-----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, COISaJGM8N9KBmz/wBzjeL45BcAypCZ2S/XiF6YfCKaHAVU4v2Ei8Es7uWx0Ig3S bliU9jO2uM0dHhWjiLpYhA== 0000936392-96-000083.txt : 19960328 0000936392-96-000083.hdr.sgml : 19960328 ACCESSION NUMBER: 0000936392-96-000083 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL IMAGING CENTERS OF AMERICA INC CENTRAL INDEX KEY: 0000746712 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 953643045 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12787 FILM NUMBER: 96539395 BUSINESS ADDRESS: STREET 1: 9444 FARNHAM ST STE 100 CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6195600110 MAIL ADDRESS: STREET 2: 9444 FARNHAM STREET SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92123 10-K 1 MEDICAL IMAGING CENTERS OF AMERICA,INC.--FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995, or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) - For the transition period from ________ to ________ Commission File Number 0-12787 MEDICAL IMAGING CENTERS OF AMERICA, INC. (Exact name of Registrant as specified in its charter) California 95-3643045 (State of Incorporation) (I.R.S. Employer Identification No.) 9444 Farnham Street, Suite 100, San Diego, California 92123 (Address of principal executive offices) (Zip Code) (619) 560-0110 (Registrant s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The approximate aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 19, 1996 (based on the closing price as reported on the OTC Bulletin Board on that date): $24,366,123. As of March 19, 1996 the Registrant had outstanding 2,671,724 shares of Common Stock, no par value. DOCUMENTS INCORPORATED BY REFERENCE 1 2 MEDICAL IMAGING CENTERS OF AMERICA, INC. FOR FISCAL YEAR ENDED DECEMBER 31, 1995 FORM 10-K ANNUAL REPORT INDEX
PART I Page - ------ ---- Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Shareholders 9 PART II - ------- Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 10 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes in and Disagreements with Accountants on Accounting 14 and Financial Disclosure PART III - -------- Item 10. Directors and Executive Officers of the Registrant 15 Item 11. Executive Compensation 17 Item 12. Security Ownership of Certain Beneficial Owners and Management 20 Item 13. Certain Relationships and Related Transactions 21 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules, Reports on Form 8-K 22
2 3 PART I Item 1. Business Medical Imaging Centers of America, Inc. ("MICA" or the "Company") is a California corporation organized in July 1981 which provides outpatient services and medical equipment rentals to physicians, managed care providers and hospitals. These services include magnetic resonance imaging ("MRI"), computed tomography ("CT"), nuclear medicine and ultrasound. The Company's operations include diagnostic medical centers ("DMCs"), diagnostic equipment rentals, fee-for-service agreements (fixed and mobile), and management, marketing and related support services. MICA's strategy is to expand the range and extent of the diagnostic imaging services provided to its customers. MEDICAL DIAGNOSTIC IMAGING INDUSTRY Medical diagnostic imaging systems facilitate the diagnosis of disease and disorders at an early stage, often minimizing the amount and cost of care needed to stabilize or cure the patient and frequently obviating the need for invasive diagnostic procedures, such as exploratory surgery. Diagnostic imaging systems are based on the ability of energy waves to penetrate human tissue and generate images of the body which can be displayed either on film or on a video monitor. Imaging systems have evolved from conventional X-ray to the advanced technologies of MRI, CT, nuclear medicine and ultrasound. The use of these technologies has grown significantly in the United States during the last several years due to increasing acceptance by physicians of the value of diagnostic imaging technologies in the early diagnosis of disease, the expanding applications of MRI and ultrasound (partially because they do not involve X-ray radiation) and the growing patient base attributable to an aging population. Due to capital restrictions, hospitals utilize third parties, such as MICA, to provide these technologies and related services. To remain viable in a highly competitive industry, hospitals seek to offer diagnostic imaging equipment and services to retain and expand their referring physician base. RANGE OF SERVICES The needs of a particular hospital or physician group ("Customer") determine the extent of the following services, which MICA can deliver either through a full service DMC or on a fee-for-service basis. MANAGEMENT. Each DMC is staffed by administrative and technical personnel who provide day-to-day management of operations including staffing, billing and collection, purchasing of medical supplies and film and supervision of maintenance and quality control. EQUIPMENT AND RELATED SERVICES. Drawing upon its operating experience and relationships with leading equipment manufacturers, MICA consults with each Customer to identify the equipment best suited to meet the Customer s needs on a cost-effective basis. The appropriate equipment is acquired through purchase or lease by MICA. In addition, MICA assists the Customer in complying with licensing and other regulatory requirements related to the siting of the equipment. In conjunction with the installation of the equipment, MICA typically enters into maintenance agreements with equipment manufacturers or other third parties to service the newly installed equipment. TECHNICAL AND SUPPORT STAFFING. MICA provides training and educational programs for its own technologists as well as the Customer s technologists. At a DMC, support personnel (receptionist, transcriptionists, couriers and technical aids) are also provided by MICA. MARKETING. MICA provides its Customers with marketing services, including the design of a marketing program to educate the referral base as to the diagnostic imaging services available at the facility. MICA provides expanded marketing services to patient referral sources, including HMOs and other health plans. DIAGNOSTIC MEDICAL CENTERS. DMCs provide diagnostic imaging services in an outpatient environment. In addition to the equipment, MICA also provides the management of all technical and support staff; marketing services; patient scheduling, billing and collection services; and management information systems. Staffing for a DMC typically requires six to twenty non-physician personnel. 3 4 The typical arrangement for a DMC is a limited partnership (with MICA as the managing general partner) which provides for a sharing of earnings between MICA and its partners. In addition, MICA receives management fees of 4-10% of collected revenues. The Company carefully selects its DMC partners and generally requires exclusive contracts. MICA funds net operating losses of the DMCs. Set forth below is a table of MICA's DMCs with a listing of respective opening dates and services provided at each location. In 1992, the Company also established a freestanding radiation therapy center as a joint venture with a Florida Columbia/HCA hospital.
Services by Technology --------------------------------------------------------- Opening Nuclear DMC Location Date MRI CT Ultrasound Medicine Other(1) ------------------------------------------------------------------------------------------------- Long Beach, CA 12/84 x x x x x Bakersfield, CA 5/85 x x x -- x Kansas City, MO 5/85 x -- -- -- -- Portland, OR 12/85 x x x -- x Huntington Beach, CA 12/85 x x x x x Orlando, FL 6/87 x x x x x Newport Beach, CA 9/87 x x x x x Gainesville, FL 3/90 x x -- -- -- Renton, WA 3/90 x -- -- -- -- Bradenton, FL 5/90 x x -- -- -- Phoenix, AZ(3) 8/91 x x x -- -- Westlake Village, CA 10/91 x -- -- -- -- Ft. Myers, FL 3/92 x -- -- -- -- Milford, DE 3/92 x -- -- -- -- Laguna Niguel, CA 6/92 x -- -- -- -- Chalmette, LA 6/92 x -- -- -- -- Santa Maria, CA 8/92 x -- -- -- -- Downey, CA 7/94 x -- -- -- -- Deltona, FL(2) 4/95 x -- -- -- x -------------------------------------------------------------------------------------------------
(1) Other services consist principally of mammography and X-ray. (2) DMC sold or closed in 1995. (3) MICA provides only management services to this DMC. FEE-FOR-SERVICE. Under a typical fee-for-service arrangement, MICA furnishes the Customer with appropriate equipment and bills the Customer for the number of patient procedures performed each month. Under certain fee-for-service arrangements, the Customer agrees to a monthly guaranteed minimum payment. The Company contracts to provide services for a term ranging from one month to three years. Based upon the Customer s service requirements, MICA installs or makes equipment available. A mobile unit is totally self-contained and typically provides services to a number of Customers. During 1995, the Company provided diagnostic imaging services to approximately 120 Customers in 20 states under fee-for-service arrangements. In July of 1995, the Company'sold its ultrasound/nuclear medicine business which accounted for 72 Customers in 11 states under fee-for-service arrangements. Of the 120 customers serviced in 1995, 51 Customers received service on site and the remaining Customers received service by one of the Company's mobile units. 4 5 MEDICAL SERVICES REVENUE MIX The following table summarizes the Company's medical services revenues on a percentage basis by type of arrangement for each of the three years in the period ended December 31, 1995.
Years ended December 31, ------------------------------ 1995 1994 1993 ---- ---- ---- DMC 61% 51% 45% Fee-for-Service Fixed 27% 34% 31% Mobile 12% 15% 24%
TECHNOLOGY SOURCES MICA obtains its diagnostic imaging equipment from various manufacturers including The General Electric Company and Hitachi Medical Systems America, Inc. Costs to acquire various new equipment are as follows:
Equipment Price Range --------------------------------------------------------------------- MRI $ 700,000 to $ 1,500,000 CT $ 150,000 to $ 650,000 Nuclear Medicine $ 125,000 to $ 350,000 Ultrasound $ 80,000 to $ 250,000
Installation and maintenance costs on the equipment can be substantial, particularly with respect to MRI units. Installation costs can range from $75,000 to $200,000 for an MRI unit depending on the particular installation. Maintenance costs for an MRI unit can be as high as $150,000 per year. MICA typically enters into agreements with equipment manufacturers or other third party service organizations for equipment maintenance. Equipment is financed by MICA (with terms ranging from five to seven years) with lenders and lessors, with the equipment pledged as security for the debt. RISK FACTORS AND CERTAIN CAUTIONARY STATEMENTS The Company's business is subject to a number of risks, some of which are beyond the Company's control. Such risks in some cases have affected the Company's results, and in the future could cause the Company's actual results for the first quarter of 1996, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. The following discussion highlights some of these risks: OBSOLESCENCE. MICA attempts to select equipment that will remain commercially viable for the duration of its financing term. Technology, however, as it relates to MRI and CT has advanced rapidly over the past several years and all of the Company's equipment is subject to the risk of obsolescence and deterioration of fair market value. The Company routinely reviews its equipment portfolio to determine that its carrying value is the lower of cost or net realizable value. CREDIT RISK. MICA typically bills the patient for both the charges of the radiologist and the charges for the technical services of the DMC. By undertaking the responsibility for patient billing and collection activities, MICA assumes the credit risk presented by the patient base, as well as the risk of payment delays attendant to reimbursement through governmental programs or third party payors. The Company estimates that 63% of the DMC's payors are insurance companies, HMO/PPOs or self-paying patients. EQUIPMENT UTILIZATION. Under fee-for-service contracts that do not require minimum payments, MICA assumes the risk that revenues generated through utilization of its equipment will be sufficient to meet MICA's financial obligations to lenders and lessors. The Company attempts to finance its acquisition of equipment and match the amortization period of such financial obligation to the term of the Customer s contract. However, the amortization period for specific equipment may extend beyond the term of the related contract, requiring MICA to fund any resulting negative cash flow in the event that it cannot redeploy the equipment. 5 6 GOVERNMENT REGULATION. The Omnibus Budget Reconciliation Act of 1993 ("OBRA 93"), sometimes referred to as "Stark II," includes federal legislation on physician self-referrals regarding Medicare/Medicaid patients. The new legislation, which became effective January 1, 1995, prohibits physician referrals to non-hospital health facilities in which the referring physician has a "financial interest." On January 1, 1995, the Physician Ownership and Referral Act of 1993 ("PORA") became effective in the state of California. PORA prohibits a physician from referring patients for covered services including diagnostic imaging if the physician (or his or her immediate family) has a "financial interest" in an entity that receives the referral in the state of California. MICA currently is in the process of acquiring the partnership units owned by a limited number of physicians who refer patients to MICA's DMCs. It is not anticipated that such acquisitions will require significant capital. MICA is unable to predict at this time what impact PORA will have upon the demand for its equipment and services. Florida's Patient Self-Referral Act of 1992 might also affect MICA's business. Part of the Act imposes a fee schedule on all providers of diagnostic imaging services and radiation therapy services which limits fees to no more than 115% of the Medicare limiting charge for non-participating physicians for such services (the "Fee Cap"), including technical and professional components. The statute specifically excludes hospitals and physician group practices from the Fee Cap. The Company's four imaging centers in Florida, as currently operated, would be subject to the Fee Cap and would be severely impacted if the Fee Cap ever became effective. In July 1992, however, the United States District Court for the Northern District of Florida granted a permanent injunction, finding the statute violative of the equal protection clause of the United States Constitution and the Florida Constitution. The state filed a notice of appeal from this judgment. On February 15, 1994, the United States Court of Appeals for the Eleventh Circuit reversed the decision of the lower court. The Company has filed a petition for rehearing with the Eleventh Circuit. In a later proceeding, the Company joined with other plaintiffs and plaintiff-intervenors in a separate effort to defeat the Fee Cap provision. In February 1995, a Florida court issued an order granting final summary judgment that the Fee Caps were unconstitutional for providers of diagnostic imaging services. The state court's ruling was upheld on appeal. As a result of the state court's decision, MICA is not subject to the Fee Caps. Although MICA and two Florida courts have held that the Fee Caps violate the Florida Constitution, there can be no assurances that their decisions will not be reversed, that the Fee Caps will ultimately be found to be unconstitutional or that the Fee Caps will not be reinstated retroactively to the initial effective date. MICA's business also is affected by Certificate-of-Need ("CON") programs implemented in a number of states and by existing governmental regulations regarding expenditures for medical technology by hospitals. CON programs vary considerably from state to state. CON agencies primarily control the distribution and physical allocation of technological equipment among healthcare institutions, frequently determining which institutions may acquire new technologies. Such determinations are based on broad concepts of "need," using various criteria and weighing the relative need demonstrated by competing CON applicants to ensure the equitable allocation of new technology among hospitals. To date, the CON laws and regulations and state rate commissions have not had a material effect on MICA's business, although there is no assurance that the laws and regulations will not change or that rate commissions will not take actions that may adversely affect MICA's business. MICA's operations are subject to a variety of governmental and regulatory requirements. For example, the storage, use and disposal of radioactive materials in nuclear medicine is subject to regulation by Federal and State governmental authorities, including the United States Food and Drug Administration, the Department of Health and Human Services, the Health Care Finance Administration ("HCFA"), and the Nuclear Regulatory Commission ("NRC"). Additionally, MICA personnel must be licensed to operate certain equipment, and the physicians practicing at its DMCs must have a Medicare/Medicaid provider number to receive government reimbursement. MICA believes it is in compliance with applicable laws and regulations. MEDICAL REIMBURSEMENT PROGRAMS. A substantial portion of the Company's revenue is attributable to payments made by government-sponsored healthcare programs and other third party payors. From time to time the Federal government has proposed limiting reimbursement for imaging services. Any change in reimbursement regulations, or the enactment of legislation that would have the effect of placing material limitations on the amount of reimbursement for imaging services, could adversely affect the operations of MICA. In November 1991, HCFA issued regulations which implemented a resource-based relative value scale ("RBRVS") payment system effective for services furnished by physicians or incident to physician services on or after January 1, 1992. The RBRVS fee schedule was fully effective in January 1995. For radiology, the change in fee schedules has resulted in substantially lower reimbursement for services provided to Medicare-eligible patients. Because MICA's 6 7 fees for services to Medicare-eligible patients are subject to the fee schedule for radiology procedures, this change has resulted in lower reimbursement for services provided by MICA to Medicare-eligible patients. MICA is unable to predict at this time what impact these regulations will have upon demand for its equipment and services. The Medicare/Medicaid Anti-Fraud and Abuse Statute (the "Anti-Kickback Statute") prohibits certain actions or practices deemed by Congress to be fraudulent or abusive in nature. Provisions of the Anti-Kickback Statute, known generally as the "Safe Harbor Regulations," provide that compliance with an applicable Safe Harbor would immunize that arrangement from criminal prosecution or exclusion from the Medicare and Medicaid programs. To the extent that a particular MICA arrangement complies with an applicable Safe Harbor, MICA is guaranteed immunity from criminal prosecution or exclusion from the Medicare and Medicaid programs based upon its participation in the arrangement. Although some of MICA's arrangements may not comply with all criteria contained in an applicable Safe Harbor, and therefore such arrangements would not be entitled to Safe Harbor immunity, MICA believes that its business structure and practices do not violate the Anti-Kickback Statute. Healthcare reimbursement programs are not uniformly prompt in making required payments. Extensive payment delays are not uncommon, and MICA's future cash flows could be adversely impacted while awaiting payment. MICA has limited ability to cause more timely reimbursement practices by governmental agencies and programs. Additionally, there can be no assurance that subsequent laws, subsequent changes in present laws or interpretations of laws will not adversely affect the Company's operations. HEALTHCARE REFORM. The public has recently focused significant attention on reforming the healthcare system in the United States. Within the past two years, a broad range of healthcare reform measures have been introduced in Congress and in certain state legislatures. Legislative interest recently has also focused on the role of HMOs in the provision of healthcare and the effect of managed care reimbursement mechanisms on healthcare service utilization and quality of service. It is not clear at this time what proposals, if any, will be adopted or, if adopted what effect, if any, such proposals would have on the Company's business. There can be no assurance that any proposals adopted would be coordinated at the federal or state level, and therefore the Company, as a national participant in the healthcare industry, is subject to varying state regulatory environments. Certain proposals, such as cutbacks in the Medicare and Medicaid programs, containment of healthcare costs that could include a freeze on prices charged by physicians, hospitals or other healthcare providers, and greater state flexibility in the administration of Medicaid, could adversely affect the Company. There can be no assurance that currently proposed or future healthcare programs, laws, regulations or policies will not have a material adverse effect on the Company's operating results. COMPETITION. The healthcare industry in general, and the market for medical diagnostic imaging services in particular, are highly competitive. MICA s DMCs and its fee-for-service operations compete for patients with hospitals, managed care groups and other DMCs. The Company also competes with equipment manufacturers, leasing companies, physician groups and other providers of medical diagnostic imaging services. Many of these competitors have substantially greater resources than MICA. MICA competes based on its reputation for the dependability and quality of its services. INSURANCE. MICA carries workers compensation insurance, comprehensive and general liability coverage, fire and allied perils coverage. MICA maintains professional liability and general liability insurance for all owned facilities in the single limit amount of $10 million. There can be no assurance that potential claims will not exceed this amount. MICA also requires that physicians practicing at the DMCs carry medical malpractice insurance to cover their individual practices. The physicians are personally responsible for the costs of the insurance. EMPLOYEES At December 31, 1995, MICA had 248 full-time employees including 224 employees at DMC and fee-for-service locations and 24 employees at the corporate office. Under Section 401(k) of the Internal Revenue Code the Company instituted a tax deferred retirement plan, whereby the Company will match 50% of an employee's deferred salary up to a maximum of 6% of gross pay, for a maximum matching contribution of 3%. MICA has stock option plans for officers, directors, key employees and consultants of the Company. Grants of options under such plans are subject to approval of the Compensation/Stock Option Committee of the Board of Directors. 7 8 Item 2. Properties The Company's executive offices are located at 9444 Farnham Street, Suite 100, San Diego, California 92123. The Company occupies approximately 11,900 square feet of space pursuant to a two year lease extension which expires March 31, 1996. Item 3. Legal Proceedings On January 10, 1996, the Company commenced litigation in the United States District Court for the Southern District of California (the "Court") against Steel Partners II, L.P., ("Steel") and certain of its affiliates (together with Steel, the "Steel Defendants") alleging that the Steel Defendants violated certain federal securities laws and state tort laws in connection with their acquisition of Common Stock and their proxy solicitation. The Company's complaint alleged, among other matters, that the Steel Defendants violated Section 13(d) of the Securities Exchange Act of 1934 by, among other things, filing false and misleading Schedules 13D that failed to disclose the Steel Defendants' true ownership of Common Stock and their true intent to attempt to take control of the Company. The complaint also alleged that the Steel Defendants tortiously interfered with the Company's economic relations with a lender of the Company by, among other things, claiming to have enough control of the Company to have instructed the Company to stop making payments to its lenders. The complaint sought, among other things, to have the Court preliminarily and permanently enjoin the Steel Defendants' proxy solicitation and their acquisition and voting of shares of Common Stock, and damages for the Steel Defendants' tortious interference with the Company's economic relations. The complaint further sought to have the Court require the Steel Defendants to publicly disclose their beneficial ownership of 20% or more of the Common Stock and declare that the Steel Defendants have thereby become an "Acquiring Person" for purposes of the Company's Shareholder Rights Plan (the "Rights Plan"), enabling all of the Company's shareholders other than the Steel Defendants to purchase shares of Common Stock at bargain prices, under certain circumstances. On January 19, 1996, a federal magistrate denied the Company's application for expedited discovery and granted the Steel Defendants' application for a stay of discovery. On February 7, 1996, the Court upheld the federal magistrate's ruling, scheduled a hearing on the Steel Defendants' motion to dismiss the Company's complaint, which was filed on January 17, 1996, for February 14, 1996 and scheduled a hearing on the Company's motion for a preliminary injunction for February 23, 1996. On February 14, 1996, the Court denied the Steel Defendants' motion to dismiss, thereby lifting the stay on discovery. Also on February 14, 1996, a federal magistrate granted the Company's application for expedited discovery. On February 15, 1996, Steel commenced litigation in the United States District Court for the Southern District of California against the Company alleging that the Rights Plan violates California law because, among other things, it discriminates among the Company's shareholders under certain circumstances. Steel's complaint sought, among other things, to have the Court enjoin the Company from permitting the separation or distribution of any rights pursuant to the Rights Plan and declare the Rights Plan invalid. On February 23, 1996, Judge Rudi Brewster of the United States District Court for the Southern District of California issued a preliminary injunction based on his finding that the Company had demonstrated that there was sufficient evidence to show probable success on the merits of the Company's claim that Steel had violated the requirements of Section 13(d) of the Securities Exchange Act of 1934 by failing to disclose its unidentified foreign investor. Judge Brewster also found sufficient evidence to show probable success on the merits of the Company's claim that brokerage customers of Jack Howard, an affiliate of Steel, were members of a "group" which included Steel. On March 19, 1996, the Company and certain of its affiliates, on the one hand, and Steel and certain of its affiliates, on the other hand, entered into an Agreement of Compromise and Settlement (the "Settlement Agreement"). The Settlement Agreement calls for the dismissal of all pending litigation between Steel and the Company and provides for mutual releases between the Company and its affiliates and Steel and its affiliates. The Settlement Agreement also provides that the February 26, 1996 Special Meeting of Shareholders will be adjourned without any final report from the Inspector of Elections, leaving the current Board of Directors in place. Pursuant to the Settlement Agreement, the Company is required to initiate a process to sell or merge the Company (the "Auction Process"). The Company's financial advisor, Batchelder & Partners, Inc., will advise the Company in connection with the sale or merger process. If the process does not result in an announcement by the Company of a sale or merger transaction by June 19, 1996, a definitive agreement for a sale or merger transaction by 8 9 July 19, 1996, or the consummation of a sale or merger transaction by November 19, 1996, the current members of the Company's Board of Directors will resign from their positions and be replaced by designees of Steel. The Settlement Agreement calls for the company to amend the severance agreement of the Company's chief executive officer and chief financial officer to provide that the Company's failure to meet such deadlines shall constitute an "involuntary termination" for purposes of their respective severance packages. In the meantime, Steel has agreed that it will not, and will cause its affiliates not to, acquire or offer to acquire, directly or indirectly, by purchase or otherwise, beneficial ownership of any of the Company's securities during the Auction Process. The Settlement Agreement also requires the Company to redeem all outstanding Rights issued pursuant to the Company's shareholder rights plan and prohibits the Company from enacting a new shareholder rights plan without the prior written consent of Steel. Simultaneous with its entering into the settlement, the Company entered into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware corporation ("Arrowhead"), containing substantially the same terms as the Settlement Agreement (the "Arrowhead Agreement"). The Arrowhead Agreement, like the Settlement Agreement, provides that the Company'shall begin an auction process for the sale or merger of the Company and shall redeem all outstanding Rights granted pursuant to the shareholder rights plan. The Arrowhead Agreement also contains mutual release provisions and prohibits Arrowhead from acquiring beneficial ownership of the Company's securities. Pursuant to the Settlement Agreement, the Company has agreed to reimburse Steel for expenses up to $425,000 incurred by Steel in connection with its solicitation of proxies for the February 26, 1996 Special Meeting of Shareholders. No amounts have been reflected in the financial statements as of December 31, 1995 with regard to expenses reimbursed to Steel. MICA is also a party to litigation arising in the normal course of its business. MICA does not believe the results of such litigation, even if determined adversely to MICA, would have a material effect on its financial position. Item 4. Submission of Matters to a Vote of Shareholders None. 9 10 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters MICA has not paid and does not presently intend to pay cash dividends on its Common Stock. Future dividends on the Common Stock will depend on business and financial conditions, earnings and other factors and are subject to declaration by MICA's Board of Directors at its discretion. Payment of dividends is also restricted by the terms of the Company's 1989 convertible subordinated debentures (see Note 9 to the consolidated financial statements). At March 19, 1996, MICA had approximately 3,000 beneficial owners of the Common Stock. Effective June 23, 1994, MICA's Common Stock was delisted for non-compliance with the capital requirements of the National Association of Securities Dealers, Inc. and is no longer included for quotation on the Nasdaq Stock Market's National Market (the "Nasdaq National Market"). The Common Stock is traded on the OTC Bulletin Board under the symbol "MIGA". The following table sets forth, for the periods indicated, the high and low bid prices of the Common Stock, as reported by the Nasdaq National Market and the OTC Bulletin Board, respectively, for the last two years. Information in this table has been adjusted to reflect the one-for-five reverse stock split effected in October 1995. These quotations represent prices between dealers and do not include retail markups, markdowns, commissions or other adjustments, and may not represent actual transactions.
