counsel shall be at the expense of such Indemnified Holder unless (i) the Company has agreed to pay such fees and expenses, (ii) the Company shall have failed to assume the defense of such action or proceeding or has failed to employ counsel reasonably satisfactory to such Indemnified Holder in any such action or proceeding, or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both such Indemnified Holder and the Company, and such Indemnified Holder shall have been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Holder that are different from or additional to those available to the Company. If such Indemnified Holder notifies the Company in writing that it elects to employ separate counsel at the expense of the Company as permitted by the provisions of the preceding paragraph, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Holder. The foregoing notwithstanding, the Company shall not be liable for the reasonable fee and expenses of more than one separate firm of attorneys at any time for such Indemnified Holder and any other Indemnified Holders (which firm shall be designated in writing by such Indemnified Holders) in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances. 15 The Company shall not be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Company agrees to indemnify and hold harmless such Indemnified Holders from and against any loss or liability by reason of such settlement or judgment. (c) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder of Registrable Securities agrees to indemnity and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Holder, but only with respect to information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement, Prospectus or preliminary prospectus. In no event, however, shall the liability hereunder of any selling Holder of Registrable Securities be greater than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person, in respect of which indemnity may be sought against a Holder of Registrable Securities, such Holder shall have the rights and duties given the Company and the Company or its directors or officers or such controlling person shall have the rights and duties given to each Holder by Sections 7(a) and 7(b) above. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. (d) CONTRIBUTION. If the indemnification provided for in this Section 7 is unavailable to an indemnified party under Section 7(a) or Section 7(c) above (other than by reason of exceptions provided in those Sections) in respect of any Claims referred to in such Sections, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Claims in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the Holder on the other in connection with the statements or omissions which resulted in such Claims as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the Claims referred to above shall be deemed to include, subject to the limitations set forth in Section 7(b), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The relative fault of the Company on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the Misstatement or alleged Misstatement relates to information supplied by the Company or by the Holder and the parties' 16 relative intent, knowledge, access to information and opportunity to correct or prevent such Misstatement or alleged Misstatement. The Company and each Holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 7(d), an Indemnified Holder shall not be required to contribute any amount in excess of the amount by which (i) the total price at which the securities that were sold by such Indemnified Holder and distributed to the public were offered to the public exceeds (ii) the amount of any damages which such Indemnified Holder has otherwise been required to pay by reason of such Misstatement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. EXCHANGE ACT REPORTING REQUIREMENTS From and after the date hereof, the Company shall (whether or not it shall then be required to do so) timely file such information, documents and reports as the Commission may require or prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange Act. In addition, the Company shall use all commercially reasonable efforts to file such other information, documents and reports, as shall hereafter be required by the Commission as a condition to the availability of Rule 144 under the Securities Act (or any successor provision) and the use of Form S-3. From and after the date hereof, the Company shall forthwith upon reasonable request furnish any Holder of Registrable Securities (i) a written statement by the Company that it has complied with such reporting requirements, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents filed by the Company with the Commission as such Holder may reasonably request in availing itself of an exemption for the sale of Registrable Securities without registration under the Securities Act pursuant to Rule 144 thereunder. The purpose of the foregoing requirements are (a) to enable any such Holder to comply with the current public information requirements contained in paragraph (c) of Rule 144 under the Securities Act (or any successor provision) and (b) to qualify the Company for the use of Registration Statements on Form S-3. 9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS No Person may participate in any Underwritten Offering pursuant to a Registration hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, indemnities, 17 underwriting agreements and other documents required under the terms of such underwriting arrangements 10. SUSPENSION OF SALES Upon receipt of written notice from the Company that (i) a Registration Statement or Prospectus contains a Misstatement, or (ii) in the reasonable determination of the Company, there exist circumstances not yet disclosed to the public which would be required to be disclosed in such Registration Statement and the disclosure of which would be materially harmful to the Company, each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities until such Holder has received copies of the supplemented or amended Prospectus required by Section 5(l) hereof, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. The Company shall use all commercially reasonable efforts to minimize the length of such suspension of sales, provided, that the Company may require the suspension of sales for a period of ninety (90) days in the event that the disclosure of any circumstances, in the reasonable determination of the Company, would be harmful in any material respect to the Company. In no event, however, shall the aggregate period of time that the Company postpones the filing or declaration of effectiveness of any Registration Statement pursuant to Section 5, or suspends sales of Registrable Securities pursuant to Section 10 under any Registration Statement, taken together with all such other periods with respect to such Registrations Statement exceed, in the aggregate, ninety (90) days. 11. FUTURE REGISTRATION RIGHTS AGREEMENTS Except for an underwriting agreement between the Company and one or more professional underwriters of securities, the Company shall not agree to register any Equity Securities under the Securities Act unless such agreement specifically provides that: (a) the Holder of such Equity Securities may not participate in any Demand Registration without the consent of GE unless: (i) the offering of the Registrable Securities is to be a Firm Commitment Underwritten Offering and the managing underwriter concludes that the public offering or sale of such Equity Securities would not interfere with the successful marketing of all Registrable Securities requested to be sold and (ii) the Holders of Registrable Securities shall have the right to participate, to the extent they may request, in any Registration Statement initiated under a Demand Registration right exercised GE (if GE holds more than 50% of the Registrable Securities then outstanding), except that if the managing underwriter of a public offering made pursuant to such a Demand Registration limits the number of shares of Common Stock to be sold, the participation of the Holders of the Registrable Securities and the 18 Holders of all other Common Stock (other than the Equity Securities held by such Holder of Equity Securities) shall be determined as set forth in Section 3 hereof. (b) the Holder of such Equity Securities may not participate in any Piggyback Registration if the sale of Registrable Securities is to be underwritten unless, if the managing underwriter limits the total number of shares to be sold, the Holders of such Equity Securities and the Holders of Registrable Securities are entitled to participate in such underwritten distribution based on the order of priority set forth in Section 3 hereof, and (c) all Equity Securities excluded from any Registration as a result of the foregoing limitations may not be publicly offered or sold for a period (not to exceed at least thirty (30) days prior to the effective date and sixty (60) days thereafter) that the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering of Registrable Securities registered pursuant to this Agreement. 