1995 1994 Common Stock Common Stock ---------------------- ---------------------- Quarter High Low High Low - ------------------------------------------------------------------------------- 1st $5.00 $3.13 $4.38 $2.19 2nd 8.13 4.22 3.75 1.88 3rd 9.06 6.25 5.00 1.85 4th 8.25 5.94 5.00 3.44
Item 6. Selected Financial Data
Year ended December 31, ----------------------------------------------------------- (In thousands, except per share information) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------- SELECTED OPERATING DATA: Total revenues $ 46,537 $ 57,306 $ 68,797 $ 84,558 $ 88,079 Medical services revenues $ 43,192 $ 55,440 $ 65,786 $ 74,258 $ 73,926 Income (loss) before extraordinary gain $ 5,656 $ (1,810) $(29,613) $ (20,342) $(10,449) Extraordinary gain $ -- $ 1,316 $ -- $ -- $ -- Net income (loss) $ 5,656 $ (494) $(29,613) $ (20,342) $(10,449) Net income (loss) per share(1) Primary Income (loss) before extraordinary gain $ 2.19 $ (.75) $ (12.54) $ (8.62) $ (4.51) Extraordinary gain $ -- $ .55 $ -- $ -- $ -- Net income (loss) $ 2.19 $ (.20) $ (12.54) $ (8.62) $ (4.51) Fully diluted earnings per share $ 1.96 $ (.20) $ (12.54) $ (8.62) $ (4.51) Weighted average primary shares outstanding 2,585 2,426 2,361 2,360 2,316 Weighted average fully diluted shares outstanding 3,219 2,426 2,361 2,360 2,316 SELECTED BALANCE SHEET DATA: Cash $ 10,732 $ 8,524 $ 8,182 $ 4,862 $ 7,328 Working capital (deficit) $ 337 $ (1,728) $ 3,421 $ (673) $ 9,046 Total assets $ 39,648 $ 53,469 $ 65,697 $ 108,928 $125,567 Convertible debentures $ 5,400 $ 8,200 $ 11,000 $ 11,000 $ 11,000 Long-term debt and capital lease obligations $ 11,182 $ 25,206 $ 35,509 $ 45,120 $ 43,706 Shareholders' equity (net capital deficiency) $ 3,013 $ (2,861) $ (2,370) $ 27,243 $ 46,715
(1) The Company effected a one-for-five reverse stock split for shareholders of record on October 16, 1995. All per share data has been restated for all periods presented to give effect to the reverse stock split. 10 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL OPERATING TRENDS AND OUTLOOK Medical services revenues declined during 1995 primarily due to the Company's termination of unprofitable fee-for-service contracts and sales of underperforming assets used in the fee-for-service business. In view of the historical unprofitability and uncertainty regarding its fee-for-service business, the Company plans to sell equipment as related hospital contracts expire. As such, the Company believes that revenues from its fee-for-service business, which accounted for 39% of 1995 medical services revenues, will continue to decline. Revenues earned by the Company's DMCs in 1995 were negatively affected by declining reimbursement which is the direct result of cost containment efforts at the state and federal level as well as efforts by insurer and payor groups to reduce healthcare costs. MICA expects the decline in reimbursement trends to continue in the future. The Company's strategy is to offset the decline in reimbursement by securing managed care contracts and developing strategic alliances with hospitals and other healthcare providers to increase the utilization of its diagnostic imaging services. By positioning itself to take greater advantage of managed care contracts, thereby increasing the utilization of its services, management believes that it can maintain its DMC revenues. Although there can be no assurances, the Company believes that declining reimbursement trends can be offset with increased utilization so that such trends will not have a significant negative impact on the Company's operating results or its liquidity in the future. Management believes that the actions taken in 1995 to terminate unprofitable contracts, sell underperforming assets and renegotiate various maintenance and lease agreements have positioned the Company to continue to operate given the current reimbursement dynamics of the diagnostic imaging industry. Management believes that its cash on hand at yearend and cashflow from future operations will be sufficient to meet the Company's obligations as they come due. Although the Company cannot accurately anticipate the effect of inflation on its operations, it does not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on its net sales or results of operations. The foregoing statements include forward looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are those discussed in Item 1 above under the caption "Risk Factors and Certain Cautionary Statements." RESULTS OF OPERATIONS 1995 COMPARED TO 1994 REVENUES FROM MEDICAL SERVICES. Revenues from its DMCs declined $2 million from $28.3 million in 1994 to $26.3 million in 1995 primarily due to declining trends in both reimbursement and utilization. Revenues from its fee-for-service business declined $10.2 million from $27.1 million in 1994 to $16.9 million in 1995 primarily due to the Company's sale of underperforming assets and termination of certain unprofitable leases and contracts used in its fee-for-service business and the Company's sale of its Chicago- based ultrasound and nuclear medicine division (the "Division") in July 1995 which accounted for $2.5 million of the decline. As noted above, a number of factors exist that could have an impact on the Company's future revenues, including declining prices and an oversupply in the diagnostic equipment market, declining trends in reimbursement and competition in the healthcare industry. REVENUES FROM EQUIPMENT AND MEDICAL SUITE SALES. Revenues from equipment and medical suite sales increased from $1.9 million in 1994 to $3.3 million in 1995. The increase in sales is due to the quantity and type of equipment and medical suites sold and will vary accordingly. The Company intends to sell equipment and its remaining inventory of medical suites in the future, but such sales are subject to market conditions and there can be no assurances that such sales will or will not occur. COSTS OF MEDICAL SERVICES. Costs of medical services from its DMCs decreased from $18.2 million (33% of medical services revenues) in 1994 to $16.7 million (39% of medical services revenues) in 1995. Costs of medical services from its fee-for-service business decreased from $15.5 million (28% of medical services revenues) in 1994 to $8.7 million (20% of medical services revenues) in 1995 due to termination of leases and contracts, sales of fee-for-service equipment, the Company's sale of a Division in July 1995 which accounted for $1.5 million of the decrease in costs and actions taken by the Company to reduce spending. 11 12 COSTS OF EQUIPMENT AND MEDICAL SUITE SALES. Costs of equipment and medical suite sales increased from $1.7 million in 1994 to $2.8 million in 1995. The increase in costs is directly related to the quantity and type of equipment and medical suites sold and will vary accordingly. MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and administrative expenses decreased from $5.6 million (10% of medical services revenues) in 1994 to $2.8 million (6% of medical services revenues) in 1995. The decrease in costs resulted from reductions in administrative and other consulting personnel and other spending reductions, including severance paid in the fourth quarter of 1994. PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts decreased from $1.3 million (2% of medical services revenues) in 1994 to $1.1 million (2% of medical services revenues) in 1995 primarily due to a decrease in revenues and management's evaluation of accounts receivable. DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased from $12.6 million in 1994 to $10 million in 1995. This decrease was primarily due to the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business. The Company's sale of its Division in July 1995 accounted for $500,000 of the decrease in expense. INTEREST EXPENSE AND INCOME. Interest expense decreased from $5.3 million in 1994 to $3.6 million in 1995. The decrease in interest expense resulted from the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business, offset by a $450,000 charge to interest expense for the forfeiture of a warrant issued by the Company to a third party to purchase 300,000 shares of the Company's common stock. Interest income increased from $400,000 in 1994 to $500,000 in 1995. GAIN OF SALE OF ASSETS. On July 31, 1995, the Company'sold the assets (exclusive of accounts receivable) of its ultrasound and nuclear medicine division based in Chicago, Illinois to Diagnostic Health Services, Inc. for cash of $3.7 million and the assumption of certain liabilities for a total sale price of $5 million. The sale of assets consisted primarily of equipment and resulted in a net gain of $3.5 million to the Company. MINORITY INTEREST IN NET INCOME/LOSS OF CONSOLIDATED PARTNERSHIPS. Minority interest in the consolidated partnerships decreased from a $100,000 minority interest in net income in 1994 to a $200,000 minority interest in net loss in 1995. This decrease was primarily due to lower volume at two of the consolidated DMCs. INCOME TAXES. At December 31, 1995, the Company had net operating loss carryforwards of approximately $21.8 million for Federal income tax purposes. The Company provided Federal and state taxes of $180,000 in 1995. 1994 COMPARED TO 1993 REVENUES FROM MEDICAL SERVICES. Revenues from its DMCs declined $1.5 million from $29.8 million in 1993 to $28.3 million in 1994 primarily due to declining trends in both reimbursement and utilization. Revenues from its fee-for-service business declined $8.9 million from $36 million in 1993 to $27.1 million in 1994 primarily due to the Company's sale of underperforming assets and termination of certain unprofitable leases and contracts. As noted above, a number of factors exist that could have an impact on the Company's future revenues, including declining prices and an oversupply in the diagnostic equipment market, declining trends in reimbursement and competition in the healthcare industry. REVENUES FROM EQUIPMENT AND MEDICAL SUITE SALES. Revenues from equipment and medical suite sales decreased from $3 million in 1993 to $1.9 million in 1994. The decrease in sales is due to the quantity and type of equipment and medical suites sold and will vary accordingly. The Company intends to sell equipment and its remaining inventory of medical suites in the future, but such sales are subject to market conditions and there can be no assurances that such sales will or will not occur. 12 13 COSTS OF MEDICAL SERVICES. Costs of medical services from its DMCs decreased from $21.1 million (32% of medical services revenues) in 1993 to $18.2 million (33% of medical services revenues) in 1994. Costs of medical services from its fee-for-service business decreased from $21.7 million (33% of medical services revenues) in 1993 to $15.5 million (28% of medical services revenues) in 1994 due to termination of leases and contracts, sales of fee-for-service equipment and actions taken by the Company to reduce spending. COSTS OF EQUIPMENT AND MEDICAL SUITE SALES. Costs of equipment and medical suite sales decreased from $2.7 million in 1993 to $1.7 million in 1994. The decrease in costs is directly related to the quantity and type of equipment and medical suites sold and will vary accordingly. MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and administrative expenses decreased from $7.9 million (12% of medical services revenues) in 1993 to $5.6 million (10% of medical services revenues) in 1994. The decrease in costs resulted from reductions in administrative and marketing personnel and other spending reductions, offset by severance incurred in the fourth quarter of 1994 of $894,000 relating to the resignation of the Company's former Chief Executive Officer. PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts decreased from $2.6 million (4% of medical services revenues) in 1993 to $1.3 million (2% of medical services revenues) in 1994 due to a decrease in revenues and management's evaluation of accounts receivable. DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased from $13.9 million in 1993 to $12.6 million in 1994. This decrease was primarily due to the 1993 fourth quarter non-cash charge to write off goodwill related to prior years acquisitions and the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business. INTEREST EXPENSE AND INCOME. Interest expense decreased from $6.5 million in 1993 to $5.3 million in 1994. The decrease in interest expense resulted from the sale of underperforming assets and termination of certain unprofitable leases used in the fee-for-service business. Interest income decreased from $700,000 in 1993 to $400,000 in 1994. SPECIAL CHARGE. Operating results in 1993 included a non-cash charge of approximately $21.5 million to write off goodwill associated with prior years acquisitions and a non-cash charge of $2 million to increase reserves established to reflect uncertainty regarding the realization of certain other assets. There were no special charges recorded in 1994. MINORITY INTEREST IN NET INCOME/LOSS OF CONSOLIDATED PARTNERSHIPS. Minority interest in the consolidated partnerships increased from a $200,000 minority interest in net loss in 1993 to a $100,000 minority interest in net income in 1994 due to improved performance of certain DMCs with significant minority ownership. INCOME TAXES. At December 31, 1994, the Company had net operating loss carryforwards of approximately $30.9 million for Federal income tax purposes. The Company provided no income tax expense in 1994. EXTRAORDINARY GAIN. The Company financed an equipment acquisition for one of its managed DMCs. The operations of the DMC were unsuccessful and foreclosure proceedings were initiated by the lender. In mitigation of damages, the underlying lender arranged for the sale of the unit which resulted in the forgiveness of MICA's indebtedness. In the third quarter of 1994, the Company recorded a non-cash gain of $1.3 million resulting from the forgiveness of debt related to certain MRI equipment. 13 14 LIQUIDITY AND CAPITAL RESOURCES At year end, the Company's cash and cash equivalents totaled $10.7 million, which is an increase of $2.2 million over 1994. In addition, the Company's working capital improved to $337,000 as compared to a working capital deficit of $1.7 million in 1994. Cash flows from operations of $15.4 million and proceeds from the sale of Division assets of $3.7 million were offset by payments against long-term debt of $15.9 million and capital expenditures of $1.3 million. In January 1996 the Company repaid a $3.1 million promissory note. The Company paid $1,425,000 cash and applied $912,000 in proceeds received from the exercise of a warrant attached to the note to purchase 160,000 shares of MICA's Common Stock as payment in full to retire the note. In connection with this transaction the Company issued an additional warrant to purchase 60,000 shares of the Company's Common Stock at an exercise price of $8.50 per share which expires on December 31, 1998. The Company recorded a gain of $517,000 from the settlement of this obligation in January 1996 which was net of the $200,000 value assigned to the warrant. Management believes that the actions taken in 1995 to terminate unprofitable contracts, sell underperforming assets and renegotiate various maintenance and lease agreements have positioned the Company to continue to operate given the current reimbursement dynamics of the diagnostic imaging industry. Management believes that its cash on hand at yearend and cashflow from future operations will be sufficient to meet the Company's obligations as they come due. Under the terms of the Company's convertible debenture agreement, the Company must offer to prepay all of the outstanding debentures ($8.2 million at December 31, 1995) in the event of a change in control. In the event of a "change in control," in which the Company were required to prepay all of the debentures, the Company could be required to use all of its current cash balances to repay the obligation (see Note 2 to the consolidated financial statements). On March 19, 1996, the Company and Steel Partners II, L.P. ("Steel") entered into an Agreement of Compromise and Settlement (the "Settlement Agreement") (see Note 2 to the consolidated financial statements). Total expenditures related to the Settlement Agreement and related proxy solicitation, including the fees and expenses of the Company's attorneys, financial advisors, public relations firm and proxy solicitors, excluding salaries and wages of its officers and employees and including the amounts reimbursed to Steel, will be approximately $1,325,000, and will be recorded as a charge to operations in the first quarter of 1996. No amounts have been reflected in the financial statements as of December 31, 1995 with regard to the Company's Settlement Agreement and proxy solicitation. The Company's ability to meet its current obligations is dependent on its ability to maintain revenues from existing contracts while reducing costs. In addition, a number of factors exist that could have an impact on the Company s future revenues: (i) changes in healthcare legislation which has limited reimbursement and prohibited referrals from physician investors; (ii) healthcare initiatives which could reduce reimbursement to the Company; (iii) competition in the healthcare industry; and (iv) declining prices and an oversupply in the diagnostic equipment market. During 1993, the Company recognized significant special charges related to its write-off of goodwill and the establishment of reserves for uncollectible accounts and certain assets carried on the books at greater than their net realizable value. These charges were substantially non-cash and therefore did not have a significant impact on the Company's liquidity (see Note 14 to the consolidated financial statements). Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and supplementary data of the Company required by this item are set forth at the pages indicated in Item 14 (a) (1). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 14 15 PART III Item 10. Directors and Executive Officers of the Registrant The Board of Directors. Directors serve for a term of one year and until their successors are duly elected and qualified. The Company's Bylaws currently provide for a Board of not less than five members nor more than nine members, with the exact number of directors fixed from time to time by the Board. The Board has fixed the number of directors at five with one Board position currently vacant. During the fiscal year ended December 31, 1995, the Company's Board of Directors held eight meetings. Each director attended at least 75% of all Board meetings during such periods as he was a Board member. Set forth below are the directors of the Company.
Year First Elected Name Age Position To Serve - ---------------------- --- ---------------------------- ---------- Robert S. Muehlberg 41 Chairman of the Board, 1994 President, Chief Executive Officer and Director Denise L. Sunseri 37 Vice President, Chief 1995 Financial Officer, Secretary and Director Keith R. Burnett, M.D. 43 Director 1993 Robert G. Ricci, D.O. 61 Director 1995
Robert S. Muehlberg, 41, a Director since 1994, has been Chief Executive Officer and Chairman of the Board of Directors of the Company'since February 1995, and also holds the position of President/Chief Operating Officer. Mr. Muehlberg has also held the positions of Executive Vice President, Senior Vice President and Vice President, Operations since joining the Company in February 1985. Prior to joining the Company, Mr. Muehlberg was Operations Manager at International Imaging, Inc., a provider of mobile and free-standing diagnostic imaging centers, from 1983 to 1985, and Area Manager for AMI/DSI, a provider of mobile diagnostic imaging services, from 1980 to 1983. Mr. Muehlberg holds a Bachelor s degree in Health Science from the University of Missouri and a Master s degree in Business Administration from Nova Southeastern University. Mr. Muehlberg is currently a member of the International Forum for Corporate Directors, an organization dedicated to responsible corporate governance. Denise L. Sunseri, 37, a Director since 1995, has been Chief Financial Officer and Secretary of the Company'since June 1993. She served as Vice President and Corporate Controller from December 1991 to June 1993 and joined the Company as Director of Financial Reporting in 1989. Prior to joining the Company, Ms. Sunseri held various positions between 1981 and 1989 in the Auditing and Financial Services division of the accounting firm of Arthur Andersen & Co. Ms. Sunseri is a CPA and holds a Bachelor s degree in Business Administration from the University of Portland. Ms. Sunseri is currently a member of the International Forum for Corporate Directors, an organization dedicated to responsible corporate governance. Keith R. Burnett, M.D., 43, a Director since 1993, has been the Medical Director of four of the Company's medical centers: Long Beach Medical Imaging Clinic since 1985; Medical Imaging Center of Huntington Beach since 1988; Laguna Niguel MRI Center since 1992; and Downey MRI Center since 1994. He also has been Medical Director 15 16 of Medical Imaging Services, a California network of imaging services, since 1992. Dr. Burnett has been an Assistant Clinical Professor of Radiology at the University of California at Irvine since 1985 and a consultant in Nuclear Medicine, Veterans Medical Center since 1988. He is Chairman of the Examination Committee of the Registry of Magnetic Resonance Technologists (RMRIT) and a member of the Advisory Council on MRI and Chiropractic Research at the Los Angeles College of Chiropractic. Dr. Burnett received his Bachelor of Arts degree in Human Biology from Stanford University in 1974 and his Doctor of Medicine degree from Creighton University in 1978. Dr. Burnett is board certified in Radiology and Nuclear Medicine and a Diplomate of the American Board of Radiology. Robert G. Ricci, D.O., 61, a Director since 1995, has been Director of Medical Affairs and Education at Park Lane Medical Center, Kansas City, Missouri, since 1992. He was President of Medical Imaging, Inc., Kansas City, Missouri, a radiology practice, from 1974 through November 1, 1995. Dr. Ricci currently serves on the Board of Directors for the following private companies: Park Lane Medical Center, Preferred Health Professionals and Health Midwest. He served as Program Chairman of the Missouri Association of Osteopathic Physicians, as well as Program Chairman of the American Osteopathic College of Radiology, in 1995. Dr. Ricci attended Temple University in Philadelphia and received his Doctor of Osteopathy from the University of Health Sciences of Osteopathic Medicine in 1968. Dr. Ricci is board certified in Radiology and is a Fellow of the American Osteopathic College of Radiology. Resignation of Director. On January 11, 1996, E. Keene Wolcott resigned from the Board of Directors of the Company citing his opposition to recently filed litigation against Steel and the timing of the commencement of such litigation, as well as Mr. Wolcott's opposition to poison pills. See "Legal Proceedings" for a description of the litigation against Steel. On January 12, 1996, the Company responded to Mr. Wolcott's resignation citing the unanimous support among each of the Company's other directors, financial advisors and legal counsel regarding the commencement of such litigation. Both letters were subsequently filed by the Company with the SEC on January 16, 1996 as attachments to a Report on Form 8-K. Executive Officers. The executive officers of the Company, together with the year in which they were appointed to their current positions, are set forth below.
Name Age Position Year - -------------------- --- -------------------------------- ---- Robert S. Muehlberg 41 Chairman of the Board, President 1995 and Chief Executive Officer Denise L. Sunseri 37 Vice President, Chief Financial 1993 Officer and Secretary
Information concerning Mr. Muehlberg and Ms. Sunseri is set forth above under "The Board of Directors." Director and Officer Security Reports. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and officers and persons who own more than ten percent of the Company's Common Stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish the Company with copies of all reports they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during its 1995 fiscal year all filing requirements applicable to its officers, directors and greater than ten percent shareholders were complied with. 16 17 Item 11. Executive Compensation Summary Compensation Table. The following table provides information on compensation paid by the Company to the Company's Chief Executive Officer and the Company's only other executive officer who served the Company during 1995 for services provided for the three fiscal years ended December 31, 1995.
Long-Term Annual Compensation All Other Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($) - --------------------------- ---- ---------- --------- ------------ ---------------- Robert S. Muehlberg 1995 167,200 50,000 45,000 5,207(1) Chairman of the Board, 1994 148,450 25,000 40,000 5,612(1) President and Chief 1993 148,628 20,000 12,000 6,255(1) Executive Officer Denise L. Sunseri 1995 142,200 50,000 45,000 4,271(2) Vice President, Chief 1994 142,200 25,000 20,000 5,882(2) Financial Officer and Secretary 1993 135,385 15,000 12,000 5,498(2) - ------------------
(1) The amounts disclosed in this column include payments under the Company's medical reimbursement policy of $483 for 1995, $1,036 for 1994 and $2,474 for 1993; the Company's matching 401(k) employer contribution of $3,527 for 1995, $3,469 for 1994 and $2,752 for 1993; and $1,197 for 1995, $1,107 for 1994 and $1,029 for 1993 in premiums for a personal long-term disability policy. (2) The amounts disclosed in this column include payments under the Company's medical reimbursement policy of $520 for 1995, $1,699 for 1994 and $1,706 for 1993; the Company's matching 401(k) employer contribution of $2,849 for 1995, $3,344 for 1994 and $3,008 for 1993; and $902 for 1995, $839 for 1994 and $784 for 1993 in premiums for a personal long-term disability policy. Option Grants in Last Fiscal Year. The following table provides information on option grants in fiscal 1995 to the executive officers named in the Summary Compensation Table:
Potential Realizable Percent of Value at Assumed Number of Total Annual Rates of Securities Options Stock Price Underlying Granted to Appreciation for Options Employees Exercise Option Term(1) Granted in Fiscal Price Expiration -------------------- Name (#) Year(%) ($) Date 5% ($) 10% ($) - ------------------- ---------- ---------- -------- ---------- ------ -------- Robert S. Muehlberg 25,000(2) 21 7.81 12/13/00 53,975 119,225 20,000(3) 16 7.81 12/13/00 43,180 95,380 Denise L. Sunseri 25,000(2) 21 7.81 12/13/00 53,975 119,225 20,000(3) 16 7.81 12/13/00 43,180 95,380 - ------------------
(1) Potential realizable value is based on an assumption that the price of the Common Stock appreciates above the exercise price at the annual rate shown (compounded annually) from the date of grant until the end of the five-year option term. These numbers are calculated based on the requirements promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price growth. (2) Options were granted December 15, 1995 and are immediately exercisable. (3) Options were granted December 15, 1995 and were exercisable upon the Company meeting certain 1996 performance goals. On March 15, 1996 the Compensation Committee determined that in order to provide incentive during the Auction Process these options would be excerciseable immediately (see Note 2 to the consolidated financial statements). 17 18 Option Exercises and Fiscal Yearend Values. None of the named executive officers exercised any stock options during fiscal 1995. The following table provides information on the value of such executive officers' unexercised options at December 31, 1995.
Number of Securities Underlying Value of Unexercised Unexercised Options In-the-Money Options Shares at Fiscal Year-End at Fiscal Year-End Acquired Value ------------------------------- ---------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------- ----------- -------- ----------- -------------- ----------- ------------- Robert S. Muehlberg - - 61,333 45,667 $145,592 $149,848 Denise L. Sunseri - - 52,333 30,667 $116,092 $ 61,348
EXECUTIVE OFFICER AGREEMENTS. As an incentive for their continued efforts on behalf of the Company, the Company has entered into employment contracts with the Company's chief executive officer and chief financial officer which provide that they will be paid the equivalent of one year's salary and employee benefits in the event that their employment by the Company is involuntarily terminated or if there is a change in control of the Company and they should elect not to remain employed after such change in control. A change in control, as defined in such employment contracts, means (i) the entering into by the Company or its shareholders of an agreement to dispose of, by sale, exchange, merger, reorganization, dissolution or liquidation, either 80% or more of the assets of the Company or a portion of the outstanding Common Stock such that one person or group beneficially owns 25% or more of the outstanding Common Stock, (ii) the issuance by the Company to one person or group sufficient shares of Common Stock to increase such person's or group's ownership to 25% or more of the outstanding Common Stock, or (iii) a change in the composition of the Board of Directors such that the individuals who constituted the Board as of the date of the employment contracts (the "Incumbent Board") or individuals who become members of the Board of Directors subsequent to the date of the employment contracts and whose nominations to the Board are approved by a vote of at least a majority of those members of the Board of Directors who were members of the Incumbent Board (or whose nominations were approved by the Incumbent Board) cease to constitute at least a majority of the Board. The Company and the Company's chief executive officer and chief financial officer amended and restated the employment contracts in January 1996 to include clause (iii) above in the definition of "change in control." Pursuant to the terms of the Settlement Agreement, the Company and the Company's chief executive officer and chief financial officer amended the employment contracts on March 19, 1996 to provide that the Company's inability to meet the deadlines set forth in the Settlement Agreement with respect to a sale or merger transaction shall constitute an "involuntary termination" under the employment contracts. For a more detailed description of the Settlement Agreement, see "Legal Proceedings." TAX DEFERRED RETIREMENT PLAN. The Company instituted a tax deferred retirement plan (the "TDRP") under Section 401(k) of the Internal Revenue Code for the benefit of all domestic employees in October 1989. Under the TDRP, an employee may defer up to 10% of pre-tax earnings, subject to a maximum deferral established each year, and contribute it to a trusteed plan. The Company will match 50% of an employee's contribution to a maximum of 6% of gross pay. All regular employees working over 1,000 hours per year who have completed six months employment are eligible to enroll during the months of March, June, September and December. The Company's matching benefits vest over a five year period. Benefits under the TDRP are payable on retirement, hardship, death of the employee or termination of employment. Approximately 245 employees, including officers, are eligible to participate in the TDRP, and 179 are presently enrolled. During 1995, the Company contributed $118,339 to match employee contributions, including $6,376 for all named executive officers as a group. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During fiscal 1995, the Compensation/Stock Option Committee of the Company's Board of Directors initially consisted of Messrs. Burnett (Chairman), Wolcott and Robert A. Prosek, who did not stand for reelection at the Annual Meeting of Shareholders in August 1995. In July 1995 and for the remainder of the fiscal year, the Committee was changed to consist of Messrs. Burnett (Chairman), Wolcott and Ricci. 18 19 Dr. Keith R. Burnett, a director of the Company, is a principal and officer of Magnetic Imaging Medical Group ("MIMG"), which provides radiology and other medical services for the Company's Diagnostic Medical Centers located in Long Beach, Huntington Beach, Laguna Niguel and Downey, California. MIMG is a Co-General Partner of the center in Long Beach. Dr. Burnett serves as the Medical Director for the facilities in Huntington Beach and Laguna Niguel. The Management, Licensing and Facilities Agreements between the respective Centers and MIMG ("Agreements") provide that MICA will receive for services rendered: 77.5% of the revenues collected at Long Beach Medical Imaging Clinic, 80% of the revenues collected at Medical Imaging Center of Huntington Beach and Laguna Niguel MRI Center, and 82% at Downey MRI Center. Pursuant to the Agreements, the balance of the amounts collected is retained by MIMG as their fee. In 1995, the Company's share of revenues collected from the four centers was $1,669,000, $1,748,000, $783,000 and $834,000, respectively; MIMG's share of the revenues collected was $452,000, $413,000, $169,000 and $208,000, respectively (see "Certain Relationships and Related Transactions" and Note 16 to the consolidated financial statements). DIRECTORS COMPENSATION. Directors, except those who are also officers of the Company, are granted warrants at the discretion of the Company's Compensation/Stock Option Committee for their services as directors, are paid $3,000 for each meeting attended and are reimbursed for out-of-pocket expenses of attending meetings. Messrs. Burnett and Ricci received 37,000 and 32,000 warrants, respectively, for such services over the course of their tenures as directors. The Chairpersons of the Compensation/Stock Option Committee and Audit Committee receive an additional $2,000 and $4,000 per year, respectively. 19 20 Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 19, 1996, the following shareholders are the only shareholders who are known by the Company to be beneficial owners of more than five percent (5%) of the Company's voting securities.
Amount and Nature of Name and Address Beneficial Percentage of of Beneficial Owner Ownership(1) Common Stock ------------------- ------------ ------------- Steel Partners 527,682(2) 19.8% 750 Lexington Avenue, 27th Floor New York, NY 10022 Metropolitan Life Insurance Co. 372,727(3) 12.2%(3) One Madison Avenue New York, NY 10010 General Electric Company 220,000(4) 8.1%(4) 20825 Swenson, Suite 100 Waukesha, WI 53186
- -------------------- (1) For purposes of this table, a person is deemed to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after March 19, 1996. (2) The information in the table is taken from a joint filing with the SEC on Schedule 13D (Amendment No. 15) made by Steel, Steel Partners Services, Ltd., a New York corporation ("Steel Services"), Warren G. Lichtenstein and Lawrence Butler as of March 19, 1996 reporting beneficial ownership. The amount includes 422,658 shares of Common Stock beneficially owned by Steel and 105,024 shares of Common Stock beneficially owned by Steel Services. Steel Services acquired the 105,024 shares beneficially owned by it for the account of Quota Fund N.V., a Netherlands Antilles investment corporation ("Quota"). Quota granted investment discretion to Soros Fund Management ("SFM"), which in turn granted investment discretion to Steel Services. SFM is a sole proprietorship of which George Soros is the sole proprietor. In Amendment 15, both Mr. Lichtenstein and Mr. Butler state that they beneficially own 527,682 shares of the Company's Common Stock, the total number of shares held by Steel and Steel Services combined. (3) Metropolitan Life Insurance Company holds $5.6 million in principal amount of the Company's Convertible Debentures due April 1999. Such Debentures bear interest at the rate of 6% per annum and are convertible at any time into one share of Common Stock for each $15.00 of principal amount of Debenture. The amount and percentage of Common Stock in the table represents beneficial ownership as if the Debentures had been converted to Common Stock. (4) On January 16, 1996, General Electric Company exercised previously outstanding warrants to purchase 160,000 shares of Common Stock at $5.70 per share in connection with the repayment by the Company of certain outstanding loans. The amount and percentage in the table includes presently exercisable warrants to purchase 60,000 shares of Common Stock at $8.50 per share (see Note 3 to the consolidated financial statements). 20 21 Set forth below are names and beneficial shareholdings, as of March 19, 1996 of (i) the Directors of the Company, (ii) each executive officer named in the Summary Compensation Table appearing herein, and (iii) all executive officers and directors as a group.
Amount and Nature of Percent of Beneficial Common Name Ownership (1) Stock ---- ------------- ---------- Robert S. Muehlberg 108,333(2) 4% Denise L. Sunseri 97,333(3) 4% Keith R. Burnett, M.D. 37,654(4) 1% Robert G. Ricci, D.O. 32,000(5) 1% All Executive Officers and Directors as a Group (4 persons) 275,320(6) 10%
-------------------- (1) For purposes of this table, a person is deemed to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after March 19, 1996. (2) Includes presently exercisable options to purchase 101,333 shares of Common Stock at $2.35 to $21.90 per share, issued for service as an officer and employee. (3) Includes presently exercisable options to purchase 76,000 shares of Common Stock at $3.13 to $21.90 per share, issued for service as an officer and employee. (4) Includes presently exercisable warrants to purchase 37,000 shares of Common Stock at $4.05 to $7.81 per share, issued for service as a director. (5) Includes presently exercisable warrants to purchase 32,000 shares of Common Stock at $7.50 to $7.81 per share, issued for service as a director. (6) Includes presently exercisable options and warrants to purchase 246,333 shares of Common Stock at various prices, as described in the footnotes above. CHANGE IN CONTROL. The Settlement Agreement provides that if the Company is unable to meet certain deadlines in connection with a sale or merger transaction, the individuals who are members of the Board of Directors will resign and will cause such members to be replaced with designees of Steel, or, if requested by Steel, the Company will promptly call the annual meeting of shareholders for the purpose of electing the Board of Directors of the Company. See "Legal Proceedings" for a more detailed description of the Settlement Agreement. Item 13. Certain Relationships and Related Transactions Dr. Keith R. Burnett, a director of the Company, is a principal and officer of Magnetic Imaging Medical Group ("MIMG"), which provides radiology and other medical services for the Company's Diagnostic Medical Centers located in Long Beach, Huntington Beach, Laguna Niguel and Downey, California. MIMG is a Co-General Partner of the center in Long Beach. Dr. Burnett serves as the Medical Director for the facilities in Huntington Beach and Laguna Niguel. The Management, Licensing and Facilities Agreements between the respective Centers and MIMG ("Agreements") provide that MICA will receive for services rendered: 77.5% of the revenues collected at Long Beach Medical Imaging Clinic, 80% of the revenues collected at Medical Imaging Center of Huntington Beach and Laguna Niguel MRI Center, and 82% at Downey MRI Center. Pursuant to the Agreements, the balance of the amounts collected is retained by MIMG as their fee. In 1995, the Company's share of revenues collected from the four centers was $1,669,000, $1,748,000, $783,000 and $834,000, respectively; MIMG's share of the revenues collected was $452,000, $413,000, $169,000 and $208,000, respectively. 21 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements. The consolidated financial statements required by this item are submitted as part of this Annual Report in a separate section beginning on Page F-1 of this report.
Consolidated Financial Statements of Medical Imaging Centers of America, Inc. Page ------------------------------------------------------------------------------------------------ Report of Ernst & Young LLP, Independent Auditors F-1 Consolidated Balance Sheets at December 31, 1995 and 1994 F-2 Consolidated Statements of Operations for the three years ended December 31, 1995 F-3 Consolidated Statements of Shareholders Equity (Net Capital Deficiency) for the three years ended December 31, 1995 F-4 Consolidated Statements of Cash Flows for the three years ended December 31, 1995 F-5 Notes to Consolidated Financial Statements F-7
(a) (2) Financial Statement Schedules. The following financial statement schedules of Registrant are filed with this report: Schedule VIII - Valuation and Qualifying Accounts F-16 (b) Reports on Form 8-K. There were no reports on Form 8-K filed by the Registrant during the fourth quarter of the fiscal year ended December 31, 1995. (c) Exhibits. The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report. 22 23 INDEX TO EXHIBITS
Sequentially Numbered Number Description Page - ---------------------------------------------------------------------------------------------------------- 3.1 I Restated Articles of Incorporation 3.2 Bylaws as Amended 4.1 II Trust Indenture, Debenture due April 1999 4.2 II Debenture due April 1999 4.3 IV Rights Agreement dated October 2, 1991 4.4 First Amendment to Rights Agreement dated January 23, 1996 4.5 Second Amendment to Rights Agreement dated March 1, 1996 4.6 Third Amendment to Rights Agreement dated March 7, 1996 4.7 Fourth Amendment to Rights Agreement dated March 11, 1996 4.8 V Amendments to Trust Indenture dated April 1993 and February 1994 10.1 III 1985 Employee Incentive Stock Option Plan 10.2 1994 Incentive Stock Option Plan 10.3 V General Electric Loan Restructuring Agreement dated May 14, 1993 10.4 General Electric Agreement and Amendment dated January 16, 1996 10.5 VI Severance Agreement with Antone J. Lazos dated February 9, 1995 10.6 Employment Agreement with Robert S. Muehlberg dated January 30, 1996 as Amended 10.7 Employment Agreement with Denise L. Sunseri dated January 30, 1996 as Amended 10.8 Management, Licensing and Facilities Agreement for Company's Huntington Beach Medical Imaging Center as Amended 10.9 Management, Licensing and Facilities Agreement for Company's Laguna Niguel Medical Center as Amended 10.10 Management, Licensing and Facilities Agreement for Company's Long Beach Medical Imaging Center as Amended 10.11 Management, Licensing and Facilities Agreement for Company's Downey MRI Center as Amended 10.12 Agreement of Compromise and Settlement dated March 19, 1996 10.13 Standstill Agreement dated March 19, 1996 11.1 Earnings Per Share Computation 17.1 VII Letter from E. Keene Wolcott to the Company dated January 11, 1996 17.2 VII Letter from the Company to E. Keene Wolcott dated January 12, 1996 21 Subsidiaries List 23 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule
23 24 INDEX TO EXHIBITS, continued I Indicates the exhibit is incorporated by reference from Registrant's Form S-1 Registration Statement (Reg. No. 33-15160) filed June 18, 1987. II Indicates the exhibit is incorporated by reference from Registrant's Form 8-K Report dated May 10, 1989. III Indicates the exhibit is incorporated by reference from Registrant's Form S-8 Registration Statement (Reg. No. 33-29917) filed on July 12, 1989. IV Indicates the exhibit is incorporated by reference from Registrant's Form 8-A Registration Statement dated October 15, 1991. V Indicates the exhibit is incorporated by reference from Registrant's Form 10-K Report for the year ended December 31, 1993. VI Indicates the exhibit is incorporated by reference from Registrant's Form 10-K Report for the year ended December 31, 1994. VII Indicates the exhibit is incorporated by reference from Registrant's current Report on Form 8-K filed January 16, 1996. The financial statements listed in the accompanying Index to Financial Statements are filed as a part of this Form 10-K. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 27, 1996 MEDICAL IMAGING CENTERS OF AMERICA, INC. By: /s/ Robert S. Muehlberg ------------------------------------------- Robert S. Muehlberg, Chairman of the Board, President and Chief Executive Officer 25 26 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- By: /s/ Robert S. Muehlberg Chairman of the Board of Directors, March 27, 1996 ----------------------- President and Chief Executive Robert S. Muehlberg Officer (Principal Executive Officer) By: /s/ Denise L. Sunseri Vice President, Chief March 27, 1996 --------------------- Financial Officer, Denise L. Sunseri Secretary (Principal Financial and Accounting Officer) and Director By: /s/ Keith R. Burnett, M.D. Director March 27, 1996 -------------------------- Keith R. Burnett, M.D. By: /s/ Robert G. Ricci, D.O. Director March 27, 1996 --------------------------- Robert G. Ricci, D.O.
26 27 Report of Ernst and Young LLP, Independent Auditors The Board of Directors and Shareholders Medical Imaging Centers of America, Inc. We have audited the accompanying consolidated balance sheets of Medical Imaging Centers of America, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity (net capital deficiency) and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medical Imaging Centers of America, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California February 2, 1996, except for Note 2 as to which the date is March 19, 1996 F-1 28 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS
December 31, -------------------------- (in thousands except share information) 1995 1994 - ---------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents (includes restricted cash of $422 in 1995 and $655 in 1994) $ 10,732 $ 8,524 Trade and notes receivable, net 7,711 9,524 Prepaid expenses and other current assets 725 1,550 -------------------------- Total current assets 19,168 19,598 Equipment and leasehold improvements, net 16,274 29,216 Equipment held for sale, net 800 400 Investment in and advances to unconsolidated entities, net 1,489 2,069 Intangible assets, net 1,087 1,269 Other assets 830 917 -------------------------- $ 39,648 $ 53,469 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY): Current liabilities: Current portion long-term debt and capital lease obligations $ 11,161 $ 11,541 Current portion convertible subordinated debt 2,800 2,800 Accounts payable 1,107 2,062 Accrued compensation 697 1,493 Other accrued liabilities 3,066 3,430 -------------------------- Total current liabilities 18,831 21,326 Long-term debt and capital lease obligations 11,182 25,206 Minority interest in consolidated partnerships 1,222 1,598 Convertible subordinated debt 5,400 8,200 Commitments Shareholders' equity (net capital deficiency): Preferred stock, no par value, 5,000,000 shares authorized; Series B preferred shares, no par value, 300,000 shares authorized, no shares issued or outstanding --- --- Common stock, no par value, 30,000,000 shares authorized; 2,479,460 and 2,426,645 shares issued and outstanding at December 31, 1995 and 1994, respectively 54,691 54,473 Accumulated deficit (51,678) (57,334) -------------------------- Total Shareholders' equity (net capital deficiency) 3,013 (2,861) -------------------------- $ 39,648 $ 53,469 ==========================
See accompanying notes. F-2 29 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------ (in thousands except per share information) 1995 1994 1993 - ----------------------------------------------------------------------------------------- REVENUES: Medical services $43,192 $55,440 $ 65,786 Equipment and medical suite sales 3,345 1,866 3,011 ------- ------- -------- Total revenues 46,537 57,306 68,797 COSTS AND EXPENSES: Costs of medical services 25,387 33,693 42,786 Costs of equipment and medical suite sales 2,846 1,749 2,664 Marketing, general and administrative 2,773 5,550 7,872 Provision for doubtful accounts 1,059 1,343 2,643 Depreciation and amortization of equipment and leasehold improvements 9,471 12,221 12,672 Amortization of intangibles and deferred costs 490 366 1,190 Equity in net income of unconsolidated entities (674) (708) (531) Interest expense 3,557 5,258 6,459 Interest income (534) (454) (657) Special charge -- -- 23,490 Gain on sale of assets (3,460) -- -- ------- ------- -------- Total costs and expenses 40,915 59,018 98,588 ------- ------- -------- Income (loss) before minority interest, income taxes and extraordinary gain 5,622 (1,712) (29,791) Minority interest in net (income) loss of consolidated partnerships 214 (98) 178 ------- ------- -------- Income (loss) before income taxes and extraordinary gain 5,836 (1,810) (29,613) Income tax provision 180 -- -- ------- ------- -------- Income (loss) before extraordinary gain 5,656 (1,810) (29,613) Extraordinary gain -- 1,316 -- ------- ------- -------- Net income (loss) $ 5,656 $ (494) $(29,613) ======= ======= ======== PRIMARY EARNINGS PER SHARE: Income (loss) before extraordinary gain $ 2.19 $ (.75) $ (12.54) Extraordinary gain $ -- $ .55 $ -- ------- ------- -------- Net income (loss) $ 2.19 $ (.20) $ (12.54) ======= ======= ======== FULLY DILUTED EARNINGS PER SHARE: Net income (loss) $ 1.96 $ (.20) $ (12.54) ======= ======= ======== SHARES USED IN PER SHARE AMOUNTS: Primary 2,585 2,426 2,361 ======= ======= ======== Fully Diluted 3,219 2,426 2,361 ======= ======= ========
See accompanying notes. F-3 30 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Common Shares ------------------------------------------ Issued and Outstanding Issuable ---------------------- ----------------- Accumulated (in thousands except per share information) Shares Amount Shares Amount Deficit --------- -------- ------ ------ ----------- Balance at December 31, 1992 2,361,085 $ 53,670 64,894 $ 800 $(27,227) 1993 Net loss -- -- -- -- (29,613) --------- -------- ------ ----- -------- Balance at December 31, 1993 2,361,085 53,670 64,894 800 (56,840) 1994 Stock options exercised 666 3 -- -- -- Litigation settlement - common shares issued 64,894 800 (64,894) (800) -- Net loss -- -- -- -- (494) --------- -------- ------ ----- -------- Balance at December 31, 1994 2,426,645 54,473 -- -- $(57,334) 1995 Stock options exercised 53,000 219 -- -- -- Cash paid for fractional shares resulting from one-for-five reverse stock split (185) (1) -- -- -- Net income -- -- -- -- 5,656 --------- -------- ------ ----- -------- Balance at December 31, 1995 2,479,460 $ 54,691 -- $ -- $(51,678) ========= ======== ====== ===== ========
See accompanying notes. F-4 31 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------- (in thousands) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ 5,656 $ (494) $(29,613) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 9,961 12,587 13,862 Amortization of deferred financing costs 97 135 135 Provision for doubtful accounts 1,059 1,343 2,643 Equity in net income of unconsolidated entities, net of distributions -- (430) (260) Minority interest in net income (loss) of consolidated partnerships (214) 98 (178) Net value of equipment sold 2,826 1,404 4,700 Gain on sale of Division assets (3,460) -- -- Extraordinary gain -- (1,316) -- Special charge -- -- 23,490 Change in assets and liabilities: Decrease (increase) in trade receivables 1,081 1,937 (1,210) Decrease in prepaid expenses and other current assets 823 346 1,125 Decrease in accounts payable and other accrued liabilities (1,623) (634) (2,180) Decrease in accrued compensation (796) (61) (913) Decrease in other -- -- 494 -------- -------- -------- Net cash provided by operating activities 15,410 14,915 12,095 INVESTING ACTIVITIES: Proceeds from sale of Division assets 3,746 -- -- Capital expenditures (1,282) (3,065) (3,286) Decrease in notes receivable -- 200 114 Decrease in investment in and advances to unconsolidated entities, net 475 368 197 Acquisitions, net of cash (312) (657) -- Proceeds from the sale of long-term investments -- -- 2,750 Other, net (1) 80 387 -------- -------- -------- Net cash provided by (used in) investing activities 2,626 (3,074) 162 FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (15,901) (11,904) (15,510) Proceeds from the issuance of long-term debt -- 1,123 7,089 Distribution to minority interests (151) (590) (459) Other, net 224 (128) (57) -------- -------- -------- Net cash used in financing activities (15,828) (11,499) (8,937) -------- -------- -------- Net increase in cash and cash equivalents 2,208 342 3,320 Cash and cash equivalents at beginning of year 8,524 8,182 4,862 -------- -------- -------- Cash and cash equivalents at end of year $ 10,732 $ 8,524 $ 8,182 ======== ======== ========
See accompanying notes. F-5 32 MEDICAL IMAGING CENTERS OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31, ---------------------------------------- (in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW DATA: Interest paid $3,488 $5,123 $5,918 ====== ====== ====== Income taxes paid $ 180 $ 67 $ 88 ====== ====== ====== SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: Additions to capital lease obligations $1,274 $8,545 $7,481 ====== ====== ====== Retirement of debt and termination of capital lease obligations in exchange for equipment $1,570 $7,075 $7,655 ====== ====== ====== Assignment of debt related to sale of Division assets $1,047 $ -- $ -- ====== ====== ====== Acquisitions: Fair value of assets acquired, other than cash $ 11 $ 266 $ -- Excess of purchase price over fair value 301 875 -- Notes assumed -- (484) -- ------ ------ ------ Acquisitions, net of cash $ 312 $ 657 $ -- ====== ====== ======
See accompanying notes. F-6 33 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Medical Imaging Centers of America, Inc. ("MICA" or the "Company") is a California corporation which provides medical diagnostic imaging services to physicians, managed care providers and hospitals nationwide. These services are provided to patients under DMC arrangements and to hospitals primarily under fee-for-service arrangements which account for approximately 61% and 39%, respectively, of medical services revenues. PRINCIPLES OF CONSOLIDATION - The accompanying financial statements consolidate the accounts of the Company, its wholly-owned subsidiaries, and certain majority controlled Diagnostic Medical Centers ("DMCs"). Investments in DMCs for which the Company does not have a controlling majority ownership are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. REVENUES - Revenue is recognized when services are provided through DMCs, fee-for-service arrangements with hospitals and management agreements with unconsolidated and managed DMCs. CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to be those instruments with original maturities of three months or less. At December 31, 1995 and 1994, cash restricted for use in DMC operations was $422,000 and $655,000, respectively. NET INCOME (LOSS) PER SHARE - Net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and common share equivalents and convertible debentures if dilutive. The Company effected a one-for-five reverse stock split for shareholders of record on October 16, 1995. All per share data has been restated for all periods presented to give effect to the reverse stock split. The Company's Common Stock trades on the OTC Bulletin Board under the new symbol "MIGA". USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the 1995 presentation. OTHER - See Notes 6, 7 and 11 for accounting policies related to depreciation, amortization and income taxes. 2. SETTLEMENT AGREEMENT On January 2, 1996, Steel Partners II, L.P. ("Steel"), which as of March 19, 1996 owned 19.8% of the Company's outstanding common stock, filed proxy materials with the Securities and Exchange Commission to replace the current Board of Directors with its own representatives. The Company held a special meeting of shareholders on February 26, 1996. On March 19, 1996, the Company and Steel entered into an Agreement of Compromise and Settlement (the "Settlement Agreement"). The Settlement Agreement calls for the dismissal of all pending litigation and provides for mutual releases. The Settlement Agreement also provides that the February 26, 1996 Special Meeting of Shareholders will be adjourned without any final report from the Inspector of Elections, leaving the current Board of Directors in place. Pursuant to the Settlement Agreement, the Company is required to initiate a process to sell or merge the Company ("Auction Process"). If the process does not result in an announcement of a sale or merger transaction by June 19, 1996, a definitive agreement for a sale or merger transaction by July 19, 1996, or the consummation of a sale or merger transaction by November 19, 1996, the current members of the Company's Board of Directors will resign from their positions and be replaced by designees of Steel. The Settlement Agreement calls for the company to amend the severance agreements of the Company's chief executive officer and chief financial officer to provide that the Company's failure to meet such deadlines shall constitute an "involuntary termination" for purposes of their respective severance packages. F-7 34 Steel has agreed that it will not acquire beneficial ownership of any of the Company's securities during the Auction Process. The Settlement Agreement also requires the Company to redeem all outstanding Rights issued pursuant to the Company's shareholder rights plan and prohibits the Company from enacting a new shareholder rights plan without the prior written consent of Steel (see Note 12). Simultaneous with its entering into the settlement, the Company entered into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware corporation ("Arrowhead"), containing substantially the same terms as the Settlement Agreement with Steel. The Company estimates that the total expenditures for such solicitation, including the fees and expenses of the Company's attorneys, financial advisors, public relations firm and proxy solicitors, excluding salaries and wages of its officers and employees and including the amounts reimbursed to Steel, will be approximately $1,325,000, and will be recorded as a charge to operations in the first quarter of 1996. No amounts have been reflected in the financial statements as of December 31, 1995 with regard to the Company's Settlement Agreement and proxy solicitation. 3. OPERATIONS The Company had cash and cash equivalents of $10.7 million and working capital of $337,000 as of December 31, 1995. Although there can be no assurances, management believes that its cash on hand at year end and cashflow from future operations will be sufficient to meet its obligations as they come due. The successful operation of the Company is dependent on the effects of certain trends and legislation affecting the healthcare industry. The Omnibus Budget Reconciliation Act of 1993 ("Stark II") limits referrals by physicians of Medicare/Medicaid patients to other providers in which the physician has an ownership interest. The Company has a limited number of limited partnership units of consolidated partnerships owned by referring physicians. The Company is in the process of acquiring these units and does not anticipate such acquisitions will require a material amount of the Company's capital. Certain states have also enacted legislation which similarly limits patient referrals, limits the fees which a patient can be charged or requires state approval for the expansion of healthcare facilities. The Company believes that the effects on its operations as a result of these legislative actions will not be material. In addition to state and federal governments, the public has recently focused significant attention on reforming the healthcare system in the United States. Within the past two years, a broad range of healthcare reform measures have been introduced in Congress and in certain state legislatures. Certain proposals, such as cutbacks in the Medicare and Medicaid programs, containment of healthcare costs that could include a freeze on prices charged by physicians, hospitals or other healthcare providers, and greater state flexibility in the administration of Medicaid, could adversely affect the Company. There can be no assurance that currently proposed or future healthcare programs, regulations or policies will not have a material adverse effect on the Company's operating results. On January 16, 1996 the Company entered into an agreement with a creditor to pay off a promissory note. The Company paid $1,425,000 cash and applied $912,000 in proceeds due from the exercise of a warrant to purchase 160,000 shares of MICA's Common Stock as payment in full to retire the note. In connection with this transaction the Company issued an additional warrant to purchase 60,000 shares of the Company's Common Stock at an exercise price of $8.50 per share which expires on December 31, 1998. At the date of grant, the Company allocated $200,000 to the cost of the warrant which was determined to be its fair value. The Company recorded a gain of $517,000 from the settlement of this obligation in January 1996. F-8 35 4. RECEIVABLES Long-term receivables, which include DMC trade receivables which are not expected to be collected within one year, are included in Other assets on the accompanying consolidated balance sheets. The Company's trade receivables are primarily from hospitals and third party payor groups operating throughout the United States.