12. TRANSFER OF REGISTRATION RIGHTS The rights of Holders of Registrable Securities hereunder may be transferred as permitted in the Purchase Agreement. The Company shall be given written notice by the Holder at the time of any such transfer permitted by the Purchase Agreement stating the name and address of the transferee, including a writing by such transferee to the effect that such transferee agrees to be bound by the terms hereof and identifying the securities with respect to which the rights hereunder are being transferred. 13. MISCELLANEOUS (a) REMEDIES. Each Holder of Registrable Securities, in addition to being entitled to exercise all rights provided herein, in the Purchase Agreement and granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. The Company shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. Other than as disclosed on Schedule A attached hereto, the Company has not previously entered into any agreement with respect to its securities granting any "piggy back" registration rights to any Person. The Company represents and warrants to GE that, except as set forth in this Agreement and the Carlyle Investors' Registration Rights Agreement, as of the date hereof, there are no outstanding "demand" registration rights with respect to the Company's securities. The rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with 19 and are not inconsistent with the rights granted to the holders of the Company's securities under any such agreements. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Carlyle Investors (but such consent of the Carlyle Investors shall only be necessary if, at the time such consent is sought, the Carlyle Investors own the Carlyle Investors' Registrable Securities) and of GE (if GE holds more than 50% of the Registrable Securities then outstanding) (on behalf of itself and all permitted assignees who are Holders of Registrable Securities). The foregoing notwithstanding, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of shares of Registrable Securities whose shares are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of shares of Registrable Securities may be given by the Holders of a majority of the shares of Registrable Securities being sold. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, facsimile, or air courier guaranteeing overnight delivery: (i) if to a Holder of Registrable Securities who is GE, at the address of the Purchaser (as such term is defined in the Purchase Agreement) set forth in Section 9.4 of the Purchase Agreement, with a copy to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071-3197, Facsimile: (213) 229-7250, Attention: Ronald S. Beard; (ii) if to a Holder of Registrable Securities who is not GE, at the most current address given by the Holder to the Company in accordance with the provisions hereof, which address initially is the address of the Purchaser (as such term is defined in the Purchase Agreement) set forth in the Purchase Agreement, with a copy to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071-3197, Facsimile: (213) 229-7250, Attention: Ronald S. Beard; and (iii) if to the Company, initially at its address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions hereof, with a copy to McDermott, Will & Emery, 2049 Century Park East, 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. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, 20 postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. The Company shall promptly provide a list of the most current addresses of the Holders of Registrable Securities given to it in accordance with the provisions hereof to any such Holder for the purpose of enabling such Holder to communicate with other Holders in connection with this Agreement. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING 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. (i) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) FORMS. All references in this Agreement to particular forms of Registration Statements are intended to include all successor forms which are intended to replace, or to apply to similar transactions as, the forms herein referenced. 21 (k) ENTIRE AGREEMENT. This Agreement and the Purchase Agreement are intended by the parties as the final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Purchase Agreement. This Agreement and the Purchase Agreement supersede all prior agreements and understandings between the parties with respect to such subject matter (including any prior agreements and understandings with respect to registration rights regarding the Series A Preferred Stock). (l) CARLYLE INVESTORS' REGISTRATION RIGHTS AGREEMENT. If Holders elect to join in a request for Demand Registration pursuant to Section 2(d) of the Carlyle Investors' Registration Rights Agreement, then such registration of Holders' shares shall, with respect to the terms and conditions of this Agreement, be treated as if such registration were a Demand Registration pursuant to Section 2 of this Agreement; PROVIDED, HOWEVER, that such registration of Holders' shares pursuant to Section 2(d) of the Carlyle Investors' Registration Rights Agreement shall not: (i) count as one of the two Demand Registrations available to Holders pursuant to this Agreement, or (ii) be subject in any way whatsoever to the $5 million threshold of Section 2(b) of this Agreement. [signature page follows] 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. INSIGHT HEALTH SERVICES CORP., a Delaware corporation By: -------------------------------- Name: -------------------------------- Title: -------------------------------- GENERAL ELECTRIC COMPANY, a New York corporation By: -------------------------------- Name: -------------------------------- Title: -------------------------------- 23 EX-10.21 7 EXH. 10.21 - SECURITIES PURCHASE AGREEMENT 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 ARTICLE III CLOSING..........................................................16 3.1 Closing..............................................................16 3.2 Deliveries by the Company at the 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 4.26 Securities Offerings................................................36 i 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 ARTICLE VIII INDEMNIFICATION.................................................60 8.1 Survival of Representations, Etc.....................................60 8.2 Indemnification by the Company.......................................60 8.3 Limitation on Indemnities............................................61 ii 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 GE 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 Schedule 4.16 Taxes Schedule 4.17 Environmental Matters Schedule 4.19 Real Property and Leaseholds Schedule 4.20 Tangible Assets iii 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 iv 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. "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 4 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. "COMMON STOCK DIRECTOR" has the meaning set forth in the Certificate of Incorporation. 