December 31, -------------------- (in thousands) 1995 1994 ---------------------------------------------------------------------- Trade accounts receivable less allowance of $4,503 in 1995 and $6,046 in 1994 $ 8,431 $10,284 Less current trade and receivables (7,711) (9,524) ------- ------- Long-term receivables $ 720 $ 760 ======= =======
5. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED ENTITIES The Company has investments in certain DMCs which are accounted for using the equity method. Unaudited summarized combined financial information for the unconsolidated DMCs is as follows: BALANCE SHEETS
December 31, -------------------- (in thousands) 1995 1994 ---------------------------------------------------------------------- Current assets $4,387 $ 5,288 Equipment and leasehold improvements, net 3,909 5,432 Other assets 118 126 ------ ------- $8,414 $10,846 ====== ======= Current liabilities $2,879 $ 2,388 Advances from MICA 2,008 2,285 Long-term debt and capital lease obligations 2,198 4,020 Partners' equity 1,329 2,153 ------ ------- $8,414 $10,846 ====== =======
The Company's share of partners equity in unconsolidated DMCs is $903,000 and $1,393,000 at December 31, 1995 and 1994, respectively. The Company has recorded valuation allowances at December 31, 1995 and 1994 of $1,788,000 against its advances to unconsolidated entities of $2,375,000 and $2,464,000, respectively. STATEMENTS OF OPERATIONS
Year Ended December 31, ---------------------------------------- (in thousands) 1995 1994 1993 ----------------------------------------------------------------------- Revenues $10,431 $11,279 $10,986 Costs and expenses 7,550 8,587 8,657 ------- ------- ------- Net income $ 2,881 $ 2,692 $ 2,329 ======= ======= =======
The Company's revenues include $629,000, $744,000 and $737,000 for the years ended 1995, 1994 and 1993 respectively from management fees from the unconsolidated DMCs. The Company has guaranteed $3,899,000 in capital lease and debt obligations of its unconsolidated DMCs with terms through 2000. F-9 36 6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are carried at the lower of cost or net realizable value and are summarized as follows:
December 31, -------------------- (in thousands) 1995 1994 ----------------------------------------------------------------------- Equipment and furniture, net of valuation reserve of $5,206 in 1995 and $6,684 in 1994 $ 38,865 $59,683 Leasehold improvements 2,577 3,207 -------- ------- $ 41,442 $62,890 Accumulated depreciation and amortization (25,168) (33,674) -------- ------- $ 16,274 $29,216 ======== =======
Depreciation and amortization are calculated on a straight-line basis over the estimated useful life of the asset or over the lease term, if shorter. Lease terms are generally five to seven years for equipment and furniture and fifteen years for leasehold improvements. Equipment includes assets financed through capital leases of $19,040,000 and $27,965,000 with accumulated amortization of $7,949,000 and $10,825,000 at December 31, 1995 and 1994, respectively. The Company periodically reviews its equipment portfolio to determine that its carrying value is the lower of cost or net realizable value. Management intends to sell certain equipment used during the year in the Company's on-going business operations. Accordingly, this equipment has been classified as equipment held for sale at its estimated realizable value at December 31, 1995 and 1994. 7. INTANGIBLE ASSETS Intangible assets consist of the following:
December 31, -------------- (in thousands) 1995 1994 ----------------------------------------------------------------------------- Excess of purchase price over net assets acquired, less accumulated amortization of $466 in 1995 and $142 in 1994 $ 824 $ 742 Deferred costs, less accumulated amortization of $1,179 in 1995 and $1,464 in 1994 263 527 ------ ------ $1,087 $1,269 ====== ======
During 1995, the Company acquired certain assets of one imaging center and additional limited partner units in certain of its DMCs for $312,000 in cash. Of the total purchase price, $301,000 was allocated to goodwill and is being amortized using the straight-line method over the estimated useful life of the assets which is five years. The Company's results of operations were not materially affected as a result of these acquisitions. During 1994, the Company acquired certain assets of two imaging centers and additional limited partner units in certain of its DMCs for $657,000 in cash and $484,000 in promissory notes. Of the total purchase price, $875,000 was allocated to goodwill and is being amortized using the straight-line method over the estimated useful life of the assets which is three years. The Company's results of operations were not materially affected as a result of these acquisitions. The Company periodically reviews goodwill to assess recoverability based upon projected undiscounted cash flows to be received from operating income. If such cash flows are less than the carrying value of goodwill the difference is charged to expense. Deferred costs primarily include debt financing costs incurred in connection with the issuance of debentures which have been deferred and are being amortized on a weighted average basis over the term of the indebtedness. F-10 37 8. DEBT Long-term debt for equipment financing consists of the following:
December 31, --------------- (in thousands) 1995 1994 --------------------------------------------------------------------------------------------- Capital lease obligations - weighted average interest rate of approximately 9%; due at various dates through 2000 $11,937 $18,580 Equipment installment loans payable - weighted average interest rate of approximately 7%; due at various dates through 2000 10,406 17,567 Note payable to a bank - effective interest rate of 10.5%; final payment made on October 23, 1995 -- 600 ------- ------- 22,343 36,747 Less current maturities (11,161) (11,541) ------- ------- $11,182 $25,206 ======= =======
Maturities on notes payable and long-term debt over the next five years are as follows:
(in thousands) Years Ending December 31, ----------------------------------------------------------------------- 1996 $ 7,210 1997 1,774 1998 886 1999 481 2000 55 ------- $10,406 =======
The Company finances certain equipment under capital leases. These capital leases generally have terms of five to seven years. Future minimum payments under capital leases are as follows:
(in thousands) Years Ending December 31, ----------------------------------------------------------------------- 1996 $ 4,787 1997 3,767 1998 3,059 1999 1,925 2000 78 ------- Total minimum lease payments 13,616 Amounts representing interest (1,679) ------- Present value of future minimum lease payments 11,937 Less amounts due in one year (3,951) ------- Long-term capital lease obligations $ 7,986 =======
F-11 38 9. CONVERTIBLE SUBORDINATED DEBT Convertible subordinated debentures are due in 1999 with interest payable semi-annually at 6%. The debentures are convertible into MICA Common Stock at $15 per share and may be redeemed by the Company if the closing bid price of the Company's Common Stock on any 20 consecutive trading days has been at least $22.50 per share. The Company is required to redeem the debentures on April 30 as follows: 1996 - $2,800,000; and 1997 - $2,600,000. The final payment of $2,800,000 is due April 30, 1999. The indenture relating to this financing contains restrictions on the payment of cash dividends based upon an accumulative net income test with certain adjustments. The indenture also has limitations on the reacquisition of shares and requires a Minimum Consolidated Shareholders Equity. In addition, the Company is obligated to offer to prepay the Debentures in the event of a "change in control" of the Company. "Change in control" is defined to include the acquisition by any person or group of persons of the power to elect, appoint or cause the election of at least a majority of the members of the Board of Directors. In light of the favorable interest rate the Company currently is paying on the Debentures and the fact that the conversion price is significantly above the current market price of the Company's Common Stock, management believes that most, if not all, of the holders of the Debentures would elect prepayment of their Debentures in the event of a change in control (see Note 2). At December 31, 1995, the Company is in compliance with all debt covenants. In February of 1994, the convertible subordinated debenture holders agreed to exclude the 1993 non-cash charge of approximately $21,500,000 related to goodwill from the definition of Minimum Shareholders Equity. In return, the Company agreed to an increase in the Minimum Shareholders Equity covenant from $5,190,000 to $10,000,000. 10. COMMITMENTS The Company leases its facilities and certain equipment under operating lease agreements with terms ranging from three to twenty years. Certain facility lease agreements provide for rent increases based on the increases in the Consumer Price Index and operating costs. Also, the Company has the option to renew certain facility leases for additional terms varying from five to ten years. The Company's consolidated DMCs have entered into multi-year equipment maintenance agreements. Future minimum payments under operating leases and equipment maintenance agreements are as follows:
(in thousands) Years Ending December 31, ----------------------------------------------------------------------- 1996 $ 5,031 1997 3,750 1998 3,166 1999 2,392 2000 1,340 Later years 574 ------- Total minimum payments $16,253 =======
Rent expense under operating leases totaled $5,362,000, $8,263,000 and $11,509,000 for the years ended December 31, 1995, 1994 and 1993, respectively, and is included in Costs of medical services in the Company's consolidated statements of operations. F-12 39 11. INCOME TAXES The Company accounts for income taxes using FAS Statement No. 109, Accounting for Income Taxes. Statement 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, Statement 109 generally considers all expected future events other than enactments of changes in the tax law or rates. At December 31, 1995, the Company had Federal net operating loss carryforwards of approximately $21,837,000 for income tax purposes that expire in 2008. The Company has investment tax credit carryforwards of approximately $418,000 which begin to expire in 1999. In addition, the Company has a Federal alternative minimum tax credit carryforward of approximately $166,000 which has no expiration date. In accordance with the Internal Revenue Code, the Company s use of its net operating loss carryforwards could be limited in the event of certain cumulative changes in the Company's stock ownership. For financial reporting purposes, a valuation allowance of approximately $11,761,000 has been recognized to offset the deferred tax assets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
December 31, --------------------- (in thousands) 1995 1994 ----------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 7,643 $ 10,655 Valuation reserves 4,386 5,160 Other 3,830 4,308 -------- -------- Total deferred tax assets 15,859 20,123 Valuation allowance for deferred tax assets (11,761) (14,156) -------- -------- Net deferred tax assets 4,098 5,967 -------- -------- Deferred tax liabilities: Tax over financial reporting depreciation 4,098 5,967 -------- -------- Total deferred tax liabilities 4,098 5,967 -------- -------- Net deferred tax liabilities $ -- $ -- ======== ========
For the year ended 1995, MICA provided $120,000 in Federal tax related to alternative minimum tax and $60,000 related to state income tax. No income taxes were provided in 1994 or 1993. The reconciliation of income tax computed at the U.S. federal statutory tax rates to the income tax provision is as follows:
Year Ended December 31, 1995 1994 1993 ---------------------------------------------------------------------- Federal statutory tax (benefit) rate 34.0% (34.0%) (34.0%) Limitation of benefit on net operating loss -- 32.3 16.6 Benefit of loss carryforwards (32.1) -- -- Non-deductible amortization expense -- -- 17.4 State tax, net of federal income taxes 1.0 -- -- Other .2 1.7 -- ----- ----- ----- Effective tax rate 3.1% --% --% ===== ===== =====
F-13 40 12. SHAREHOLDERS EQUITY COMMON STOCK - At December 31, 1995, the Company had reserved 1,113,001 shares of Common Stock for issuance in connection with the exercise of outstanding stock options and warrants and the conversion of debentures. In March 1993, the United States District Court for the Southern District of California approved a settlement of a class action lawsuit brought in 1991 against the Company and certain former officers. The settlement provided for the Company to issue 64,894 shares (after giving effect to the one-for-five reverse stock split which occurred in 1995) of its Common Stock at an agreed upon value of $800,000 and for the insurers of the individual defendants to pay $2,650,000. On January 3, 1994, the Company issued 64,894 shares related to the litigation settlement. PREFERRED STOCK-SERIES B - In October 1991, the Company's Board of Directors authorized 300,000 shares of Series B Preferred Stock without par value in connection with the Company's entering into a Rights Agreement. Each share of Series B Preferred Stock entitled the holder thereof to 100 votes on all matters submitted to a vote of the shareholders. Such shares of Series B Preferred Stock were to be issued pursuant to the Rights Agreement at a ratio of one one-hundredths of a share per Right upon the occurrence of certain event and upon the Right holder's payment of an exercise price. On March 19, 1996, the Board of Directors ordered the redemption of all outstanding Rights so that no holder of Rights could exercise such Rights and no shares of Series B Preferred Stock could be issued in connection with the Rights Agreement. For a more detailed description of the Rights Agreement and the Board of Directors' actions in connection therewith, see "Preferred Stock Purchase Rights." WARRANTS - The Company issues warrants primarily to directors, underwriters and consultants for various services. Warrants are generally granted at prices equal to the fair market value of the shares on the date of grant. At year end 315,500 warrants were exercisable. In August 1995 a third party forfeited a warrant to purchase 300,000 shares of the Company's Common Stock pursuant to an agreement by the Company to pay $450,000. Warrant activity during 1995 and 1994 is summarized as follows:
Number Price of Shares Per Share --------------------------------------------------------------------------------------- Outstanding at December 31, 1992 78,200 $13.75 - $68.15 Granted 487,500 2.50 - 5.70 Forfeited (16,200) 48.75 - 68.15 ------- ---------------- Outstanding at December 31, 1993 549,500 2.50 - 21.90 Granted 7,000 2.81 Forfeited (41,000) 13.75 - 21.90 ------- ---------------- Outstanding at December 31, 1994 515,500 2.50 - 18.75 Granted 107,000 4.05 - 7.81 Forfeited (307,000) 5.70 - 18.75 ------- ---------------- Outstanding at December 31, 1995 315,500 $2.50 - $18.75 ======= ================
PREFERRED STOCK PURCHASE RIGHTS In October 1991, the Company's Board of Directors declared a dividend distribution of one preferred share purchase right (a "Right") for each share of Company Common Stock ("Common Share") outstanding at the close of business on October 18, 1991 (the "Record Date"). Each Right entitled the registered holder to purchase from the Company one one-hundredth of a share of Series B Preferred Stock, no par value, at a purchase price of thirty-five dollars ($35.00) per one one-hundredth of a Preferred Share, subject to adjustment. The Board of Directors also authorized and directed the issuance of one Right with respect to each Common Share that should become outstanding between the Record Date and the earliest of the Distribution Date (as defined below), the date the Rights are redeemed and the date the Rights expire. F-14 41 The Rights Agreement pursuant to which Rights were issued provided that Rights would not be exercisable until such time as the Company issued separate Right Certificates to the holders of Rights on a "Distribution Date," a date ten days after a public announcement that the dilutive provisions of the Rights Agreement had been triggered. The Rights Agreement further provided that the Board of Directors could redeem the Rights in whole, but not in part, at a price of $.01 per Right and that the holder of Rights would have no rights as a shareholder of the Company until he exercised such Rights. On January 10, 1996, the Company's Board of Directors approved certain amendments to the Rights Plan to provide greater flexibility for the Company and to take into consideration a one-for-five reverse stock split effected by the Company in October 1995. The Rights Agreement, as amended by the First Amendment to Rights Agreement, made the determination of whether the dilutive provisions of the Rights Agreement had been triggered dependent on a public announcement by the Company or by a shareholder that the shareholder's beneficial ownership of Common Stock has risen above 20% of the total issued and outstanding shares of Common Stock. In contrast, the original Rights Agreement made such determination automatic upon a shareholder reaching the 20% threshold. By making the triggering of the rights dependent on a public announcement, the Company eliminated the possibility that it might face a situation in which the rights would be activated and the Board would not have an opportunity to redeem the rights. The amendments approved by the Board of Directors also changed the redemption price from $.01 to $.05 to reflect the one-for-five reverse stock split in October of 1995. On March 1, 1996, the Company announced, based on a report from a Special Committee of the Board of Directors, that a group of shareholders which included Steel Partners II, L.P. and Steel Partners Associates had acquired in excess of 20% of the outstanding Common Stock of the Company and that the dilutive provisions of Rights Agreement had been triggered. The Company also announced that it had approved a Second Amendment to the Rights Agreement which shortened from ten days to seven days the period during which the Board of Directors could redeem the Rights following the public announcement that a shareholder or a group of shareholders had triggered the dilutive provisions of the Rights Agreement. The Company also reduced from ten days to seven days the period between the public announcement of the triggering of the dilution provisions and the Distribution Date. On March 7, 1996, the Board of Directors approved a Third Amendment to the Rights Agreement which extended until March 12, 1996 at 11:59 p.m. Pacific Standard Time the period during which the Company could redeem the Rights and following which the Company could distribute separate Right Certificates. The Company extended the Distribution Date and the time for redemption of the Rights once again to March 19, 1996 at 11:59 p.m. PST by way of a Fourth Amendment to the Rights Agreement dated as of March 11, 1996. On March 19, 1996, the Company announced that its Board of Directors had ordered the redemption of all outstanding Rights as part of the Agreement of Compromise and Settlement between the Company and certain of its affiliates, on the one hand, and Steel Partners II, L.P. and certain of its affiliates, on the other hand (the "Settlement Agreement") (see Note 2 for a description of the Settlement Agreement). The Company set March 29, 1996 as the record date for determining the holders of rights entitled to payment of the $.05 per share Redemption Price and April 8, 1996 as the date for payment of the Redemption Price. The Company anticipates that it will be required to pay $134,000 in the aggregate to holders of Rights in order to effect the redemption of all outstanding Rights. 13. RETIREMENT PLAN AND STOCK OPTIONS RETIREMENT PLAN - Under Section 401(k) of the Internal Revenue Code the Company instituted a tax deferred retirement plan (the "TDRP") for the benefit of all employees meeting certain minimum eligibility requirements. Under the TDRP, an employee may defer up to 10% of pre-tax earnings, subject to certain limitations, and contribute it to a trusteed plan. The Company will match 50% of an employee s deferred salary up to a maximum of 6% of gross pay. The Company's matching contributions vest over a five-year period. For the years ended December 31, 1995, 1994 and 1993, the Company contributed $118,000, $101,000 and $135,000, respectively, to match employee contributions. F-15 42 STOCK OPTIONS - The Company has been authorized to issue 489,000 shares of Common Stock to certain key employees under its Stock Option Plan adopted in 1985 and 1994. Options are granted at prices equal to the fair market value of the shares at the date of grant and are usually exercisable in cumulative annual increments each year, commencing one year after the date of grant. Activity under the Company's stock option plans during 1995 and 1994 are summarized as follows:
Number Price of Shares Per Share --------------------------------------------------------------------------------------- Outstanding at December 31, 1992 137,867 $13.75 - $21.90 Granted 122,800 3.13 - 4.40 Forfeited (105,967) 3.13 - 21.90 ------- ---------------- Outstanding at December 31, 1993 154,700 3.13 - 21.90 Granted 160,800 2.35 - 3.60 Exercised (666) 3.13 Forfeited (98,134) 2.35 - 21.90 ------- ---------------- Outstanding at December 31, 1994 216,700 2.35 - 21.90 Granted 121,800 7.81 Exercised (53,000) 2.35 - 3.44 Forfeited (34,666) 2.35 - 21.90 ------- ---------------- Outstanding at December 31, 1995 250,834 $2.35 - $21.90 ======= ================
Options exercisable at December 31, 1995 totaled 146,694 and shares available for future grant at year end totaled 71,052. 14. SPECIAL CHARGES Operating results in 1993 include a non-cash charge of approximately $21,500,000 to write off goodwill associated with prior years acquisitions and a non-cash charge of $2,000,000 to increase reserves established to reflect uncertainty regarding the realization of certain other assets. 15. EXTRAORDINARY GAIN The Company financed an equipment acquisition for one of its managed DMCs. The operations of the DMC were unsuccessful and foreclosure proceedings were initiated by the lender. In mitigation of damages, the underlying lender arranged for the sale of the unit which resulted in the forgiveness of MICA's indebtedness. In 1994, the Company recorded a non-cash extraordinary gain of $1.3 million resulting from the forgiveness of debt related to certain MRI equipment. 16. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Dr. Keith R. Burnett, a director of the Company, is a principal and officer of Magnetic Imaging Medical Group ("MIMG"), which provides radiology and other medical services for the Company's Diagnostic Medical Centers located in Long Beach, Huntington Beach, Laguna Niguel and Downey, California. MIMG is a Co-General Partner of the center in Long Beach. Dr. Burnett serves as the Medical Director for the facilities in Huntington Beach and Laguna Niguel. The Management, Licensing and Facilities Agreements between the respective Centers and MIMG ("Agreements") provide that MICA will receive for services rendered: 77.5% of the revenues collected at Long Beach Medical Imaging F-16 43 Clinic, 80% of the revenues collected at Medical Imaging Center of Huntington Beach and Laguna Niguel MRI Center, and 82% at Downey MRI Center. Pursuant to the Agreements, the balance of the amounts collected is retained by MIMG as its fee. In 1995, the Company's share of revenues collected from the four centers was $1,669,000, $1,748,000, $783,000 and $834,000, respectively; MIMG's share of the revenues collected was $452,000, $413,000, $169,000 and $208,000, respectively. 17. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective for fiscal years beginning after December 15, 1995. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company does not believe, based on current circumstances, the effect of adoption of SFAS 121 will be material. In October 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation", effective for fiscal years beginning after December 15, 1995. SFAS 123 establishes the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of the stock option at the grant date and the number of options vested, and is recognized over the periods in which the related services are rendered. If the Company were to retain its current intrinsic value based method, as allowed by SFAS 123, it will be required to disclose the pro forma effect of adopting the fair value based method. To date, the Company has not made a decision to adopt the fair value based method. F-17 44 MEDICAL IMAGING CENTERS OF AMERICA, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
-------ADDITIONS------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END (in thousands) OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - -------------------------------------------------------------------------------------------- YEAR ENDED 12/31/95: Reserve for bad debts $6,046 $1,059 $ -- $2,602 $4,503 ====== ====== ==== ====== ====== Reserve for advances to unconsolidated centers $1,788 $ -- $ -- $ -- $1,788 ====== ====== ==== ====== ====== Amortization of intangibles: Excess of purchase price over net assets acquired $ 142 $ 324 $ -- $ -- $ 466 ====== ====== ==== ====== ====== Amortization of deferred costs: Debt financing costs $ 858 $ -- $ 97 $ -- $ 955 Pre-opening and organization costs 382 152 -- 534 -- Indirect lease origination costs 224 14 -- 14 224 ------ ------ ---- ------ ------ Total $1,464 $ 166 $ 97 $ 548 $1,179 ====== ====== ==== ====== ====== ============================================================================================ YEAR ENDED 12/31/94: Reserve for bad debts $6,883 $1,243 $ -- $2,080 $6,046 ====== ====== ==== ====== ====== Reserve for advances to unconsolidated centers $1,688 $ 100(1) $ -- $ -- $1,788 ====== ====== ==== ====== ====== Amortization of intangibles: Excess of purchase price over net assets acquired $ 0 $ 142 $ -- $ -- $ 142 ====== ====== ==== ====== ====== Amortization of deferred costs: Debt financing costs $ 723 $ -- $135 $ -- $ 858 Pre-opening and organization costs 267 192 -- 77 382 Indirect lease origination costs 197 32 -- 5 224 ------ ------ ---- ------ ------ Total $1,187 $ 224 $135 $ 82 $1,464 ====== ====== ==== ====== ====== ============================================================================================
(1) Represents increase in reserve for advances to unconsolidated centers. F-18 45 MEDICAL IMAGING CENTERS OF AMERICA, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
-------ADDITIONS------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END (in thousands) OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ------------------------------------------------------------------------------------------------- YEAR ENDED 12/31/93: Reserve for bad debts $5,465 $2,643 $ 0 $1,225 $6,883 ====== ====== ====== ====== ====== Reserve for contract costs in excess of related revenues $ 735 $ -- $ -- $ 735(1) $ 0 ====== ====== ====== ====== ====== Reserve for advances to unconsolidated centers $ 900 $ -- $ 788 (2) $ -- $1,688 ====== ====== ====== ====== ====== Amortization of intangibles: Excess of purchase price over net assets acquired $1,756 $ 521 ( $2,267)(3) $ 10 $ 0 Covenants not to compete, contracts acquired and rights to provide MRI equipment 574 246 ( 820)(3) -- 0 ------ ------ ------ ------ ------ Total $2,330 $ 767 ( $3,087) $ 10 $ 0 ====== ====== ====== ====== ====== Amortization of deferred costs: Debt financing costs $ 588 $ -- $ 135 $ -- $ 723 Pre-opening and organization costs 203 266 -- 202 267 Indirect lease origination costs 228 157 -- 188 197 ------ ------ ------ ------ ------ Total $1,019 $ 423 $ 135 $ 390 $1,187 ====== ====== ====== ====== ====== =================================================================================================
(1) Represents reserves written off due to contracts expiring during 1993. (2) Represents reclass of general reserve to reserve for advances to unconsolidated centers. (3) Represents write-off of goodwill. F-19 EX-3.2 2 AMENDED & RESTATED BYLAWS 1 EXHIBIT 3.2 TABLE OF CONTENTS OF THE AMENDED BYLAWS OF MEDICAL IMAGING CENTERS OF AMERICA, INC.
Page ---- ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Principal Executive Offices . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 4. Adjourned Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 5. Notice and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 6. Validation of Meetings Held Without Proper Call or Notice . . . . . . . . . . . . . . . . . . . . . . 3 Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 8. Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . 4 Section 9. Elections of Directors . . . . . . . . . . . . . . . . . . . . . . . 5 Section 10. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 11. Inspectors of Election . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2. Number and Qualifications of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3. Election and Term of Office . . . . . . . . . . . . . . . . . . . . . 8 Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 5. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 6. Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 7. Organization Meeting . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 8. Other Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 9 Section 9. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 10. Notice of Directors' Meetings . . . . . . . . . . . . . . . . . . . . 9 Section 11. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 12. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 13. Validation of Meetings Held Without Proper Call or Notice . . . . . . . . . . . . . . . . . . . . . 10 Section 14. Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 15. Unanimous Written Consent to Actions Taken . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 16. Fees and Compensation . . . . . . . . . . . . . . . . . . . . . . . 10 Section 17. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . 11
-i- 2
Page ---- ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3. Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 7. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . 12 Section 8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 9. Vice-Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 11. Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE V MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 1. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2. Director Inspection of Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3. Shareholder Inspection of Corporate Records . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4. Annual and Financial Reports . . . . . . . . . . . . . . . . . . . 15 Section 5. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6. Representation of Shares of Other Corporations . . . . . . . . . . . . . . . . . . . . . . 17 Section 7. Registrars and Transfer Agents . . . . . . . . . . . . . . . . . . 17 Section 8. Subchapter S Election . . . . . . . . . . . . . . . . . . . . . . . 17 Section 9. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 10. Checks, Drafts and Other Instruments . . . . . . . . . . . . . . . 17 Section 11. Execution of Contracts and Instruments . . . . . . . . . . . . . . 17 Section 12. Construction and Definitions . . . . . . . . . . . . . . . . . . . 18 Section 13. Indemnification and Liability Insurance . . . . . . . . . . . . . . 18 ARTICLE VI RESTRICTIONS ON TRANSFER OF SHARES . . . . . . . . . . . . . . . . 18 Section 1. Options to Purchase . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 2. Nonmonetary Consideration . . . . . . . . . . . . . . . . . . . . . 19 Section 3. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE VII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 1. Power of Shareholders . . . . . . . . . . . . . . . . . . . . . . . 21 Section 2. Power of Directors . . . . . . . . . . . . . . . . . . . . . . . . 21 CERTIFICATE OF INCORPORATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii- 3 BYLAWS FOR THE REGULATION, EXCEPT AS OTHERWISE PROVIDED BY STATUTE OR ITS ARTICLES OF INCORPORATION, OF MEDICAL IMAGING CENTERS OF AMERICA, INC. ARTICLE I OFFICES Section 1. Principal Executive Offices. The principal executive office of the Corporation is hereby fixed and located at 4217 Lomo Del Sur, La Mesa, California 92041. The Board of Directors is hereby granted full power and authority to change said principal executive office from one location to another. Any such change of location may be noted on the Bylaws by the Secretary opposite this section or this section may be amended to state the new location. Section 2. Other Offices. Other offices of the Corporation may be established by the Board of Directors at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Place of Meetings. All meetings of shareholders shall be held at the principal executive office of the Corporation, at the place specified in the notice or at any other place within or without the State of California designated either by the Board of Directors or by the written consent of all persons entitled to vote thereat and not present at the meeting, given either before or after the meeting and filed with the Secretary of the Corporation. Section 2. Annual Meetings. The annual meetings of shareholders shall be held on the third Friday of October of each year at 10:00 a.m. of said day; provided, however, that should said day fall on a legal holiday then any such annual meeting of shareholders shall be held at the same time and place on the next full business day thereafter ensuing. At annual meetings of shareholders, Directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders. 1 4 Section 3. Special Meetings. Special meetings of shareholders may be called for the purposes of taking any action permitted by shareholders under the California General Corporations Law and the Articles of Incorporation at any time by the Chairman of the Board or the President, or by the Board of Directors, or by one (1) or more shareholders holding not less than ten percent (10%) of the shares entitled to vote at the meeting. Upon request in writing that a special meeting of shareholders be called for any proper purpose, directed to the Chairman of the Board, President, vice-president or Secretary by any person or persons (other than the Board) entitled to call a special meeting of the shareholders, the officer shall cause notice to be given to shareholders entitled to vote at the meeting as set forth in Article II, Section 5 hereinbelow. In the event such notice has not been given within twenty (20) days after receipt of the request, the person or persons entitled to call the meeting may give the notice. No business other than that described in the notice of the meeting may be transacted at a special meeting of shareholders. Section 4. Adjourned Meetings. Any meeting of shareholders, whether or not a quorum is present or has been established, may be adjourned from time to time by the vote of a majority of the shares the holders of which are either present in person or represented by proxy. When any meeting of shareholders is adjourned for forty-five (45) days or more, or a new record date for the adjourned meeting is fixed, notice of the adjourned meeting shall be given as in the case of an original meeting as specified in Article II, Section 5 hereof. If a meeting of shareholders is adjourned for a total of less than forty-five (45) days, notice of the time and place of the adjourned meeting or the business to be transacted need not be given in the event the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. Section 5. Notice and Waiver. Written notice of every meeting of shareholders shall be given to each shareholder entitled to vote at such meeting, either personally or by mail, telegram or other means of written communication, charges pre-paid, addressed to such shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. In the event any notice or report addressed to a shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been fully given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the Corporation for a period of one (1) year from the date of the giving of the notice or report to any other shareholder. If no address appears on the books of the Corporation and a shareholder gives no address, notices shall be deemed to have been given to such shareholder if sent by mail, telegram or other means of written communication addressed to the place where the principal executive office of the Corporation is located, or if published at least once in a newspaper of general circulation in the County in which the principal executive office of the Corporation is located. 2 5 All notices shall be personally delivered, deposited in the mail, or sent by other means of written communication to each shareholder entitled thereto not less than ten (10) nor more than sixty (60) days before such meeting. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, assistant secretary or any transfer agent of the Corporation shall be prima facie evidence of the giving of the notice. Except in special cases where other express provision is made by statute, notice of meetings shall contain the following information: (a) The place, the date, and the hour of the meeting; (b) The general nature of the business to be transacted or proposed, if any, including but not limited to actions with respect to the approval of (i) a contract or other transaction with an interested Director, (ii) the amendment of the Articles of Incorporation, (iii) a merger, exchange or sale of assets reorganization as defined by section 181 of the California General Corporations Law, (iv) the voluntary dissolution of the Corporation, or (v) a distribution and dissolution other than in accordance with the rights of outstanding preferred shares, if any; (c) If Directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election, if any; and (d) In the case of an annual meeting, those matters which the Board of Directors at the time of the mailing of the notice intends to present for action by the shareholders. Section 6. Validation of Meetings Held Without Proper Call or Notice. The transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if either before or after the meeting, each of the persons entitled to vote and not present in person or by proxy, or who though present has at the beginning of the meeting objected to the transaction of any business because the meeting was not lawfully called or convened or has objected to the consideration of particular matters of business required to have been included in the notice of the meeting but not so included, signs a written waiver of notice, a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 7. Quorum. The presence in person or by proxy of the holders of majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business. Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding a withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 3 6 Section 8. Action Without a Meeting. Except with respect to the election of Directors as hereinafter provided, any action which may be taken at a meeting of the shareholders may be taken without a meeting and without prior notice except as hereinafter set forth, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of shares having not less than the minimum number of votes that would be necessary to authorize such action at a meeting at which all shareholders entitled to vote thereon were present and voted. In the event the consents of all shareholders entitled to vote have not been solicited in writing, notices shall be given in the manner as provided in Section 5 of Article II of these Bylaws as follows: (a) At least ten (10) days before consummation of the action authorized by shareholder approval, notice shall be given of shareholder approval of (i) a contract or other transaction with an interested Director, (ii) indemnification of an agent of the Corporation, (iii) a merger, exchange or sale of assets reorganization as defined in section 181 of the California General Corporations Law, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and (b) Promptly with respect to any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing. In the event the Board of Directors has not fixed a record date as provided in Section 1 of Article V of these Bylaws, for the determination of shareholders entitled to give such written consent, the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later, and in the event no prior action by the Board has been taken the day on which the first written consent is given. All such written consents shall be filed with the Secretary of the Corporation. Any shareholder giving a written consent, or the shareholder's proxyholders or a transferee of the shares or personal representative of the shareholder of their respective proxyholders, may revoke the consent by a writing received by the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation. Directors may be elected without a meeting by unanimous written consent of the persons who would be entitled to vote for the election of Directors; provided that in the event a vacancy on the Board of Directors exists and has not been filled by the Directors, a Director may be elected at any time without prior notice by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of Directors. 4 7 Section 9. Elections of Directors. In any election of Directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of Directors to be elected by such shares are elected. Elections for Directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins. Every shareholder entitled to vote at any election of Directors may cumulate such shareholder's votes and give one (1) candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit, provided however, that no shareholder shall be entitled to cumulate votes unless the name of each such candidate has been placed in nomination prior to the voting and a shareholder has given notice at the meeting prior to the voting of such shareholder's intention to cumulate such shareholder's votes. Section 10. Proxies. Every person entitled to vote shares shall have the right to do so in person or by one (1) or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the Secretary of the Corporation. Any proxy executed is not revoked and continues in full force and effect until (i) a writing stating that the Proxy is revoked or a duly executed proxy bearing a later date is filed with the Secretary of the Corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the Corporation before the vote pursuant thereto is counted; provided that no proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force. Section 11. Inspectors of Election. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any person so appointed fails to appear or refuses to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall either be one (1) or three (3). If appointed at a meeting on the request of one (1) or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effectiveness of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. 5 8 The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act, or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. ARTICLE III DIRECTORS Section 1. Powers. Subject to the limitations of the Articles of Incorporation and of the California General Corporations Law as to action to be authorized or approved by the shareholders, the business and affairs of the Corporation shall be managed and all the corporate powers shall be exercised by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the Corporation to a management company or other person or persons provided that the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. Without prejudice to such general powers, but subject to the same limitations, the Directors shall have the following powers; First: To select and remove all the officers, agents and employees of the Corporation; prescribe such powers and duties for them as may not be inconsistent with law, with the Articles of Incorporation or these Bylaws; fix their compensation; and require from them security for faithful service. Second: To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or the Articles of Incorporation or these Bylaws, as they may deem best. Third: To change the principal executive office and the principal office for the transaction of business of the Corporation from one location to another as provided in Article I, Section 1 hereof; to fix and locate from time to time one (1) or more subsidiary offices of the Corporation within or without the State of California as provided in Article I, Section 2 hereof; to designate any place within or without the state for the holding of any meeting or meetings of shareholders; to adopt, make and use the corporate seal and to prescribe the forms of certificates of shares; and to alter the form of such seal and certificates from time to time as in their judgment they deem best, provided such seal and such certificates shall at all times comply with the provisions of law. Fourth: To authorize issuance of shares of the Corporation from time to time upon such terms as may be lawful in consideration of money paid, labor done, services actually rendered to the Corporation or for its benefit or in its formation or reorganization, debts or 6 9 securities canceled, and tangible or intangible property actually received either by the Corporation or any one of its wholly owned subsidiaries, if any, or as a share dividend or upon a stock split, reverse stock split, reclassification, conversion or exchange of shares for shares of another class or series of shares, but not in consideration of promissory notes of the purchaser (unless adequately secured by collateral other than the shares acquired or pursuant to a stock purchase plan or agreement or stock option plan or agreement authorized by section 408 of the California General Corporations Law) or future services. Fifth: To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor in the corporate name promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor. Sixth: By resolution adopted by a majority of the authorized number of Directors, to designate an executive committee and other committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board. Unless the Board of Directors shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee (other than the executive committee whose proceedings shall be governed by Section 17 of this Article III of these Bylaws) may be regularly scheduled in advance and may be called at any time by any two (2) members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of the meetings of the Board shall govern. Any such committee, to the extent provided in a resolution of the Board, shall have all the authority of the Board, except with respect to: (i) The approval of any action for which the California General Corporations Law or the Articles of Incorporation also require shareholder approval; (ii) The filling of vacancies on the Board of Directors or on any committee; (iii) The fixing of compensation of the Directors for serving on the Board or on any committee; (iv) The adoption, amendment or repeal of Bylaws; (v) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; (vi) The declaration of a dividend, or the authorization or ratification of the repurchase or redemption of shares, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; and (vii) The appointment of other committees of the Board or the members thereof. 7 10 Section 2. Number and Qualifications of Directors. The authorized number of Directors shall be four (4) until changed by amendment of the Articles of Incorporation or by a Bylaw amending this section duly adopted by the vote or written consent of holders of the majority of the outstanding shares entitled to vote; provided that a proposal to reduce the authorized number of Directors below five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to vote. Directors need not be shareholders of the Corporation. Section 3. Election and Term of Office. The Directors shall be elected at each annual meeting, but if any such annual meeting is not held or the Directors are not elected thereat, the Directors may be elected at any special meeting of shareholders held for that purpose. All Directors shall hold office until the next annual meeting of shareholders and until their respective successors have been elected and qualified, subject to the California General Corporations Law and the provisions of these Bylaws with respect to vacancies on the Board of Directors. Section 4. Vacancies. A vacancy in the Board of Directors shall be deemed to exist in the event of the death, resignation or removal of any Director, an increase of the authorized number of Directors, or the failure of the shareholders at any annual or special meeting of shareholders at which any Director or Directors are to be elected to elect the full authorized number of Directors to be voted for at that meeting. The Board of Directors may declare vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony. A vacancy or vacancies in the Board of Directors, except for a vacancy created by the removal of a Director, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected in an annual or special meeting of shareholders called for that purpose. A vacancy in the Board of Directors created by the removal of a Director may be filled only by the vote of the majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of the majority of the outstanding shares. The shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. No reduction of the authorized number of Directors shall have the effect of removing any Director prior to the expiration of his term of office. 8 11 Section 5. Place of Meetings. All meetings of the Board of Directors shall be held at any place within or without California which has been designated in the notice of the meeting, or if not stated in the notice or if there is no notice, at any place designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, meetings shall be held at the principal executive office of the Corporation. Section 6. Telephonic Meetings. The members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in the meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. Section 7. Organization Meeting. Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting at the place of the annual meeting of shareholders or at such other place as shall be fixed by the Board of Directors, for the purpose of organization, election of officers, and the transaction of other business. Section 8. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held without call at 10:30 a.m. on the third Friday of January, April and July. Provided however, should any said day fall on a legal holiday, then the meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. Section 9. Special Meetings. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any vice-president, the Secretary or any two (2) Directors. Section 10. Notice of Directors' Meetings. Call and notice of the annual organization meeting and other regular meetings of the Board of Directors are hereby dispensed with. Notice of the time and place of special meetings shall be personally delivered to each Director or communicated to each Director by telephone, telegraph or mail, charges prepaid, addressed to him at his address as is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of Directors are regularly held. In the case notice is mailed, it shall be deposited in the United States mail at least ninety-six (96) hours prior to the time of the holding of the meeting. In the event notice is communicated by telegraph, it shall be delivered to the telegraph company at least forty-eight (48) hours prior to the time of the holding of the meeting. In the event notice is delivered personally or communicated by telephone, it shall be so delivered or communicated at least forty-eight (48) hours prior to the time of the holding of the meeting. A notice need not specify the purpose of any regular or special meeting of the Board of Directors. Whenever any Director has been absent from any meeting of the Board of Directors for which notice has not been dispensed with, an entry in the minutes to the effect that notice has been duly given shall be conclusive and incontrovertible evidence that due notice of such meeting was given to such Director. 9 12 Section 11. Quorum. The presence at a meeting of the Board of Directors of a majority of the members of the Board of Directors shall constitute a quorum for the transaction of business; provided that such quorum shall at no time be less than one- third (1/3) of the authorized number of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of enough Directors to leave less than a quorum, provided that any action taken is approved by at least a majority of the required quorum for such meeting. Section 12. Voting. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number, or the same number after disqualifying one (1) or more Directors from voting, is required by law, by the Articles of incorporation or by these Bylaws. Section 13. Validation of Meetings Held Without Proper Call or Notice. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum is initially present, and if, either before or after the meeting, each of the Directors not present or who though present has prior to the meeting or at its commencement protested the lack of proper notice to him signs a written waiver of notice, a consent to holding of such meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 14. Adjournment. A majority of the Directors present, whether or not a quorum is present, may adjourn any Directors' meeting to meet again at another time or place. In the event a meeting of the Board of Directors is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the Directors who were not present at the time of the adjournment. Otherwise, notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place is fixed and announced at the meeting so adjourned. Section 15. Unanimous Written Consent to Actions Taken. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all the members of the Board of Directors shall individually or collectively consent in writing to such action. Such consent or consents shall be filed with the minutes of the proceedings of the Board of Directors and shall have the same force and effect as a unanimous vote of the Directors. Section 16. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement for expenses as may be fixed or determined by resolution of the Board of Directors. Nothing herein shall be considered to preclude any Director from serving the Corporation in any other capacity, including as an officer, agent, employee or otherwise, and receiving compensation therefor. 10 13 Section 17. Executive Committee. In the event the Board of Directors shall appoint an executive committee and shall not provide otherwise, regular meetings of the executive committee shall be held at such times as are determined by the Board or by such committee as appointed, and notice of such regular meetings is hereby dispensed with. Meetings of the executive committee shall be held at the place designated in the notice of the meeting, or if not stated in the notice or if there is no notice, at any place which has been designated from time to time by resolution of the executive committee or by written consent of all the members thereof, or in the absence of such designation, at the principal executive office of the Corporation. Special meetings of the executive committee may be called by the Chairman of the Board, the President, any vice-president who is a member of the executive committee, or any two (2) members thereof, upon written notice to the members of the executive committee of the time and place of such special meeting given in the manner and within the time provided for giving of notice to members of the Board of Directors of the time and place of special meetings thereof. Minutes shall be recorded of each meeting of the executive committee and kept in the book of minutes of the Corporation. Vacancies in the membership of the executive committee may be filled only by the Board of Directors. Only members of the Board of Directors shall serve as members of the executive committee. A majority of the authorized number of members of the executive committee shall constitute a quorum for the transaction of business. The provisions of this Article III of these Bylaws also apply to the executive committee and action by the executive committee, mutatis mutandis. The Board of Directors may designate one (1) or more Directors as alternate members of the executive committee, who may replace and act in the stead of any absent members at any meeting of such committee. ARTICLE IV OFFICERS Section 1. Officers. The officers of the Corporation shall be a President, a Secretary and a Chief Financial Officer (who may be called the Treasurer). The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one (1) or more vice-presidents, one (1) or more assistant secretaries, one (1) or more assistant financial officers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article IV. Any number of offices may be held by the same person. Section 2. Election. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article IV, shall be chosen by the Board of Directors, and each shall hold his office until he shall resign or shall be removed by the Board of Directors or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. Subordinate Officers. The Board of Directors may appoint, and may empower the Chairman of the Board or the President to appoint, such other officers as the 11 14 business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as the appointing authority may designate, subject to any limitations imposed by resolution of the Board of Directors. Section 4. Removal. Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting thereof or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors (subject, in each case, to the rights, if any, of an officer under any contract of employment). Section 5. Resignation. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary of the Corporation, without prejudice however to the rights, if any, of the Corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 7. Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these Bylaws. Section 8. President. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. In the absence of the Chairman of the Board, or if there be none, he shall preside at all meetings of the shareholders and the Board of Directors. He shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 9. Vice-Presidents. In the absence or disability of the President, the vice-presidents, if there be any, in order of their rank as fixed by the Board of Directors or, if not ranked, the vice-president designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The vice-presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these Bylaws. 12 15 Section 10. Secretary. The Secretary shall record or cause to be recorded, and shall keep or cause to be kept, at the principal executive office of the Corporation and such other place or places as the Board of Directors may order, a book of minutes of actions taken at all meetings of Directors, committees and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at Directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and the Board of Directors required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. The Secretary shall keep at the principal executive office, and if the Corporation's principal executive office is not in California, at the Corporation's principal business office in California, the original or a copy of these Bylaws as amended to date. Section 11. Chief Financial Officer. The Chief Financial Officer (who may be called the Treasurer) shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, income, losses, changes in financial position, capital stock, retained earnings and shares. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. 13 16 ARTICLE V MISCELLANEOUS Section 1. Record Date. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders, give consent to corporate action in writing without a meeting, receive any report, receive any dividend or other distribution or any allotment of rights, or exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any meeting, nor more than sixty (60) days prior to any other event for the purposes of which it is fixed. In the event the Board of Directors does not fix a record date, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the business day next preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Only shareholders of record on the record date are entitled to notice of and to vote at any such meeting, give consent without a meeting, receive any report, receive a dividend, distribution or allotment of rights, or exercise the rights, as the case may be, notwithstanding any transfer of shares on the books of the Corporation after the record date, except as otherwise provided in the Articles of Incorporation or these Bylaws. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. In the event such a meeting is adjourned for more than forty-five (45) days from the date set for the original meeting, the Board of Directors shall fix a new record date. Section 2. Director Inspection of Corporate Records. Every Director shall have the absolute right at any reasonable time to inspect all books of account, records and documents of every kind and to inspect the physical properties of the Corporation and all of its subsidiaries, both domestic and foreign. Inspection by a Director may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Section 3. Shareholder Inspection of Corporate Records. The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and committees of the Board of this Corporation and all of its subsidiaries shall be open to inspection upon the written demand on the Corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to such holder's interest as a shareholder or as a holder of such voting trust certificate. Inspection by shareholder or a holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. 14 17 A shareholder or shareholders who hold at least five percent (5%) in the aggregate of the outstanding voting shares of the Corporation, or hold at least one percent (1%) of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of Directors of the Corporation shall have the right, exercisable in person or by agent or attorney, to inspect and copy the record of shareholders' names and addresses and shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. Every shareholder shall have the absolute right to inspect at all reasonable times during office hours the original or a copy of these Bylaws as amended to date, at the Corporation's principal executive office, or if its principal executive office is not in California, then at its principal business office in California. In the event the principal executive office of the Corporation is outside California and the Corporation has no principal business office in California, it shall upon the written request of any shareholder furnish to such shareholder a copy of the Bylaws as amended to date. Section 4. Annual and Financial Reports. The requirement for the sending of an annual report to the shareholders, except upon proper request as set forth below, is hereby expressly waived. A shareholder or shareholders holding in the aggregate at least five percent (5%) of the outstanding shares of any class of the Corporation may make a written request to the Corporation for an income statement of the Corporation for the three (3) month, six (6) month, or nine (9) month period of the current fiscal year ended not less than thirty (30) days prior to the date of the request and a balance sheet of the Corporation as of the end of such period, and in addition, an annual report for the last fiscal year. The annual report shall contain a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial condition for such fiscal year. The income statement, balance sheet, and the annual report, shall be delivered to the person making the request within thirty (30) days thereafter. In addition, the Corporation shall upon the written request of any shareholder mail to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The annual report, quarterly income statement and balance sheets and other financial statements referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the Corporation or the certificate of the Chief Financial Officer or any other officer authorized by the Board of Directors that such financial statements were prepared without audit from the books and records of the Corporation. A copy of any of such statement and reports shall be kept on file in the principal executive office of the Corporation for twelve (12) months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. 15 18 Section 5. Share Certificates. Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman or Vice-Chairman of the Board or the President or any vice-president and by the Chief Financial Officer or any assistant financial officer or the Secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be a facsimile, provided that in such event at least one (1) signature, including that of any of the aforementioned officers or the Corporation's registrar or transfer agent, if any, shall be manually signed. In the event any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. There shall appear on certificates for shares of the Corporation the following facts if, and to the extent, applicable: (a) The shares are subject to restrictions upon transfer, including those imposed by the California Corporate Securities Law of 1968, the federal securities laws, any agreement between the Corporation and the issuee thereof, the Articles of Incorporation, these Bylaws or otherwise; (b) The shares are assessable; (c) The shares are not fully paid and the total amount of the consideration to be paid therefor and the amount theretofore paid thereon; (d) The shares are subject to a close corporation voting agreement; (e) The shares are subject to restrictions upon voting rights contractually imposed by the Corporation; (f) The shares are redeemable; (g) The shares are convertible and the period for conversion; (h) The Corporation has elected to be taxed pursuant to the provisions of Subchapter S of the Internal Revenue Code of 1954, as amended; and (i) The shares are classified or a class of the shares has two (2) or more series, and a statement setting forth the office or agency of the Corporation from which shareholders may obtain, upon request and without charge, a copy of a statement of the rights, preferences, privileges and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof. 16 19 No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time; provided, however, that the Board of Directors may authorize the issuance of a new share certificate in the place of any certificate theretofore issued by the Corporation and alleged to be lost, stolen or destroyed in the event that: (i) the request for the issuance of the new certificate is made within a reasonable time after the holder of the old certificate has notice of its loss, destruction or theft and prior to the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser or holder in due course; and (ii) the holder of the old certificate files a sufficient indemnity bond with or provides other adequate security to the Corporation and satisfies any other reasonable requirements imposed by the Board. In the event of the issuance of a new certificate, the rights and liabilities of the Corporation and the holders of the old and new certificates shall be governed by the provisions of sections 8104 and 8405 of the California Commercial Code. Section 6. Representation of Shares of Other Corporations. The Chairman of the Board, the President or any vice- president, or the Chief Financial Officer, or any assistant financial officer, and the Secretary or any assistant secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized to do so by proxy or power of attorney duly executed by any of said officers. Section 7. Registrars and Transfer Agents. The Board of Directors may appoint one (1) or more registrars of transfers, which shall be incorporated banks or trust companies, either domestic or foreign, and one (1) or more transfer agents or transfer clerks, who shall be appointed at such times and places as the Board of Directors shall determine. Section 8. Subchapter S Election. If this Corporation has elected to be taxed pursuant to the provisions of Subchapter S of the Internal Revenue Code of 1954 as amended, then the Corporation, any shareholder and any person to whom any of its shares are transferred shall not do any act or take any course of conduct which shall have the effect of terminating such election without the prior vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of the Corporation or the written consent of the persons entitled to vote such shares. Section 9. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors, and having been so determined, is subject to change from time to time as the Board of Directors shall determine. Section 10. Checks, Drafts and Other Instruments. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board of Directors. 17 20 Section 11. Execution of Contracts and Instruments. The Board of Directors, except as these Bylaws may otherwise provide, may authorize one (1) or more officers or agents of the Corporation to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Any instrument may also be executed on behalf of and in the name of the Corporation by the Chairman of the Board, the President, or any vice- president, and the Secretary or any assistant secretary, Chief Financial Officer or any assistant financial officer. Section 12. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules or construction and definitions contained in the California General Corporations Law shall govern the construction of these Bylaws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation, partnership in trust, as well as a natural person. Section 13. Indemnification and Liability Insurance. This Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that such person is or was an agent of this Corporation, against expenses, judgments, fines, settlements and other amounts incurred in connection with such proceeding to the fullest extent permitted by the provisions of California and federal law. Expenses incurred by any agent of this Corporation in defending any proceeding may be advanced by this Corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified. The Board of Directors may authorize the purchase and maintenance of insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this Corporation would have the power to indemnify the agent against such liability under the provisions of California and federal law. ARTICLE VI RESTRICTION ON TRANSFER OF SHARES Section 1. Options to Purchase. The shares of this Corporation shall be issued and held upon the condition that before there can be a valid sale or transfer of any of said shares or any interest therein, the holder of the shares to be sold or transferred shall give notice to the Secretary of this Corporation of his intention to sell or transfer such shares. Said notice shall specify the number of shares to be sold or transferred, the purchase consideration and the price per share, the terms upon which such holder intends to make such sale or transfer, and the name of the intended purchaser or 18 21 transferee. The Board of Directors shall have ten (10) days from the date of receipt of such notice by the Secretary within which to exercise an option to purchase such shares for the Corporation at the same price and upon the same terms as set forth in said notice. The right of this Corporation to exercise such option and to purchase such shares is subject to the restrictions governing the right of a corporation to purchase its own shares contained in Chapter 5 of the California General Corporations Law, and such other pertinent governmental restrictions as may from time to time be effective. If any such shares shall not be purchased by the Corporation, the Secretary shall notify all of the shareholders of record by mail of said proposed sale or transfer. Said notice to shareholders shall contain the same information concerning the proposed sale or transfer as received by the Corporation, and the Secretary shall mail said notice to the shareholders immediately upon receipt by him of notification from the Board of Directors that the Corporation will not purchase any or all of said shares, and in no event later than ten (10) days after receipt by the Secretary of the notice of intended sale or transfer. Within twenty (20) days after the date of mailing of said notice to the shareholders, any shareholder desiring to acquire any or all of the shares referred to in said notice shall deliver to the Secretary a written offer to purchase said shares or a specified number thereof at the same price per share and upon the same terms stated in the above-mentioned notice filed with the Secretary. If the total number of shares specified in such offers by shareholders equals but does not exceed the number of shares referred to in said notice and not purchased by this Corporation, then the offering shareholders shall be entitled to purchase the shares pursuant to their respective offers. If the total number of shares specified in said offers exceeds the number of shares referred to in said notice and not purchased by the Corporation, each offering shareholder shall be entitled to purchase such proportion of the shares available for purchase as the number of shares of the Corporation which he holds bears to the total number of shares held by all of such shareholders offering to purchase shares. If the total number of shares specified in such offers to purchase is less than the number of shares referred to in said notice and not purchased by the Corporation, the offering shareholders shall not be entitled to purchase any shares, and the exercise of any option to purchase, or election to purchase any shares by the Corporation shall be void and without force and effect. The seller or transferor in such case may sell or transfer said shares subject to the provisions and restrictions provided for below. Any shares mentioned in such a notice of intention to transfer and not purchased by the Corporation or the shareholders, may be sold or transferred at any time within six (6) months from the date of such notice to the person and at the price and terms specified therein. Such purchaser or transferee shall receive and hold said shares subject to all of the provisions and restrictions herein contained. Section 2. Nonmonetary Consideration. Notwithstanding anything in Section 1 of this Article VI to the contrary, in the event that part or all of the purchase consideration specified in the notice to the Secretary of the Corporation is other than money, such notice shall also specify the fair market value in monetary terms of such other consideration; and the Corporation and the 19 22 shareholders shall have the right to exercise their respective options to purchase said shares by delivery of a written offer specifying a per share purchase price equal to the total of the money consideration and the fair market value of the consideration other than money specified in said notice. With regard to the terms of the offer of the Corporation or a shareholder, the fair market value of consideration other than money shall be paid in cash. As used in this section, "consideration other than money" shall not mean the proposed purchaser's promissory note or other evidence of indebtedness. In the event the Corporation or any shareholder, as the case may be, objects to the amount specified in the notice as the fair market value of consideration other than money, they may give within ten (10) days of the receipt of such notice written notice to the Secretary of its or his intention to submit the matter to an appraiser for a determination. Pending such determination, the time for exercising options to purchase shall be stayed. Within fifteen (15) days from the date of delivery of such notice of submission to an appraiser, the objector and the holder of the shares to be sold shall select a mutually satisfactory single neutral appraiser. In the event the parties are unable to make such a selection, then either party may at any time thereafter apply to the Superior Court of the State of California in and for the County of San Diego (pursuant to a petition to compel arbitration) for the appointment of a single neutral appraiser in accordance with the California Code of Civil Procedure. The appraiser shall determine the fair market value of the consideration other than money. The decision of the appraiser shall be final and binding upon the objector and the holder of the shares to be sold. As soon as the purchase price has been determined, the appraiser shall give written notice thereof to the parties and to the Secretary. All expenses of appraisal and proceedings to appoint an appraiser shall be borne equally by the parties who exercise their option to purchase shares (who shall share such expenses between themselves in proportion to the number of shares of each elects to purchase), on the one hand, and the holder of shares to be sold on the other, unless the Corporation and every shareholder thereafter fail to exercise their respective options, in which case the objector shall bear all such expenses. Section 3. Waiver. The provisions of Sections 1 and 2 of this Article VI and the options and rights therein granted may be waived in writing by the corporation or by any shareholder with respect to any proposed sale or transfer of shares. In the event any such waiver is given, the provisions of this Article as to each of the waiving parties shall not be applicable to the proposed sale or transfer of shares with respect to which such waivers shall have been executed, but shall be applicable to any other shares or transfer of shares. Section 4. Termination. The provisions of this Article VI with respect to the transfer of shares shall be applicable until the earliest date on which the Corporation has ten (10) or more shareholders of record, and thereupon, shall automatically cease to be of any further force or effect. For purposes of this Section 4 of Article VI, shares held by husband and wife, whether or not jointly, shall be considered to be held by one (1) person. 20 23 ARTICLE VII AMENDMENTS Section 1. Power of Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the shares entitled to vote or by the written consent of shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation; provided however, that Article VI and this Article VII may be amended or repealed only upon the affirmative vote of the shares entitled to vote at least eighty percent (80%) of the shares entitled to vote or the written consent of shareholders entitled to vote such shares, and Section 8 of Article V may be amended or repealed only upon the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the shares entitled to vote or the written consent of shareholders entitled to vote such shares. Section 2. Power of Directors. Subject to the right of shareholders as provided in Section 1 of this Article VII to adopt, amend or repeal Bylaws, the Board of Directors may adopt new Bylaws or amend or repeal these Bylaws other than Section 8 of Article V, Article VI and this Article VII; provided however, that the Board of Directors may not adopt, amend or repeal a Bylaw changing the authorized number of Directors except for the purpose of fixing the exact number of Directors within the limits specified in Section 2 of Article III of these Bylaws if said section provides for a variable number of Directors. 21 24 CERTIFICATE OF INCORPORATOR The undersigned does hereby certify that: 1. I am the Incorporator of INTRAMED, INC. ; and 2. The foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by me this day. DATED: July 24, 1981 /s/ Thomas C. Ackerman -------------------------------- Thomas C. Ackerman Incorporator 22 25 AMENDMENT OF BYLAWS Set forth below is an amendment to the Bylaws of Medical Imaging Centers of America, Inc. duly and validly approved by the shareholders of this corporation as of May 21, 1984. Section 2. Number and Qualification of Directors. (a) The number of Directors of the Corporation shall not be less than five (5) nor more than nine (9) until changed by amendment of the Articles of Incorporation or by a Bylaw amending this section, duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided that a proposal to reduce the authorized minimum number of Directors below five (5) cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to vote. The exact number of Directors shall be fixed from time to time, within the limits specified in the Articles of Incorporation or in this section, by a Bylaw or amendment thereof, duly adopted by shareholders or by the Board of Directors; and (b) Subject to the foregoing provisions for changing the number of Directors, the exact number of Directors of this Corporation shall be five (5). /s/ Thomas C. Ackerman -------------------------------------- Thomas C. Ackerman, Secretary 23 26 AMENDMENT OF BYLAWS Set forth below is an amendment to the Bylaws of Medical Imaging Centers of America, Inc. duly and validly approved by the directors of this corporation as of May 24, 1995. Article II, Section 2. Annual Meetings. The Annual Meeting of Shareholders shall be held each year on a date and at a time designated by the Board of Directors. At each Annual Meeting, directors shall be elected and any other proper business may be transacted. Article III, Section 8. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held without call at times to be fixed by the Board of Directors from time to time. Such regular meetings may be held without notice. Article III, Section 10. Notice of Directors' Meetings. Amended to provide that communication by fax shall constitute delivery of notice by telephone. /s/ Denise L. Sunseri ----------------------------------- Denise L. Sunseri, Secretary 24 EX-4.4 3 FIRST AMENDMENT TO RIGHTS AGREEMENT DATED 1/23/96 1 EXHIBIT 4.4 FIRST AMENDMENT TO RIGHTS AGREEMENT This First Amendment to Rights Agreement (this "Amendment") is made and entered into as of the 23rd day of January, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and HARRIS TRUST COMPANY OF CALIFORNIA (the "Rights Agent"). RECITALS A. Whereas, the Company and Union Bank entered into a Rights Agreement (the "Rights Agreement") dated as of October 2, 1991; and B. Whereas, Harris Trust Company of California has replaced Union Bank as Rights Agent under the Rights Agreement; and C. Whereas, Section 27 of the Rights Agreement provides that, subject to certain conditions not applicable here, the Company may supplement or amend any provision of the Rights Agreement without the approval of any holders of Right Certificates representing shares of Common Stock; and D. Whereas, in October 1995, the Company effected a one-for-five reserve stock split (the "Reverse Stock Split") which had certain effects on the Rights Agreement; and E. Whereas, based on the advice of counsel to the Company, the Board of Directors of the Company believes that certain changes to the Rights Agreement, which among other things, provide greater flexibility for the Company under the Rights Agreement and take into consideration the Reverse Stock Split, are desirable and in the best interests of the Company and its shareholders and has authorized certain amendments to the Rights Agreement in the manner set forth herein; AGREEMENT NOW THEREFORE, the Company and the Rights Agent hereby agree as follows: 1. Amendments. The Rights Agreement is hereby amended as set forth below. (a) The first paragraph of Section 11(a)(ii) of the Rights Agreement is hereby amended to read in its entirety as follows: "(ii) In the event any Person shall become an Acquiring Person proper provision shall be made so that each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement, such number of Common Shares of the Company as shall equal the result obtained by (x) multiplying 1 2 the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the date such Person became an Acquiring Person (the "Adjustment Shares")." (b) Section 11(a)(iii) of the Rights Agreement is hereby amended to read in its entirety as follows: "(iii) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exercise of the Rights; provided, however, that if the Company determines that it is unable to cause the authorization of a sufficient number of additional Common Shares, then, in the event the Rights become exercisable, the Company, with respect to each Right and to the extent necessary and permitted by applicable law and any agreements or instruments in effect on the date hereof to which it is a party, shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the Purchase Price (such excess, the "Spread") and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as Common Shares) (each such share of preferred stock constituting a "Common Stock Equivalent")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the first occurrence of the event described in Section 11(a)(ii) above, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and then, if necessary, cash, which in the aggregate are equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is unlikely that sufficient additional Common Shares could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended and re-extended to the extent necessary, but not more than ninety (90) days following the first occurrence of the event listed in Section 11(a)(ii) above, in order that the Company may seek stockholder approval for the authorization of such additional shares 2 3 (such period as may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of a Common Share shall be the current per share market price (as determined pursuant to Section 11(d)) on the date of the first occurrence of the event listed in Section 11(a)(ii) above and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Shares on such date. (c) Section 23(b) of the Rights Agreement is hereby amended to read in its entirety as follows: "(b) The Board of Directors of the Company may, at its option, at any time prior to, or within ten (10) days after a Shares Acquisition Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.05 per Right (after giving effect to the Reverse Stock Split), appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish." (d) Section 24 of the Rights Agreement is hereby amended to read in its entirety as follows: "Section 24. Exchange (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Preferred Shares or Common Shares, at the option of the Board of Directors of the Company, at an exchange ratio of five one-hundredths of a Preferred Share or one Common Share per Right (after giving effect to the Reverse Stock Split), appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to subsection (a) of 3 4 this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Preferred Shares or Common Shares, at the option of the Board of Directors of the Company, equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Preferred Shares or Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient Preferred Shares or Common Shares issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Preferred Shares or Common Shares for issuance upon exchange of the Rights. (d) The Company shall not be required to issue fractions of Preferred Shares or Common Shares or to distribute certificates which evidence fractional Preferred Shares or Common Shares. In lieu of such fractional Preferred Shares or Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Preferred Shares or Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Preferred Share or Common Share. For the purposes of this subsection (e), the current market value of a whole Preferred Share or Common Share shall be the closing price of a Preferred Share or Common Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately after the public announcement by the Company that an exchange is to be effected pursuant to this Section 24." 2. No Other Changes. Except as specifically set forth herein, no change to the Rights Purchase Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Rights Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Rights Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 4 5 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. THE COMPANY: MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation By: /s/ Robert S. Muehlberg ------------------------------------------ Name: Robert S. Muehlberg Its: President and Chief Executive Officer THE RIGHTS AGENT: HARRIS TRUST COMPANY OF CALIFORNIA By: /s/ Michael Goedecke ------------------------------------------ Name: Michael Goedecke Its: Vice President 5 EX-4.5 4 SECOND AMENDMENT TO RIGHTS AGREEMENT DATED 3/1/96 1 EXHIBIT 4.5 SECOND AMENDMENT TO RIGHTS AGREEMENT This Second Amendment to Rights Agreement (this "Amendment") is made and entered into as of the 1st day of March, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and HARRIS TRUST COMPANY OF CALIFORNIA (the "Rights Agent"). RECITALS A. Whereas, the Company and Union Bank entered into a Rights Agreement (the "Rights Agreement") dated as of October 2, 1991; and B. Whereas, Harris Trust Company of California has replaced Union Bank as Rights Agent under the Rights Agreement; and C. Whereas, the Company and Harris Trust Company of California previously entered into a First Amendment to Rights Agreement dated as of January 23, 1996; and D. Whereas, Section 27 of the Rights Agreement provides that, subject to certain conditions not applicable here, the Company may supplement or amend any provision of the Rights Agreement without the approval of any holders of Right Certificates representing shares of Common Stock; and E. Whereas, based on the advice of counsel to the Company, the Board of Directors of the Company believes that certain amendments to the Rights Agreement, as provided herein, are desirable and in the best interests of the Company and its shareholders and has authorized certain amendments to the Rights Agreement in the manner set forth herein. AGREEMENT NOW THEREFORE, the Company and the Rights Agent hereby agree as follows: 1. Amendments. The Rights Agreement is hereby amended as set forth below. (a) The first sentence of Section 3(a) of the Rights Agreement is hereby amended to read in its entirety as follows: "(a) Until the earlier of (i) the seventh day after the Shares Acquisition Date or (ii) the seventh day after the date of the commencement of, or of the first public announcement of the intention of any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of Common Shares of the Company aggregating 30% or more of the then outstanding 1 2 Common Shares of the Company (including such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the name of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferrable only in connection with the transfer of Common Shares." (b) Section 23(b) of the Rights Agreement is hereby amended to read in its entirety as follows: "(b) The Board of Directors of the Company may, at its option, at any time prior to, or within seven (7) days after a Shares Acquisition Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.05 per Right (after giving effect to the Reverse Stock Split), appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Anything contained in this Rights Agreement to the contrary notwithstanding, the Rights shall not be exercisable following a transaction or event described in Section 11(a)(ii) prior to the expiration of the Company's right of redemption hereunder." 2. No Other Changes. Except as specifically set forth herein, no change to the Rights Purchase Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Rights Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Rights Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. THE COMPANY: MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation By: /s/ Robert S. Muehlberg ----------------------------------------- Name: Robert S. Muehlberg Its: President and Chief Executive Officer THE RIGHTS AGENT: HARRIS TRUST COMPANY OF CALIFORNIA By: /s/ Armando Ramos ----------------------------------------- Name: Armando Ramos Its: Vice President 3 EX-4.6 5 THIRD AMENDMENT TO RIGHTS AGREEMENT DATED 3/7/96 1 EXHIBIT 4.6 THIRD AMENDMENT TO RIGHTS AGREEMENT This Third Amendment to Rights Agreement (this "Amendment") is made and entered into as of the 7th day of March, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and HARRIS TRUST COMPANY OF CALIFORNIA (the "Rights Agent"). RECITALS A. Whereas, the Company and Union Bank entered into a Rights Agreement (the "Rights Agreement") dated as of October 2, 1991; and B. Whereas, Harris Trust Company of California has replaced Union Bank as Rights Agent under the Rights Agreement; and C. Whereas, the Company and Harris Trust Company of California previously entered into a First Amendment to Rights Agreement dated as of January 23, 1996; and D. Whereas, the Company and Harris Trust Company of California previously entered into a Second Amendment to Rights Agreement dated as of March 1, 1996; and E. Whereas, Section 27 of the Rights Agreement provides that, subject to certain conditions not applicable here, the Company may supplement or amend any provision of the Rights Agreement without the approval of any holders of Right Certificates representing shares of Common Stock; and F. Whereas, based on the advice of counsel to the Company, the Board of Directors of the Company believes that certain amendments to the Rights Agreement, as provided herein, are desirable and in the best interests of the Company and its shareholders and has authorized certain amendments to the Rights Agreement in the manner set forth herein. AGREEMENT NOW THEREFORE, the Company and the Rights Agent hereby agree as follows: 1. Amendments. The Rights Agreement is hereby amended as set forth below. (a) The first sentence of Section 3(a) of the Rights Agreement is hereby amended to read in its entirety as follows: "(a) Until Tuesday, March 12, 1996 at 11:59 p.m. Pacific Standard Time (the "Distribution Date"), (i) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the name of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (ii) the right to receive Right 1 2 Certificates will be transferrable only in connection with the transfer of Common Shares." (b) Section 23(b) of the Rights Agreement is hereby amended to read in its entirety as follows: "(b) The Board of Directors of the Company may, at its option, at any time prior to Tuesday, March 12, 1996 at 11:59 p.m. Pacific Standard Time redeem all but not less than all of the then outstanding Rights at a redemption price of $.05 per Right (after giving effect to the Reverse Stock Split), appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Anything contained in this Rights Agreement to the contrary notwithstanding, the Rights shall not be exercisable following a transaction or event described in Section 11(a)(ii) prior to the expiration of the Company's right of redemption hereunder." 2. No Other Changes. Except as specifically set forth herein, no change to the Rights Purchase Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Rights Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Rights Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. THE COMPANY: MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation By: /s/ Robert S. Muehlberg ----------------------------------------- Name: Robert S. Muehlberg Its: President and Chief Executive Officer THE RIGHTS AGENT: HARRIS TRUST COMPANY OF CALIFORNIA By: /s/ Michael Goedecke ----------------------------------------- Name: Michael Goedecke Its: Assistant Vice President 3 EX-4.7 6 FOURTH AMENDMENT TO RIGHTS AGREEMENT DATED 3/11/96 1 EXHIBIT 4.7 FOURTH AMENDMENT TO RIGHTS AGREEMENT This Fourth Amendment to Rights Agreement (this "Amendment") is made and entered into as of the 11th day of March, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and HARRIS TRUST COMPANY OF CALIFORNIA (the "Rights Agent"). RECITALS A. Whereas, the Company and Union Bank entered into a Rights Agreement (the "Rights Agreement") dated as of October 2, 1991; and B. Whereas, Harris Trust Company of California has replaced Union Bank as Rights Agent under the Rights Agreement; and C. Whereas, the Company and Harris Trust Company of California previously entered into a First Amendment to Rights Agreement dated as of January 23, 1996; and D. Whereas, the Company and Harris Trust Company of California previously entered into a Second Amendment to Rights Agreement dated as of March 1, 1996; and E. Whereas, the Company and Harris Trust Company of California previously entered into a Third Amendment to Rights Agreement dated as of March 7, 1996; and F. Whereas, Section 27 of the Rights Agreement provides that, subject to certain conditions not applicable here, the Company may supplement or amend any provision of the Rights Agreement without the approval of any holders of Right Certificates representing shares of Common Stock; and G. Whereas, based on the advice of counsel to the Company, the Board of Directors of the Company believes that certain amendments to the Rights Agreement, as provided herein, are desirable and in the best interests of the Company and its shareholders and has authorized certain amendments to the Rights Agreement in the manner set forth herein. AGREEMENT NOW THEREFORE, the Company and the Rights Agent hereby agree as follows: 1. Amendments. The Rights Agreement is hereby amended as set forth below. (a) The first sentence of Section 3(a) of the Rights Agreement is hereby amended to read in its entirety as follows: "(a) Until Tuesday, March 19, 1996 at 11:59 p.m. Pacific Standard Time (the "Distribution Date"), (i) the Rights will be evidenced (subject to the provisions 1 2 of Section 3(b) hereof) by the certificates for Common Shares registered in the name of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (ii) the right to receive Right Certificates will be transferrable only in connection with the transfer of Common Shares." (b) Section 23(b) of the Rights Agreement is hereby amended to read in its entirety as follows: "(b) The Board of Directors of the Company may, at its option, at any time prior to Tuesday, March 19, 1996 at 11:59 p.m. Pacific Standard Time redeem all but not less than all of the then outstanding Rights at a redemption price of $.05 per Right (after giving effect to the Reverse Stock Split), appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Anything contained in this Rights Agreement to the contrary notwithstanding, the Rights shall not be exercisable following a transaction or event described in Section 11(a)(ii) prior to the expiration of the Company's right of redemption hereunder." 2. No Other Changes. Except as specifically set forth herein, no change to the Rights Purchase Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Rights Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Rights Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. THE COMPANY: MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation By: /s/ Robert S. Muehlberg ----------------------------------------- Name: Robert S. Muehlberg Its: President and Chief Executive Officer THE RIGHTS AGENT: HARRIS TRUST COMPANY OF CALIFORNIA By: /s/ Michael Goedecke ----------------------------------------- Name: Michael Goedecke Its: Assistant Vice President 3 EX-10.2 7 1994 STOCK INCENTIVE PLAN 1 EXHIBIT 10.2 MEDICAL IMAGING CENTERS OF AMERICA, INC. 1994 STOCK OPTION PLAN ARTICLE ONE GENERAL I. PURPOSE OF THE PLAN This 1994 Stock Option Plan ("Plan") is intended to promote the interests of Medical Imaging Centers of America, Inc., a California corporation (the "Corporation"), by providing (i) key employees (including officers) of the Corporation (or its parent or subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its parent or subsidiary corporations), and (ii) consultants and other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations) with the opportunity to acquire a proprietary or increase their proprietary interest in the Corporation as an incentive for them to remain in the service of the Corporation (or its parent or subsidiary corporations). II. GENERAL A. The Plan shall become effective as of January 1, 1994 (the "Effective Date"). B. This Plan shall serve as the successor to the Corporation's 1983 Employee Stock Option Plan, its 1984 Employee Stock Option Plan (Nonqualified), and its 1985 Employee Incentive Stock Option Plan (together, the "Predecessor Plans"), and no further option grants or share issuances shall be made under the Predecessor Plans from and after the Effective Date. Each outstanding option under the Predecessor Plans immediately prior to the Effective Date are hereby incorporated into this Plan and shall accordingly be treated as outstanding options or share issuance under this Plan. However, each such option or share issuance shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and, except as otherwise expressly provided herein, no provision of this Plan shall affect or otherwise modify the rights or obligations of the holders of such incorporated options or shares with respect to their acquisition of shares of the Corporation's common stock or otherwise modify the rights or obligations of the holders of such options or shares. C. For purposes of this Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a PARENT of the Corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a SUBSIDIARY of the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2 D. Neither the grant of options nor the issuance of any shares pursuant to this Plan shall in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. E. The holder of an option grant under this Plan shall have none of the rights of a shareholder with respect to any shares subject to such option until such individual shall have exercised the option, paid the exercise price for the purchased shares and been issued a stock certificate for such shares. III. ADMINISTRATION OF THE PLAN A. This Plan shall be administered by a committee ("Committee") of two (2) or more non-employee Board members who assume full responsibility for the administration of the Plan (the "Plan Administrator"). Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. B. The Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding option grants or stock issuances as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any outstanding option or stock issuance. IV. OPTION GRANTS A. The persons eligible to receive option grants pursuant to the Plan ("Optionee") are as follows: (i) officers and other key employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); (ii) those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations). Non-employee members of the Board shall not be eligible to participate in the Plan or in any other stock option, stock purchase, stock bonus or other stock plan of the Corporation (or its parent or subsidiary corporations). B. The Plan Administrator shall have full authority to determine which eligible individuals are to receive option grants, the number of shares to be covered by each such grant, whether the granted option is to be an incentive stock option ("Incentive Option") which satisfies the requirements of Section 422A of the Internal Revenue Code or a non-statutory option not intended to meet such requirements, the time or times at which and the circumstances under which each granted option is to become exercisable and the maximum term for which the option may remain outstanding. C. Notwithstanding any other provision of this Plan, no individual shall be granted options to acquire more than one million (1,000,000) shares of stock hereunder. V. STOCK SUBJECT TO THE PLAN A. Shares of the Corporation's Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of the Plan which may be issued over the term of the Plan shall not exceed 900,000 newly authorized shares hereunder, 2 3 plus the shares remaining available for issuance under the Predecessor Plans which, as of December 31, 1993, was 773,500 shares reserved for issuance under existing options and 204,625 additional shares. The number of shares which may be issued pursuant to the Plan shall be subject to adjustment from time to time in accordance with the provisions of this Section VI. B. Should one or more outstanding options under this Plan (including outstanding options under the Predecessor Plans incorporated into this Plan) expire or terminate for any reason prior to exercise in full (including any option cancelled in accordance with the cancellation-regrant provisions of Section III of Article Two of the Plan), then the shares subject to the portion of each option not so exercised shall be available for subsequent option grant or share issuance under this Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised. C. In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, conversion or other change affecting the outstanding Common Stock, or any class of Common Stock as a class, without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the number and/or class of shares issuable under the Plan, (ii) the number and/or class of shares and price per share in effect under each outstanding option under this Plan (including outstanding options incorporated into this Plan from the Predecessor Plans). Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. D. Common Stock issuable under the Plan may be subject to such restrictions on transfer or such other restrictions as may be determined by the Plan Administrator. ARTICLE TWO OPTION GRANTS I. TERMS AND CONDITIONS OF OPTIONS Options granted to Employees of the Corporation or its parent or subsidiary corporations pursuant to this Article Two shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or non-statutory options. Individuals who are not Employees of the Corporation or its parent or subsidiary corporations may only be granted non-statutory options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. A. OPTION PRICE. (i) In General. The option price per share shall be fixed by the Plan Administrator. In no event, however, shall the price for any share be less than one hundred percent (100%) of the fair market value of that share on the date of the option grant. (ii) 10% Shareholder. If any individual to whom an option is granted is the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing 10% or more of the total combined voting power of all classes of stock of the Corporation or any one of its parent or subsidiary corporations, then the option price 3 4 per share shall not be less than one hundred and ten percent (110%) of the fair market value per share of Common Stock on the grant date. (iii) How Payable. The option price shall become immediately due upon exercise of the option and shall be payable in one of the following alternative forms specified below: - full payment in cash or check drawn to the Corporation's order; - full payment in shares of Common Stock held for at least six (6) months and valued at fair market value on the Exercise Date (as such term is defined below); - full payment in a combination of shares of Common Stock held for at least six (6) months and valued at fair market value on the Exercise Date and cash or check; or - full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee (I) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Corporation in connection with such purchase and (II) shall provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this subparagraph (iii), the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice. B. TERM AND EXERCISE OF OPTIONS. Each option granted under this Article Two shall have such term as may be fixed by the Plan Administrator, be exercisable at such time or times and during such period, and on such conditions, as is determined by the Plan Administrator and set forth in the stock option agreement evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years from the grant date and no option granted to a 10% shareholder shall have a maximum term in excess of five (5) years from the grant date. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee otherwise than by will or by the laws of descent and distribution following the Optionee's death. C. TERMINATION OF SERVICE. (i) Except to the extent otherwise provided pursuant to Section IV of this Article Two, the following provisions shall govern the exercise period applicable to any outstanding options under this Article Two which are held by the Optionee at the time of his or her cessation of Service or death. - Should an Optionee's Service terminate for any reason (including death or permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code) while the holder of one or more outstanding options under the Plan, then none of those options shall (except to the extent otherwise provided pursuant to Section IV of this Article Two) remain exercisable beyond the later of (i) the limited post-Service period designated by the Plan Administrator at the time of the option grant and set forth in the option agreement; or (ii) (A) ninety (90) days from the date of termination if termination was caused by other than the death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code) of such Optionee or (B) twelve (12) months from the date of termination if termination was caused by death or disability of Optionee. 4 5 - Any option granted to an Optionee under this Article Two and exercisable in whole or in part on the date of the Optionee's death may be subsequently exercised, by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution, provided and only if such exercise occurs prior to the earlier of (i) the first anniversary of the date of the Optionee's death or (ii) the specified expiration date of the option term. Upon the occurrence of the earlier event, the option shall terminate and cease to be exercisable. - Under no circumstances, however, shall any such option be exercisable after the specified expiration date of the option term. - During the limited post-Service period of exercisability, the option may not be exercised for more than the number of shares for which the option is exercisable on the date the Optionee's Service terminates. Upon the expiration of such limited exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable. (ii) The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article Two to be exercised, during the limited period of exercisability provided under subparagraph (i) above, not only with respect to the number of shares for which each such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments of purchasable shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. (iii) For purposes of the foregoing provisions of this Section I.C of Article Two (and for all other purposes under the Plan): - The Optionee shall (except to the extent otherwise specifically provided in the applicable option or issuance agreement) be deemed to remain in the Service of the Corporation for so long as such individual renders services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the Board or an independent consultant or advisor. - The Optionee shall be considered to be an Employee for so long as he or she remains in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. II. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees of the Corporation. Options which are specifically designated as "non-statutory" options when issued under the Plan shall not be subject to such terms and conditions. A. OPTION PRICE. The option price per share of any share of Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the fair market value of such share of Common Stock on the grant date. 5 6 B. DOLLAR LIMITATION. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee after December 31, 1986 under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. C. Except as modified by the preceding provisions of this Section II, all the provisions of the Plan shall apply to all Incentive Options granted hereunder. III. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding options under this Article Two (including outstanding options under the Predecessor Plans incorporated into this Plan) and to grant in substitution new options under this Article Two covering the same or different numbers of shares of Common Stock but having an option price for each share which is not less than one hundred percent (100%) of the fair market value of such share on the new grant date. IV. EXTENSION OF EXERCISE PERIOD The Plan Administrator shall have full power and authority to extend the period of time for which any option granted under this Article Two is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under Section I.C.