5 "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 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. 6 "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. "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. 7 "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. "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. 8 "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 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. 9 "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 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. 10 "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 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. 11 "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. "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. 12 "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 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. 13 "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. "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. 14 "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 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. 15 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; (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 16 (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 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 17 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 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 18 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 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 19 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. 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 20 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. 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. 21 (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. 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 22 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, 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. 23 (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. (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 24 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 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 25 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 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. 26 (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 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. 27 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 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 28 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. 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 29 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. (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 30 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. 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 31 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 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 32 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: (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 33 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 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 34 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 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 35 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 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. 36 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. 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. 37 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. 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, 38 facility, service or item for which payment may be made in whole or in party by CHAMPUS, Medicare or Medicaid or any other State Health Care Program or any Federal Health Care Program; or (e) Knowingly and willfully making or causing to be made or inducing or seeking to induce the making of any false statement or representation (or omitting to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading) or a material fact with respect to (i) the conditions or operations of a facility in order that the facility may qualify for CHAMPUS, Medicare, Medicaid or any other State Health Care Program certification or any Federal Health Care Program certification, or (ii) information required to be provided under Section 1124(A) of the Social Security Act ("SSA") (42 U.S.C. Section 1320a-3). 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; 39 (D) Federal or state laws relating to the interference with or obstruction of any investigation into any criminal offense described in (A) through (C) above; or (E) criminal offenses under federal or state law relating to the unlawful manufacture, distribution, prescription or dispensing of a controlled substance. 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. 40 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 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 41 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, 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). 42 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). 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: 43 (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 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 44 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. (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 45 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 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 butnot limited to promptly calling and holding a meeting of the Company's stockholders, at which the Company's 46 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 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. 47 (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. 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 48 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 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 49 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 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; 50 (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 (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 51 (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 ppropriate. (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: (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 52 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 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 53 Acquisitions Committee or unanimously by the Board of Dirctors, 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: (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 54 (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 percen (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 (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; 55 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. (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 56 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 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 57 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. (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 58 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 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. 59 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. 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. 60 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 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 61 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 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 62 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. 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 63 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 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 64 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 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. 65 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. 66 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: -------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----