(i) of this Article Two to such greater period of time as the Plan Administrator shall deem appropriate; provided, however, that in no event shall such option be exercisable after the specified expiration date of the option term. ARTICLE THREE MISCELLANEOUS I. CORPORATE TRANSACTION/CHANGE IN CONTROL A. Each outstanding option which is assumed in connection with a Corporate Transaction or is otherwise to continue in effect following a Corporate Transaction (as defined below) shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would be issuable, in consummation of such Corporate Transaction, to an actual holder of the same number of shares of Common Stock as are subject to such option immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price payable for such securities shall remain the same. Appropriate adjustments shall also be made to the class and number of securities available for issuance under the Plan following the consummation of such Corporate Transaction. B. In the event of any Corporate Transaction (as defined below) the exercisability of each option grant at the time outstanding under this Plan which is not continued under paragraph A hereof shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. Upon the consummation of the Corporate Transaction, all 6 7 option grants under this Plan shall terminate and cease to be outstanding. The Plan Administrator may, in its discretion, extend the provisions of this Paragraph B to options outstanding under the Predecessor Plans. C. A Corporate Transaction means: (i) a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Corporation's incorporation, (ii) the sale, transfer or disposition of all or substantially all of the assets of the Corporation in liquidation or dissolution of the Corporation, or (iii) any reverse merger in which the Corporation is the surviving entity but in which the holders of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities (as measured immediately prior to such merger) transfer ownership of those securities to person or persons not otherwise part of the transferor group. D. Except as otherwise provided by the Plan Administrator in agreements governing the grant of options, in connection with any Change in Control of the Corporation, the exercisability of each option grant at the time outstanding under this Plan shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. Similarly, all unvested shares issued under the Plan shall automatically vest immediately prior to the effective date of the Change in Control. For purposes of this Article Three, a Change in Control shall be deemed to occur in the event: (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept; or (ii) there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) cease, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. The provisions of this Paragraph D shall apply to option grants and/or stock issuances under the Predecessor Plans only to the extent expressly extended thereto by the Plan Administrator. II. DEFINITIONS OF FAIR MARKET VALUE The fair market value of a share of Common Stock shall be determined in accordance with the following provisions: - If shares of the Class of Common Stock to be valued are not at the time listed or admitted to trading on any national stock exchange but is traded on the NASDAQ National Market System, the fair market value shall be the closing selling price per share of a share of that class on the 7 8 date in question, as such price is reported by the National Association of Securities Dealers through the NASDAQ National Market System or any successor system. If there is no reported closing selling price for the series on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of fair market value. - If shares of the class of common stock to be valued are at the time listed or admitted to trading on any national stock exchange, then the fair market value of a share of that class shall be the closing selling price per share on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of a share of the class on such exchange on the date in question, then the fair market value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. - If shares of the series of common stock to be valued at the time are neither listed nor admitted to trading on any stock exchange nor traded on the NASDAQ National Market System, then the fair market value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate, which may include independent professional appraisals, in a manner consistent with the provisions of Section 260.140.50 of the Rules of the California Corporations Commissioner. III. TAX WITHHOLDING A. The Company's obligation to deliver shares or cash upon the exercise of stock options granted under the Plan shall be subject to the satisfaction of all applicable Federal, State and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion and upon such terms and conditions as it may deem appropriate (including the applicable safe-harbor provisions of SEC Rule 16b-3) provide any or all holders of outstanding option grants under the Plan with the election to have the Company withhold, from the shares of Common Stock otherwise issuable upon the exercise of such options, a portion of such shares with an aggregate fair market value equal to the designated percentage (up to 100% as specified by the optionee) of the Federal and State income taxes ("Taxes") incurred in connection with the acquisition of such shares. In lieu of such direct withholding, one or more option holders may also be granted the right to deliver shares of Common Stock to the Company in satisfaction of such Taxes. The withheld or delivered shares shall be valued at the Fair Market Value on the applicable determination date for such Taxes or such other date required by the applicable safe-harbor provisions of SEC Rule 16b-3. IV. AMENDMENT OF THE PLAN AND AWARDS A. Except as herein provided, the Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. No amendment or modification may adversely affect the rights and obligations of an Optionee with respect to options at the time outstanding under the Plan, nor adversely affect the rights of any Participant with respect to Common Stock issued under the Plan prior to such action, unless the Optionee consents to such amendment. In addition, the Board may not, without the approval of the Corporation's shareholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan (except for permissible adjustments under Article One, Section V) or (ii) materially modify the eligibility requirements for participation in the Plan or materially increase the benefits accruing to Optionees or Participants under the Plan. 8 9 B. Options to purchase shares of Common Stock may be granted under the Plan in excess of the number of shares then available for issuance under the Plan, provided shareholder approval is obtained for a sufficient increase in the number of shares available for issuance under the Plan within twelve (12) months after the date the first such excess option grants are made. V. EFFECTIVE DATE AND TERM OF PLAN A. This Plan, as successor to the Company's Predecessor Plans, shall become effective as of the Effective Date, and no further option grants shall be made under the Predecessor Plans from and after such Effective Date. If shareholder approval of this Plan is not obtained within twelve months after the Effective Date, then each option granted under this Plan shall terminate without ever becoming exercisable for the option shares and all shares issued hereunder shall be repurchased by the Corporation at the purchase price paid, together with interest (at the applicable Short Term Federal Rate). However, in the event such shareholder approval is not obtained, the Predecessor Plans shall continue in effect in accordance with the terms and provisions last approved by the Corporation's shareholders, and all outstanding options under the Predecessor Plans shall remain in full force and effect in accordance with the instruments evidencing such options and issuances. B. Each outstanding option issued under the Predecessor Plans immediately prior to the Effective Date of this Plan are hereby incorporated into this Plan and shall accordingly be treated as an outstanding option or share issuance under this Plan. However, each such option or share issuance shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and except as otherwise expressly provided in this Plan, no provision of this Plan shall affect or otherwise modify the rights or obligations of the holders of such options or shares with respect to their acquisition of shares of Common Stock, or otherwise modify the rights or obligations of the holders of such options or shares. C. The sale and remittance procedure authorized for the exercise of outstanding options under this Plan shall be available for all options granted under this Plan on or after the Effective Date and for all non-statutory options outstanding under the Option Plan and incorporated into this Plan. The Plan Administrator may also allow such procedure to be utilized in connection with one or more disqualifying dispositions of Incentive Option shares effected after the Effective Date, whether such Incentive Options were granted under this Plan or Predecessor Plans. D. The Plan shall terminate upon the earlier of (i) the tenth anniversary of the Effective Date or (ii) the date on which all shares available for issuance under the Plan shall have been issued or cancelled pursuant to the exercise, surrender or cash-out of the options granted under the Plan. If the date of termination is determined under clause (i) above, then all option grants outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants. VI. USE OF PROCEEDS Cash proceeds received by the Company from the sale of shares under the Plan shall be used for general corporate purposes. VII. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option under the Plan, and the issuance of Common Stock upon the exercise or surrender of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it. 9 10 B. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and State securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which stock of the same class is then listed. VIII. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. IX. MISCELLANEOUS PROVISIONS A. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. B. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 10 EX-10.4 8 GENERAL ELECTRIC AGREEMENT AND AMENDMENT 1 EXHIBIT 10.4 AGREEMENT AND AMENDMENT THIS AGREEMENT AND AMENDMENT (the "Agreement") is entered into as of January 16, 1996, between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation ("MICA"), MICA IMAGING, INC., an Illinois corporation, MICA CAL I INC., a California corporation, MICA CAL II INC., a California corporation, MICA CAL III INC., a California corporation, MICA CAL IV INC., a California corporation, MICA CAL VII INC., a California corporation, MICA CAL X, INC., a California corporation, MICA FLO I INC., a California corporation, MICA OR I INC., a California corporation, MICA PACIFIC, INC., a California corporation, and AFFILIATED IMAGING NETWORK, INC., a California corporation (collectively, the "MICA Subsidiaries" and referred to herein, together with MICA, as the "MICA Obligors"), and GENERAL ELECTRIC COMPANY, a New York corporation acting through GE Medical Systems ("GE Medical"). WHEREAS, GE Medical and MICA are parties to an Agreement, dated May 14, 1993 (the "Credit Agreement"), relating to, among other things, GE's provision of equipment and services to MICA and the MICA Subsidiaries and pursuant to which MICA executed and delivered to GE Medical a promissory note in the principal amount of $7,442,616.38 (the "MICA Promissory Note"); and WHEREAS, GE Medical and the MICA Obligors are parties to a Security Agreement, dated as of May 27, 1993, pursuant to which the MICA Obligors have granted to GE Medical certain liens and security interests; and WHEREAS, the principal amount currently outstanding under the MICA Promissory Note is approximately $2,700,000; and WHEREAS, GE Medical owns a Common Stock Purchase Warrant (the "Warrant") currently exercisable to purchase 160,000 shares of Common Stock of MICA ("Common Shares") at a price set forth in the Warrant; and WHEREAS, MICA has proposed to GE Medical that GE Medical accept as payment in full of the amounts currently outstanding under the MICA Promissory Note (1) a cash payment by MICA to GE Medical of $1,425,000 and (2) application by MICA of $912,000 of the principal amount outstanding under the MICA Promissory Note to the exercise price payable by GE Medical in connection with the exercise by GE Medical of its right to purchase 160,000 Common Shares under the Warrant; and WHEREAS, MICA has proposed that it issue to GE Medical, in connection with such transaction, a Common Stock Purchase Warrant to purchase 60,000 Common Shares; and WHEREAS, GE Medical has agreed to such proposal of MICA on the terms and conditions set forth herein; 2 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. MICA Promissory Note. (a)(i) MICA hereby agrees that, no later than three business days after the date of this Agreement, MICA shall make a cash payment to GE Medical in the amount of $1,425,000 by wire transfer of immediately available funds to an account designated by GE Medical. MICA hereby authorizes GE Medical to initiate a debit entry for such payment from MICA's account in lieu of such wire transfer payment. (ii) MICA agrees that, no later than three business days after the date of this Agreement, it will issue to GE Medical 160,000 Common Shares in connection with the exercise by GE Medical of the Warrant. Such Common Shares will be duly and validly issued and fully paid and nonassessable and not subject to preemptive rights. (b) GE Medical hereby agrees that its receipt from MICA of the cash payment of $1,425,000 referred to in paragraph (a)(i) of this Section 1 and 160,000 Common Shares issued by MICA under the Warrant shall constitute payment in full of all unpaid principal and accrued and unpaid interest under the MICA Promissory Note. GE Medical agrees that, as soon as practicable after such receipt, it shall cancel the Promissory Note held thereby and return such Promissory Note to MICA. 2. Amendment of Existing Credit Documentation. (a)(i) Credit Agreement Amendment. GE Medical and MICA agree that the Credit Agreement is, effective as of the date hereof, hereby amended by deleting from Section 1.36 thereof the phrase "under or in connection with the Note" and substituting therefor the phrase ", including, without limitation, all Liabilities of MICA or any Subsidiary to GE arising in connection with equipment leases and services provided by GE to MICA or any such Subsidiary,". (ii) Security Agreement Amendment. GE Medical and each of the MICA Obligors agree that the Security Agreement is, effective as of the date hereof, amended by deleting from Section 7(a) thereof the phrase "under the Promissory Note" and substituting therefor the phrase ", including, without limitation, all Obligations of MICA or any Subsidiary to GE arising in connection with equipment leases and services provided by GE to MICA or any such Subsidiary,". (b)(i) On and after the date hereof, each reference in either of the Credit Agreement or the Security Agreement to "this Agreement," "hereto" or "hereof," or words of like import, and each reference in the Security Agreement to the Credit Agreement and each reference in the Credit Agreement to the Security Agreement, shall mean and be a reference to the Credit Agreement or the Security Agreement, as the case may be, as amended hereby. (ii) Except as specifically amended hereby, the Credit Agreement and the Security Agreement shall remain in full force and effect and are hereby ratified and confirmed. 2 3 3. Additional Warrant. MICA hereby agrees that, no later than three business days after the date of this Agreement, MICA shall issue and deliver to GE Medical a Common Stock Purchase Warrant (the "Additional Warrant"), in the form attached hereto as Exhibit A, to purchase 60,000 fully paid and nonassessable Common Shares, at an exercise price of $8.50 per Common Share, which exercise price shall be adjusted as set forth in the Additional Warrant. The Additional Warrant shall be executed on behalf of MICA by the president or any executive officer of MICA under its corporate seal. 4. Representations and Warranties of MICA. (a) MICA hereby represents and warrants to GE Medical that each of MICA Medical Technology Services, Inc., MICA CAL XI Inc., MICA KAN I Inc., MICA KAN II Inc., MICA OK I Inc. and MICA TX I, Inc. (collectively, the "Dissolved MICA Subsidiaries") was a wholly-owned subsidiary of MICA as of the execution and delivery thereby of the Security Agreement as of May 27, 1993. (b) MICA hereby represents and warrants to GE Medical that (i) each of the Dissolved MICA Subsidiaries has been dissolved in accordance with the laws of the State of Delaware or the State of California, as the case may be, (ii) none of the Dissolved Subsidiaries is currently in existence and (iii) at the time of the dissolution of each of the Dissolved MICA Subsidiaries, such Dissolved MICA Subsidiary transferred all of its right, title and interest in the Collateral (as such term is defined in the Security Agreement) held thereby to MICA or one of the other MICA Subsidiaries. 5. Counterparts. This Agreement may be executed in counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 6. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first written above. GENERAL ELECTRIC COMPANY, acting through GE Medical Systems By: /s/ R.S. Berger ---------------------------------- Title: Manager, Financial Services MEDICAL IMAGING CENTERS OF AMERICA, INC. By: /s/ Robert S. Muehlberg ---------------------------------- Title: President and CEO MICA IMAGING, INC. By: /s/ Denise L. Sunseri ---------------------------------- Title: Vice President and CFO MICA CAL I INC. By: /s/ Robert S. Muehlberg ---------------------------------- Title: President and CEO MICA CAL II INC. By: /s/ Robert S. Muehlberg ---------------------------------- Title: President and CEO MICA CAL III INC. By: /s/ Robert S. Muehlberg ---------------------------------- Title: President and CEO 4 5 MICA CAL IV INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO MICA CAL VII INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO MICA CAL X, INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO MICA FLO I INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO MICA OR I INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO MICA PACIFIC, INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO AFFILIATED IMAGING NETWORK, INC. By: /s/ Robert S. Muehlberg ------------------------------- Title: President and CEO 5 6 EXHIBIT A MEDICAL IMAGING CENTERS OF AMERICA, INC. COMMON STOCK PURCHASE WARRANT JANUARY 16, 1996 7 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS.................................................................................... 1 2. EXERCISE OF WARRANT............................................................................ 5 2.1 Manner of Exercise............................................................... 5 2.2 Payment of Taxes................................................................. 5 2.3 Fractional Shares................................................................ 6 2.4 Continued Validity............................................................... 6 3. TRANSFER, DIVISION AND COMBINATION............................................................. 6 3.1 Transfer......................................................................... 6 3.2 Division and Combination......................................................... 7 3.3 Expenses......................................................................... 7 3.4 Maintenance of Books............................................................. 7 4. ADJUSTMENTS.................................................................................... 7 4.1 Stock Dividends, Subdivisions, Combinations and Reclassifications................ 7 4.2 Other Provisions Applicable to Adjustments under this Section.................... 8 (a) When Adjustments to Be Made....................................... 8 (b) When Adjustment Not Required...................................... 8 5. NOTICES TO WARRANT HOLDERS..................................................................... 9 5.1 Notice of Adjustments............................................................ 9 5.2 Notice of Certain Corporate Action............................................... 9 6. NO IMPAIRMENT.................................................................................. 9 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY................................................. 10 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS............................................. 10 9. RESTRICTIONS ON TRANSFERABILITY................................................................ 11 9.1 Restrictive Legend............................................................... 11
i 8 9.2 Notice of Proposed Transfers..................................................................... 12 9.3 Required Registration............................................................................ 13 (a) Suspension of Registration........................................................ 13 (b) Hold-Back Agreements.............................................................. 14 (i) Restrictions on Public Sale By Holder of Registrable Securities.............. 14 (ii) Restrictions on Sale of Equity Securities by the Company and Others.............................................................. 14 9.4 Incidental Registration.......................................................................... 15 9.5 Registration Procedures.......................................................................... 16 9.6 Expenses; Limitations on Registration............................................................ 20 9.7 Indemnification.................................................................................. 20 9.8 Termination of Restrictions...................................................................... 22 9.9 Listing on Securities Exchange................................................................... 23 9.10 Certain Limitations on Registration Rights....................................................... 23 9.11 Selection of Managing Underwriters............................................................... 24 10. SUPPLYING INFORMATION.......................................................................................... 24 11. LOSS OR MUTILATION............................................................................................. 24 12. OFFICE OF THE COMPANY.......................................................................................... 24 13. FINANCIAL AND BUSINESS INFORMATION............................................................................. 24 13.1 Information...................................................................................... 24 13.2 Annual Information............................................................................... 25 13.3 Filings.......................................................................................... 25 14. APPRAISAL...................................................................................................... 26 15. LIMITATION OF LIABILITY........................................................................................ 26 16. MISCELLANEOUS.................................................................................................. 26 16.1 Nonwaiver and Expenses........................................................................... 26 16.2 Notice Generally................................................................................. 26 16.3 Indemnification.................................................................................. 27 16.4 Remedies......................................................................................... 28 16.5 Successors and Assigns........................................................................... 28 16.6 Amendment........................................................................................ 28 16.7 Severability..................................................................................... 28
ii 9 16.8 Headings..................................................................... 28 16.9 Governing Law; Service of Process............................................ 28 16.10 MUTUAL WAIVER OF JURY TRIAL.......................................................... 29
EXHIBIT A - SUBSCRIPTION FORM EXHIBIT B - ASSIGNMENT FORM iii 10 THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES FOR WHICH IT CAN BE EXERCISED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT OR STATE LAW, THE RULES AND REGULATIONS THEREUNDER OR THE TRANSFER RESTRICTIONS OF THIS WARRANT. MEDICAL IMAGING CENTERS OF AMERICA, INC. COMMON STOCK PURCHASE WARRANT 60,000 Shares, Subject to Adjustment January 16, 1996 THIS IS TO CERTIFY THAT GENERAL ELECTRIC COMPANY, a New York corporation acting through GE Medical Systems, or registered assigns, is entitled, at any time on and after the Exercise Date (as such term is hereinafter defined) and on or prior to the Expiration Date (as such term is hereinafter defined), to purchase from MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), 60,000 shares of Common Stock (as such term is hereinafter defined), subject to adjustment as provided herein, of the Company at a purchase price of $8.50 per share of Common Stock (subject to adjustment as provided herein), all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company following the date of this Warrant. "Appraised Value" shall mean, in respect of any share of Common Stock on any date herein specified, the fair market value of such share of Common Stock (determined without giving effect to the discount for (i) a minority interest or (ii) any lack of liquidity of the Common Stock or to the fact that the Company may have no class of equity registered under the Exchange Act) as of the last day of the most recent fiscal month to end within 60 days prior to such date specified, based on the value of the Company as a whole, as determined by a member or members of the NASD selected in accordance with the definition below of "Current Market Price" on the basis of a sale between a willing seller and buyer, neither acting under any compulsion, divided by the number of Fully Diluted Outstanding shares of Common Stock. 11 "Book Value" shall mean, in respect of any share of Common Stock on any date herein specified, the consolidated book value of the Company applicable to Common Stock as of the last day of any month immediately preceding such date, divided by the number of Fully Diluted Outstanding shares of Common Stock as determined in accordance with GAAP by a firm of independent certified public accountants of recognized national standing selected by the Company and reasonably acceptable to the Holder. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the States of New York or California. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock of the Company, and any capital stock into which such Common Stock may thereafter be changed, and shall also include capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption. "Convertible Securities" shall mean evidences of indebtedness, options, warrants or other rights to receive shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the highest of (a) the Book Value per share of Common Stock at such date, and (b) the Appraised Value per share of Common Stock as at such date, or if there shall then be a public market for the Common Stock, the highest of (x) the Book Value per share of Common Stock at such date, and (y) the average of the daily market prices for 30 consecutive Business Days commencing 45 days before such date. The daily market price for each such day shall be (i) if the Common Stock is listed or admitted to trading on a stock exchange in the United States (including Nasdaq), the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, or (ii) if no sale takes place on such day on any such exchange, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange. "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 2 12 "Exercise Date" shall mean the date hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1. "Expiration Date" shall mean December 31, 1998. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant and all other options, warrants, Convertible Securities or other rights to purchase or receive Common Stock outstanding on such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "GE Medical" shall mean General Electric Company, a New York corporation acting through GE Medical Systems. "Holder" shall mean the Person or Persons in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose. In the event more than one Person is so registered, "Holder" for purposes of consent, demand or other action allowed or required to be taken hereunder by the Holders of this Warrant, the word "Holder" shall refer to a simple majority in interest of such Persons. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held exclusively by or for the account solely of the Company or any wholly-owned subsidiary thereof (collectively, "Subsidiary-Held Shares"), and shall include all shares issuable in respect of any certificates representing fractional interests in shares of Common Stock. Subsidiary-Held Shares shall remain Subsidiary-Held Shares even if held in pledge as security unless and until such shares are foreclosed upon and record, beneficial or equitable ownership transferred. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Preferred Stock" shall mean any class of the Company's stock having rights, preferences or privileges senior or prior in right to any other class. 3 13 "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Subsidiary" shall mean, with respect to any Person, any corporation of which an aggregate of more than 50 percent of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, 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 legally or beneficially by such Person and/or one or more Subsidiaries of such Person. "Subsidiary-Held Shares" shall have the meaning set forth above in the definition of "Outstanding." "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "Transfer Notice" shall have the meaning set forth in Section 9.2. "Warrants" shall mean this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, this Warrant. All Warrants shall at all times be identical as to terms and conditions and date, except as to the percentage of Fully Diluted Outstanding Shares of Common Stock for which they may be exercised. Collectively, all unexercised Warrants shall be exercisable for the exact same number of shares as this Warrant would be exercisable in the event any such Transfer or division had not occurred. Exercise of any warrant shall not trigger any of the adjustments contemplated by Section 4 of this Warrant. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by the holders of the Warrants upon the exercise thereof. 2. EXERCISE OF WARRANT 2.1 Manner of Exercise. From and after the Exercise Date and until 5:00 p.m., California time, on the Expiration Date, the Holder may exercise the Warrant on Business Days, for all or any portion of 60,000 shares (subject to adjustment as provided hereunder) of Common Stock then purchasable hereunder. 4 14 In order to exercise this Warrant, in whole or in part, Holder shall deliver to the Company at its principal office at 9444 Farnham Street, Suite 100, San Diego, California 92123 or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the manner specified below, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to Holder a certificate or certificates representing the aggregate number of full shares of Outstanding shares of Common Stock issuable upon such exercise. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as such Holder shall request in the notice and shall be registered in the name of Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the payment as set forth below, and this Warrant are received by the Company as described above and all taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid or agreed to be paid when finally determined. Payment of the Warrant Price shall be made at the option of the Holder by certified or official bank check, or by cancellation of indebtedness, if any, owed by the Company to such Holder. 2.2 Payment of Taxes. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon Holder, in which case such taxes or charges shall be paid by Holder. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of Holder, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. 2.3 Fractional Shares. The Company shall not issue a fractional share of Common Stock upon exercise of this Warrant. A fractional share otherwise issuable shall be rounded up to the nearest whole share. 2.4 Continued Validity. A holder of shares of Common Stock issued upon the exercise of this Warrant (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 5 15 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as Holder under Sections 9, 10, 13, and 16 of this Warrant. The Company shall, at the time of each exercise of this Warrant upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1 Transfer. This Warrant shall be nontransferable other than to a division, subsidiary or affiliate of GE Medical except by merger of the Holder with another entity or otherwise as contemplated in Section 9 hereof or by operation of law. Subject to compliance with Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. If requested by the Company, a new Holder shall acknowledge in writing, in form reasonably satisfactory to the Company, such Holder's continuing obligations under Section 9 of this Warrant. 3.2 Division and Combination. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expenses. The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 3. 3.4 Maintenance of Books. The Company shall maintain, at its aforesaid office or agency, books for the registration, and the registration of transfer, of this Warrant. 4. ADJUSTMENTS 6 16 The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1 Stock Dividends, Subdivisions, Combinations and Reclassifications. If at any time the Company shall with respect to its Common Stock or Convertible Securities: (a) pay a dividend or make distribution of Additional Shares of Common Stock or Convertible Securities other than convertible indebtedness or convertible Preferred Stock (in which event such Additional Shares of Common Stock issuable upon exchange or conversion shall be deemed distributed), (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (d) reclassify its Common Stock (other than a change in par value, or from par value to no par value) into shares of Common Stock and shares of any other class of stock; and, if the Outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the Outstanding shares of Common Stock within the meaning of this Section 4.1., then (i) the number of shares of Common Stock for which this Warrant is exercisable after the occurrence of any such event shall be equal to (A) the maximum number of shares of Common Stock underlying this Warrant prior to the occurrence of any such event, multiplied by (B) the number of Fully Diluted Outstanding shares of Common Stock after any such event, divided by the number of Fully Diluted Outstanding shares of Common Stock prior to any such event, and (ii) the Current Warrant Price shall be adjusted to equal the Current Warrant Price multiplied (A) by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. Any increased number of shares of Common Stock subject to this Warrant resulting from application of the foregoing shall be allocated ratably among all shares of Common Stock subject to this Warrant prior to each such event and the shares (including the newly allocated shares) not subject to clause (i) of Section 2.1 shall remain subject to the conditions precedent to exercise described in clause (ii) of Section 2.1. 7 17 4.2 Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 8 18 5. NOTICES TO WARRANT HOLDERS 5.1 Notice of Adjustments. Whenever the number of shares of Common Stock for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, specifying the number of shares of Common Stock for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to each Holder in accordance with Section 16.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by any Holder or any prospective purchaser of a Warrant designated by a Holder thereof. 5.2 Notice of Certain Corporate Action. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value, if any, of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY From and after the date hereof, the Company shall at all times reserve and keep available for issuance upon the exercise of Warrants such number of its authorized but unissued shares of 9 19 Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be reasonably necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be reasonably necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered or qualified; provided that the provisions of Section 9 shall govern with respect to Company's obligation to effect the registration of its securities under the Securities Act. 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY This Warrant shall not be transferable except to a division, subsidiary or affiliate of GE Medical or by merger of the Holder with another entity or otherwise by operation of law. Furthermore, this Warrant and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9, which conditions are intended to ensure compliance with the provisions of the Securities Act and state law, with respect to the Transfer of this Warrant or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. Furthermore, Holder, by acceptance of this Warrant and by acceptance and delivery of the Subscription Form in the form of Exhibit A hereto, represents and warrants to the Company for its reliance in connection with issuing this 10 20 Warrant and the Warrant Stock, respectively, that (i) Holder is acquiring the Warrant, and if applicable, the Warrant Stock for Holder's own account for investment and not for sale or other disposition thereof; (ii) Holder understands that such securities are not registered under the Securities Act and must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available; (iii) Holder, by reason of its business and financial experience has the capacity to protect its own interests in connection with purchase and transfer of such securities and is able to bear the economic risk thereof; and (iv) the Company has made available to Holder all documents and information regarding an investment in such securities requested by or on behalf of Holder, including but not limited to all publicly available information on file with the Commission. 9.1 Restrictive Legend. (a) Except as otherwise provided in this Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and are subject to the conditions specified in a certain Common Stock Purchase Warrant dated as of January 16, 1996, originally issued by Medical Imaging Centers of America, Inc. No transfer of the shares represented by this certificate shall be valid or effective until such conditions and any requirements of state law have been fulfilled. A copy of the form of such Warrant is on file with the Secretary of Medical Imaging Centers of America, Inc. The holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of such Warrant. (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: This Warrant and its underlying securities have not been registered under the Securities Act of 1933, as amended, and may not be transferred in violation of such Act or state law, the rules and regulations thereunder or the provisions of this Warrant. 9.2 Notice of Proposed Transfers. 11 21 (a) Prior to any Transfer or attempted Transfer of any Warrants or any shares of Warrant Stock, the holder of such Warrants or Warrant Stock shall give 10 days prior written notice (a "Transfer Notice") to the Company of such holder's intention to effect such Transfer, describing the manner and circumstances of the proposed Transfer, and shall obtain and deliver to the Company an opinion in form and substance reasonably satisfactory to the Company (addressed to the Company and upon which the Company may rely) from counsel to such holder who shall be reasonably satisfactory to the Company, that the proposed Transfer of such Warrants or such Warrant Stock may be effected without registration under the Securities Act and any applicable state securities laws. After receipt of the Transfer Notice and opinion, the Company shall, within five days thereof, so notify the holder of such Warrants or Warrant Stock and such holder shall thereupon be entitled to Transfer such Warrants or such Warrant Stock, in accordance with the terms of the Transfer Notice. Each certificate, if any, evidencing such shares of Warrant Stock issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(b), unless in the opinion of such counsel such legend is not required in order to ensure compliance with the Securities Act and any applicable state securities laws. The holder of the Warrants or the Warrant Stock, as the case may be, giving the Transfer Notice shall not be entitled to transfer and shall not transfer such Warrants or such Warrant Stock until (i) the Company receives a written statement of investment intent and sophistication from the proposed transferee of such Warrants or Warrant Stock in substance substantially similar to the final sentence of the first paragraph of Section 9 and (ii) such holder receives notice from the Company under this Section 9.2. (b) The Holders of Warrants and Warrant Stock shall have the right to request registration of such Warrant Stock pursuant to Sections 9.3 and 9.4. 9.3 Required Registration. The rights ("Required Registration") of holders of Warrants or Warrant Stock under this Section 9.3 shall expire on the Expiration Date. After receipt of a written request from holders of Warrants or Warrant Stock representing at least an aggregate of 50 percent of the total of (i) all shares of Warrant Stock then subject to issuance upon exercise of all Warrants or (ii) all shares of Warrant Stock then Outstanding having an aggregate Current Market Price in excess of $400,000, requesting that the Company effect the registration of Warrant Stock issuable upon the exercise of such holder's Warrants or of any of such holder's Warrant Stock under the Securities Act and specifying the intended method or methods of disposition thereof, the Company shall promptly notify all holders of Warrants and Warrant Stock in writing of the receipt of such request and each such holder, in lieu of exercising its rights under Section 9.4, may elect (by written notice specifying the intended method or methods of disposition of Warrant Stock sent to the Company within 10 Business Days from the date of such holder's receipt of the aforementioned Company's notice) to have such holder's shares of Warrant Stock included in such registration thereof pursuant to this Section 9.3. Thereupon the Company shall, as expeditiously as is possible, use its best efforts to effect the registration under the Securities Act of all shares of Warrant Stock which the Company has been so requested to register by such holders for sale, all to the extent required to permit the disposition (in accordance with the 12 22 intended method or methods thereof, as aforesaid) of the Warrant Stock so registered; provided, however, that the Company shall not be required to effect more than one registration of any Warrant Stock pursuant to this Section 9.3. No holder of any other warrant, Convertible Securities or other right to purchase shares of Common Stock shall receive or be entitled to receive registration rights that are more favorable than the registration rights available to the Holder pursuant to the terms of this Section 9. (a) Suspension of Registration. If the Company has been requested to effect a Required Registration, whether or not a Registration Statement with respect thereto has been filed or has become effective, and furnishes to the Holder requesting such registration a copy of a resolution of the Board of Directors of the Company certified by the Secretary of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company and its stockholders for such Registration Statement (i) to be filed on or before the date such filing would otherwise be required hereunder, (ii) to become effective or (iii) to remain effective as long as such Registration Statement would otherwise be required to remain effective, the Company shall have the right to defer such filing or effectiveness or to suspend such effectiveness for a period of not more than 120 days; provided, however, that during such time the Company may not file a Registration Statement for securities to be issued and sold for its own account or that of anyone other than the Holder or Holders requesting such Required Registration; and provided, further, that if effectiveness of a Registration Statement is suspended pursuant to this provision, the period of such suspension shall be added to the end of the period that such Registration Statement would otherwise be required to be effective hereunder so that the aggregate number of days that such Registration Statement is required to remain effective hereunder shall remain unchanged. (b) Hold-Back Agreements. (i) Restrictions on Public Sale By Holder of Registrable Securities. Each Holder whose registrable securities are covered by a Registration Statement filed pursuant to this Warrant agrees, if requested by the managing underwriters in an underwritten offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Registration Statement, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration), during the 10-day period prior to, and during the 90-day period beginning on, the closing date of each underwritten offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or the managing underwriters; provided, however, that the foregoing provisions shall not apply to any Holder if such Holder is prevented by applicable statute or regulation from entering any such agreement. 13 23 (ii) Restrictions on Sale of Equity Securities by the Company and Others. The Company agrees (1) not to effect any public or private offer, sale or distribution of its equity securities, including a sale pursuant to Regulation D under the Securities Act during the 10-day period prior to, and during the 90-day period beginning with, the effectiveness of a Registration Statement filed under this Warrant to the extent timely notified in writing by a holder of registrable securities or the managing underwriters (except as part of such registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or any successor form to such Forms or the issuance of Common Stock pursuant to warrants or employee stock options outstanding on the date hereof) and (2) to use its best efforts to cause each holder of its privately placed equity securities purchased from the Company at any time on or after the date of this Agreement to agree not to effect any public sale or distribution of any such securities during such period, including a sale pursuant to Rule 144 under the Securities Act (except as part of such registration, if permitted). 9.4 Incidental Registration. (a) The rights of holders of Warrants or Warrant Stock under this Section 9.4 shall expire on the Expiration Date. If the Company at any time proposes to file on its behalf or on behalf of any of its security holders ("the demanding security holders") a Registration Statement under the Securities Act on any form (other than a Registration Statement required under section 9.3 or a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of the Company pursuant to any employee benefit plan or to existing holders of the Company's debt or equity securities in any exchange or rights offering) for the general registration of securities to be sold for cash with respect to its Common Stock or any other class of equity security (as defined in Section 3(a)(11) of the Exchange Act) of the Company, it will give written notice to all holders of Warrants or Warrant Stock at least 30 days before the initial filing with the Commission of such Registration Statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by the Company. The notice shall offer to include in such filing the aggregate number of shares of Warrant Stock, and the number of shares of Common Stock for which this Warrant is exercisable, as such holders may request. Nothing herein shall preclude the Company from discontinuing the registration of its securities being effected on its behalf or on behalf of the demanding security holders at any time prior to the effective date of the registration relating thereto. (b) Each holder of any such Warrants or any such Warrant Stock desiring to have Warrant Stock registered under this Section 9.4 shall advise the Company in writing within 30 days after the date of receipt of such offer from the Company, setting forth the amount of such Warrant Stock for which registration is requested. The Company shall thereupon include in such filing the number of shares of Warrant Stock for which registration is so requested and shall use its best efforts to effect registration under the 14 24 Securities Act of such shares; provided, however, that if the managing underwriter of a proposed public offering shall advise the Company in writing that, in its opinion, the distribution of the shares of Common Stock into which the Warrants are exercisable and the Warrant Stock requested to be included in the registration concurrently with the securities being registered by the Company or such demanding security holder would materially and adversely affect the distribution of such securities by the Company or such demanding security holder, then all demanding security holders (other than any selling security holder who requested such registration and the Company (unless such Registration Statement was filed at the request of a demanding security holder)) shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. Except as otherwise provided in Section 9.6 hereof, all expenses of such registration shall be borne by the Company. 9.5 Registration Procedures. If the Company is required by the provisions of this Section 9 to use its best efforts to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof; (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of 180 days; (c) furnish to any selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request; (d) use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each Holder of such securities shall reasonably request in light of such Holder's intended plan of distribution (provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service of process or subject itself to taxation in any such jurisdiction), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement; 15 25 (e) if requested by a majority (in amount of underlying and outstanding shares ) of the Holders of Warrants or Warrant Stock being included in such registration, use its best efforts to obtain from either a nationally recognized underwriter or investment banker or an underwriter or investment banker reasonably acceptable to such Holders a firm commitment (pursuant to an underwriting agreement in customary form) to underwrite the public offering of the securities covered by such Registration Statement; (f) furnish, at the request of any holder requesting registration of Warrant Stock pursuant to Section 9.3, on the date that such shares of Warrant Stock are delivered to the underwriters for sale pursuant to such registration or, if such Warrant Stock is not being sold through underwriters, on the date that the Registration Statement with respect to such shares of Warrant Stock becomes effective (1) a copy of an opinion, dated such date, of the independent counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the holders making such request, stating that such Registration Statement has become effective under the Securities Act and that (i) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (ii) the Registration Statement, the related prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements and data contained therein), (iii) the descriptions in the Registration Statement or the prospectus, or any amendment or supplement thereto, of all legal matters and contracts and other legal documents or instruments are accurate and fairly present the information required to be shown and (iv) such counsel does not know of any legal or governmental proceedings, pending or contemplated, required to be described in the Registration Statement or prospectus, or any amendment or supplement thereto, which are not described as required, nor of any contracts or documents or instruments of a character required to be described in the Registration Statement or prospectus, or any amendment or supplement thereto, or to be filed as exhibits to the Registration Statement which are not described and filed or incorporated by reference as required, and such counsel shall also confirm that nothing has come to his attention to lead him to believe that either the Registration Statement or the prospectus, or any amendment or supplement thereto (other than financial material and data as to which such counsel need make no statement), contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which made, not misleading and (2) a letter dated such date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to the holder making such request and, if such accountants refuse to deliver such letter to such holder, then to the Company stating that they are independent certified public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements and other financial data of the Company included in the Registration Statement or the prospectus, or any amendment or supplement thereto, comply as to form in all material respects with the applicable accounting requirements of 16 26 the Securities Act. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as the holders holding a majority of the Warrant Stock so registered may reasonably request. Such letter from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five Business Days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as the holders holding a majority of the Warrant Stock being so registered may reasonably request; (g) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the securities covered by the Registration Statement; (h) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the Registration Statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act; and (i) notify each selling Holder of such registrable securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by the Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each selling Holder any such supplement or amendment. It shall be a condition precedent to the obligation of the Company to take any action pursuant to this Section 9 in respect of the securities which are to be registered at the request of any holder of Warrants or Warrant Stock that such holder shall furnish to the Company such information regarding the securities held by such holder and the intended method of disposition thereof as the Company shall reasonably request and as shall be required in connection with the action taken by the Company. Each selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 9.5(i) hereof, such selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement until such selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 9.5(i) hereof, and, if so directed by the Company such selling Holder will deliver to the Company all copies, other than permanent file copies then in such selling Holder's possession, of the most recent prospectus covering the securities covered by Registration Statement at the time of receipt of such notice. If the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained 17 27 effective by the number of days during the period from and including the date of the giving of notice pursuant to Section 9.5(i) hereof to the date when the Company shall make available to the selling Holders of the securities covered by such Registration Statement a prospectus supplemented or amended to conform with the requirements of Section 9.5(i) hereof. 9.6 Expenses; Limitations on Registration. All expenses incurred in complying with Section 9, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD, printing expenses, fees and disbursements of counsel for the Company, the reasonable fees and expenses of one counsel for the selling security holders (selected by those holding a majority of the shares being registered), expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 9.5(d)), shall be paid by the Company, except that the Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such holder of Warrant Stock. 9.7 Indemnification. (a) In the event of any registration of any of the Warrant Stock under the Securities Act pursuant to this Section 9, the Company shall indemnify and hold harmless the holder of such Warrant Stock, such holder's directors and officers and each other Person (including each underwriter) who participated in the offering of such Warrant Stock and each other Person, if any, who controls such holder or such participating Person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating Person or controlling Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein or any amendment or supplement thereto or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such Holder or such director, officer or participating Person or controlling Person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating Person or controlling Person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, 18 28 officer or participating Person or controlling Person and shall survive the transfer of such securities by such holder. (b) (i) Each holder of any Warrant Stock, by acceptance thereof, agrees to indemnify and hold harmless the Company, its directors and officers and each other Person, if any, who controls the Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or any such Person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to the Company by such Holder of such Warrant Stock, which information is contained, on the effective date thereof, in any Registration Statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto; provided, however, that such Holder's obligation under this Section 9.7(b) to indemnify and hold harmless the Company shall in no event exceed the damage attributable solely to the inclusion of such written information in such Registration Statement, preliminary prospectus, final prospectus, or amendment or supplement suffered by the Person or Persons whose claims gave rise to such losses, claims, damages or liabilities. (ii) 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 furnished in writing by persons specifically for inclusion in any prospectus or Registration Statement. (c) (i) If the indemnification provided for in this Section 9 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the 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 losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 9 as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any 19 29 legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9.7(c) were determined by pro rata allocation or by any other method of allocation which does not take account the equitable considerations referred to in paragraph (i) of this Section 9.7(c). 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. 9.8 Termination of Restrictions. Notwithstanding the provisions of this Section 9, the restrictions imposed by this Section 9 upon the transferability after the Exercise Date of the Warrants and the Warrant Stock and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock (i) when and so long as such security shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) when the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to ensure compliance with the Securities Act. Whenever after the Exercise Date the restrictions imposed by Section 9 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________,_____, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants thereafter issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Warrant Stock, as hereinabove provided, the holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Warrant Stock not bearing the restrictive legend set forth in Section 9.1(a). 9.9 Listing on Securities Exchange. If and so long as the Company shall list any shares of Common Stock on any securities exchange (including Nasdaq), it will, at its expense, list thereon, maintain and, when necessary, increase such listing of, all shares of Common Stock issued or, to the extent permissible under the applicable securities exchange rules, issuable upon the exercise of this Warrant so long as any shares of Common Stock shall be so listed during any such Exercise Period. 9.10 Certain Limitations on Registration Rights. Notwithstanding the other provisions of Section 9: 20 30 (i) the Company shall not be obligated to register the Warrant Stock of any Holder if (x) in the opinion of counsel to the Company reasonably satisfactory to the Holder and its counsel (or, if the Holder has engaged an investment banking firm, to such investment banking firm and its counsel), the sale or other disposition of such Holder's Warrant Stock, in the manner proposed by such Holder (or by such investment banking firm), may be effected without registering such Warrant Stock under the Securities Act, and (y) the failure of the Company to register such Warrant Stock will not result in a reduction in the net proceeds to be received by such Holder in connection with such sale or other disposition; and (ii) the Company shall not be obligated to register the Warrant Stock of any Holder pursuant to Section 9.3, if the Company has had a registration statement, under which such Holder had a right to have its Warrant Stock included pursuant to Sections 9.3 or 9.4, declared effective within one year prior to the date of the request pursuant to Section 9.3; provided, however, that if any Holder elected to have shares of its Warrant Stock included under such registration statement but some or all of such shares were excluded pursuant to the provisions of Section 9.3 or Section 9.4, then such one-year period shall be reduced to six months. 9.11 Selection of Managing Underwriters. The managing underwriter or underwriters for any offering of Warrant Stock to be registered pursuant to Section 9.3 shall be selected by the Company and shall be reasonably acceptable to the Holders of a majority of the shares being so registered (other than any shares being registered pursuant to Section 9.4). 10. SUPPLYING INFORMATION The Company shall cooperate with each Holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written agreement of GE Medical shall be sufficient indemnity) and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation. 21 31 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which shall initially be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. The Company shall notify Holder in writing prior to any change of the address of the office at which the Warrants may be presented. 13. FINANCIAL AND BUSINESS INFORMATION 13.1 Information. Except during any period when the Company is a Public Company (as hereinafter defined), it will deliver to each Holder, as soon as practicable after the end of each month, and in any event within 30 days thereafter, and after the end of each quarter and in any event within 45 days thereafter, one copy of an unaudited consolidated balance sheet, statement of income and statement of cash flow of the Company and its Subsidiaries for such period setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal years. Such financial statements shall be prepared by the Company in accordance with GAAP and shall be accompanied by the certification of the Company's chief executive officer or chief financial officer that such financial statements are complete and correct and present fairly the consolidated financial position, results of operations and cash flow of the Company and its Subsidiaries as at the end of such period and for such year-to-date period, as the case may be. For purposes of this Section 13, the term "Public Company" shall mean a company (i) that is subject to the reporting requirements of Section 15(d) of the Exchange Act, or (ii) any of whose securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act. 13.2 Annual Information. Except during any period when the Company is a Public Company, it will deliver to each Holder as soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, one copy of: (i) an audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, and (ii) audited consolidated statements of income and retained earnings and cash flow of the Company and its Subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year; all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by (i) an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company and (ii) a report of such independent certified public accountants confirming, or describing the agreed upon procedures applied to the Company's schedules computing, any adjustment, made pursuant to Section 4 22 32 during such year. Such report shall include a description of any errors determined by the accountants in the Company's schedules. 13.3 Filings. The Company will file on or before the required date all required regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and any Registration Statement, prospectus or written communication (other than transmittal letters) pursuant to the Securities Act, filed by the Company with (i) the Commission or (ii) any securities exchange on which shares of Common Stock are listed (provided, however, that the Company may request filing extensions pursuant to Rule 12b-25 under the Securities and Exchange Act of 1934, as amended). 14. APPRAISAL The determination of the Appraised Value per share of Common Stock shall be made by an investment banking firm of nationally recognized standing selected by the Company and acceptable to the Holder. If the investment banking firm selected by the Company is not acceptable to the Holder and the Company and the Holder cannot agree on a mutually acceptable investment banking firm, then the Holder and the Company shall each choose one such investment banking firm and the respective chosen firms shall agree on another investment banking firm which shall make the determination. The Company shall retain, at its sole cost, such investment banking firm as may be necessary for the determination of Appraised Value required by the terms of this Warrant. 15. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 16. MISCELLANEOUS 16.1 Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Company shall operate as a waiver of such right or otherwise prejudice the Company's rights, powers or remedies. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including 23 33 those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 16.2 Notice Generally. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered (i) in person with receipt acknowledged, (ii) by facsimile transmission, with receipt electronically confirmed during normal business hours of recipient, and that is confirmed by sending, no later than one (1) Business Day following such transmission, a copy of such facsimile, by registered or certified mail, return receipt requested, postage prepaid, or (iii) by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address or facsimile transmission number appearing on the books of the Company maintained for such purpose. (b) If to the Company at Medical Imaging Centers of America, Inc. 9444 Farnham Street, Suite 100 San Diego, California 92123 (619) 560-0046 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged or sent by facsimile with receipt electronically confirmed during normal business hours of recipient, or three Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. 16.3 Indemnification. In addition to the indemnities provided in Section 9.7 (as to the subject matter of which the indemnifications, including limitations, therein, shall control), the Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees, agents and attorneys from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder relating to or arising out of (i) Holder's exercise of this Warrant or ownership of any shares of Warrant Stock issued in connection therewith or (ii) any litigation to which the Holder is made a party in its capacity as a stockholder or warrant holder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, 24 34 actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final nonappealable judgment by a court to have resulted from either (i) the Holder's gross negligence or willful misconduct or (ii) actions or omissions taken or not taken by the Holder in any capacity other than as a stockholder or warrant holder of the Company. 16.4 Remedies. Each holder of Warrant and Warrant Stock, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under Section 9 of this Warrant. 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 Section 9 of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 16.5 Successors and Assigns. Subject to the provisions of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. 16.6 Amendment. This Warrant and all other Warrants may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder, provided that no such Warrant may be modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the prior written consent of the Holder thereof. 16.7 Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 16.8 Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 16.9 Governing Law; Service of Process. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the state of the Company's incorporation applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. Service of process on the Company or Holder in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 16.2. 25 35 16.10 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE COMPANY AND HOLDER HEREOF WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE COMPANY AND HOLDER HEREOF DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY AND HOLDER HEREOF WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. MEDICAL IMAGING CENTERS OF AMERICA, INC. By: ------------------------ Title: Attest: - ------------------------ Title: 26 36 EXHIBIT A SUBSCRIPTION FORM (To be executed only upon exercise of Warrant) The undersigned registered owner of the attached Warrant irrevocably exercises such Warrant for the purchase of __________________________ shares of Common Stock of Medical Imaging Centers of America, Inc. and herewith makes payment therefor, all at the price and on the terms and conditions specified in such Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to __________________________ whose address is __________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in such Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. -------------------------------- Name of Registered Owner) -------------------------------- (Signature of Registered Owner) -------------------------------- (Street Address) -------------------------------- (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever. 37 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of the attached Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under such Warrant, with respect to the number of shares of Common Stock set forth below: Name and Address of Assignee No. of Shares of Common Stock and does hereby irrevocably constitute and appoint________________________ attorney-in-fact to register such transfer on the books of Medical Imaging Centers of America, Inc. maintained for the purpose, with full power of substitution in the premises. Dated:______________ Print Name: ______________ Signature: ______________ Witness: ______________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.6 9 EMPLOYMENT AGREEMENT WITH ROBERT S. MUEHLBERG 1 EXHIBIT 10.6 January 30, 1996 Robert S. Muehlberg 10385 Eagle Lake Drive San Diego, CA 92029 Dear Mr. Muehlberg: As you are aware, the Compensation/Stock Option Committee of the Board of Directors of Medical Imaging Centers of America, Inc. (the "Company") granted you a severance package on May 25, 1994 which includes one year of salary and benefits upon involuntary termination of your employment with the Company. The Company and you desire to restate the terms of such package and to include therein an amendment with respect to the definition of "change in control". Now, therefore, in consideration of the foregoing and the mutual covenants and agreements herein contained, the Company and you hereby agree as follows: In the event of the involuntary termination of your employment with the Company, at any time, the Company irrevocably agrees to provide you with the following benefits: 1. You will be paid in a lump sum, within 30 days after your termination, an amount equal to one (1) times the sum of your then existing annual salary, car allowance and prior year's bonus. In addition, during the 12-month period following your last day of actual service with the Company, you will be provided all benefit programs, or reasonable equivalents thereof, which are offered by the Company at the time of termination and in which you and your dependents are then enrolled. These benefits will be fully governed by the insurance contracts or benefit plans in force at the time of termination. During the 12-month period referred to above, pension benefits will continue to accrue and you will be fully vested in such benefits, but no further vacation pay shall be accrued and you will not be entitled to reimbursement for business expenses incurred during such period. The lump sum payment referred to above shall be in addition to, and not a substitution for, any accrued and unpaid salary, vacation, pension, retirement benefits, unreimbursed expenses or other payments to which you may be otherwise entitled or which may have been accrued to you under any other programs in which you have been previously enrolled as an employee of the Company. In addition, all stock options you hold for Company capital stock shall fully vest as of your last day of active service. 2 Robert S. Muehlberg January 30, 1996 Page 2 2. Subject to paragraph 3 below, the phrase "involuntary termination" as used in this letter shall include, but not be limited to, any termination of your employment by the Company for any reason, and any termination of your employment by you due to the following circumstances: a) a reduction in your salary or Company paid benefits; b) a reduction of your eligibility for any Company bonus, incentive compensation, stock option plans or other benefit programs; c) a substantial change in your title, position or authority within the Company; d) a change of your principal place of employment from San Diego, California; or e) a change in control due to (1) the Company or its shareholders entering into an agreement to dispose of, whether by sale, exchange, merger, consolidation, reorganization, dissolution or liquidation (A) not less than 80% of the assets of the Company or (B) a portion of the outstanding common stock such that one person or "group" (as defined by the Securities and Exchange Commission) owns, of record or beneficially, not less than 25% of the outstanding common stock; or (2) the Company issues and sells to one person or "group" (as defined by the Securities and Exchange Commission) such number of shares of common stock that said person or group owns, of record or beneficially, not less than 25% of the common stock outstanding after such issuance; or (3) a change in the composition of the Board of Directors of the Company (the "Board") such that the individuals who, as of the date of this agreement, constitute the Board (such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this paragraph 2(e), that any individual who becomes a member of the Board subsequent to the date of this Agreement whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this provision) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 3 Robert S. Muehlberg January 30, 1996 Page 3 Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or "group" (as defined by the Securities and Exchange Commission) other than the Board shall not be so considered as a member of the Incumbent Board. 3. The benefits set forth in this letter will not be payable or will cease to be paid to you: a) in the case of any of the events giving rise to involuntary termination of the type referred to in paragraph 2 above, unless you tender your resignation in writing from all positions you then hold in the Company and its subsidiaries and affiliates as a director, officer or member of any board or committee within 30 days after the occurrence of the events as described in paragraph 2, sections a) through d) and within 180 days after the occurrence of the event described in paragraph 2, section e); and b) in the case of any termination by the Company, such termination is due to your having committed fraud or having disclosed confidential information that would be seriously detrimental to the Company, or your having committed a similar corrupt act that would be seriously detrimental to the Company. 4. This agreement shall bind and inure to the benefit of the successors, heirs, assigns and personal representatives of each of you and the Company, and may not be assigned by the Company, in whole or in part, without your prior written consent. This agreement supercedes any other understandings or agreements between the parties hereto regarding the subject matter hereof. In the event of a dispute concerning this agreement, the prevailing party shall be entitled to be awarded reasonable expenses, including attorney's fees. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. MEDICAL IMAGING CENTERS OF AMERICA, INC. a California corporation By: /s/ Denise L. Sunseri ------------------------------------------------- Name: Denise L. Sunseri Its: Vice President and Chief Financial Officer /s/ Robert S. Muehlberg ------------------------------------------------------ Robert S. Muehlberg 4 FIRST AMENDMENT TO SEVERANCE AGREEMENT This First Amendment to Severance Agreement (this "Amendment") is made and entered into as of the 19th day of March, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and Robert S. Muehlberg. The Company and Mr. Muehlberg hereby agree to amend that certain letter agreement between the Company and Mr. Muehlberg concerning the Company's obligations in the event of Mr. Muehlberg's involuntary termination, dated as of January 30, 1996 (the "Severance Agreement"), in the manner set forth below: 1. Amendments. (a) Paragraph 2 of the Severance Agreement is hereby amended by adding the following clause f): "f) the termination of the Auction Period (as such term is defined in Section 1 of the Agreement of Compromise and Settlement dated as of March 19, 1996 by and among Medical Imaging Centers of America, Inc. ("MICA"), Keith R. Burnett, Robert S. Muehlberg, Denise L. Sunseri and Robert G. Ricci, on the one hand, and Warren G. Lichtenstein, Lawrence Butler, Jack L. Howard, Steel Partners II, L.P., Steel Partners, L.L.C., and Steel Partners Services, Ltd., on the other hand) without the consummation of an Auction Transaction (as such term is defined in Section 1 of the Agreement of Compromise and Settlement) prior to the end of the Auction Period." (b) Paragraph 3(a) of the Severance Agreement is hereby amended by amending and restating the last line of Paragraph 3(a) as follows: "occurrence of any of the events described in paragraph 2, sections e) and f); and" 2. No Other Changes. Except as specifically set forth herein, no change to the Severance Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Severance Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Severance Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This Amendment may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. MEDICAL IMAGING CENTERS OF AMERICA, INC. a California corporation By: /s/ Robert S. Muehlberg --------------------------------------------- Name: Robert S. Muehlberg Its: President and Chief Executive Officer /s/ Denise L. Sunseri ------------------------------------------------- 2 EX-10.7 10 EMPLOYMENT AGREEMENT WITH DENISE L. SUNSERI 1 EXHIBIT 10.7 January 30, 1996 Denise L. Sunseri 12354 Mona Lisa Street San Diego, CA 92130 Dear Ms. Sunseri: As you are aware, the Compensation/Stock Option Committee of the Board of Directors of Medical Imaging Centers of America, Inc. (the "Company") granted you a severance package on May 25, 1994 which includes one year of salary and benefits upon involuntary termination of your employment with the Company. The Company and you desire to restate the terms of such package and to include therein an amendment with respect to the definition of "change in control". Now, therefore, in consideration of the foregoing and the mutual covenants and agreements herein contained, the Company and you hereby agree as follows: In the event of the involuntary termination of your employment with the Company, at any time, the Company irrevocably agrees to provide you with the following benefits: 1. You will be paid in a lump sum, within 30 days after your termination, an amount equal to one (1) times the sum of your then existing annual salary, car allowance and prior year's bonus. In addition, during the 12-month period following your last day of actual service with the Company, you will be provided all benefit programs, or reasonable equivalents thereof, which are offered by the Company at the time of termination and in which you and your dependents are then enrolled. These benefits will be fully governed by the insurance contracts or benefit plans in force at the time of termination. During the 12-month period referred to above, pension benefits will continue to accrue and you will be fully vested in such benefits, but no further vacation pay shall be accrued and you will not be entitled to reimbursement for business expenses incurred during such period. The lump sum payment referred to above shall be in addition to, and not a substitution for, any accrued and unpaid salary, vacation, pension, retirement benefits, unreimbursed expenses or other payments to which you may be otherwise entitled or which may have been accrued to you under any other programs in which you have been previously enrolled as an employee of the Company. In addition, all stock options you hold for Company capital stock shall fully vest as of your last day of active service. 2 Denise L. Sunseri January 30, 1996 Page 2 2. Subject to paragraph 3 below, the phrase "involuntary termination" as used in this letter shall include, but not be limited to, any termination of your employment by the Company for any reason, and any termination of your employment by you due to the following circumstances: a) a reduction in your salary or Company paid benefits; b) a reduction of your eligibility for any Company bonus, incentive compensation, stock option plans or other benefit programs; c) a substantial change in your title, position or authority within the Company; d) a change of your principal place of employment from San Diego, California; or e) a change in control due to (1) the Company or its shareholders entering into an agreement to dispose of, whether by sale, exchange, merger, consolidation, reorganization, dissolution or liquidation (A) not less than 80% of the assets of the Company or (B) a portion of the outstanding common stock such that one person or "group" (as defined by the Securities and Exchange Commission) owns, of record or beneficially, not less than 25% of the outstanding common stock; or (2) the Company issues and sells to one person or "group" (as defined by the Securities and Exchange Commission) such number of shares of common stock that said person or group owns, of record or beneficially, not less than 25% of the common stock outstanding after such issuance; or (3) a change in the composition of the Board of Directors of the Company (the "Board") such that the individuals who, as of the date of this agreement, constitute the Board (such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this paragraph 2(e), that any individual who becomes a member of the Board subsequent to the date of this Agreement whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this provision) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 3 Denise L. Sunseri January 30, 1996 Page 3 Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or "group" (as defined by the Securities and Exchange Commission) other than the Board shall not be so considered as a member of the Incumbent Board. 3. The benefits set forth in this letter will not be payable or will cease to be paid to you: a) in the case of any of the events giving rise to involuntary termination of the type referred to in paragraph 2 above, unless you tender your resignation in writing from all positions you then hold in the Company and its subsidiaries and affiliates as a director, officer or member of any board or committee within 30 days after the occurrence of the events as described in paragraph 2, sections a) through d) and within 180 days after the occurrence of the event described in paragraph 2, section e); and b) in the case of any termination by the Company, such termination is due to your having committed fraud or having disclosed confidential information that would be seriously detrimental to the Company, or your having committed a similar corrupt act that would be seriously detrimental to the Company. 4. This agreement shall bind and inure to the benefit of the successors, heirs, assigns and personal representatives of each of you and the Company, and may not be assigned by the Company, in whole or in part, without your prior written consent. This agreement supercedes any other understandings or agreements between the parties hereto regarding the subject matter hereof. In the event of a dispute concerning this agreement, the prevailing party shall be entitled to be awarded reasonable expenses, including attorney's fees. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. MEDICAL IMAGING CENTERS OF AMERICA, INC. a California corporation By: /s/ Robert S. Muehlberg ----------------------------------------------- Name: Robert S. Muehlberg Its: President and Chief Executive Officer /s/ Denise L. Sunseri ----------------------------------------------------- Denise L. Sunseri 4 FIRST AMENDMENT TO SEVERANCE AGREEMENT This First Amendment to Severance Agreement (this "Amendment") is made and entered into as of the 19th day of March, 1996, by and between MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation (the "Company"), and Denise L. Sunseri. The Company and Ms. Sunseri hereby agree to amend that certain letter agreement between the Company and Ms. Sunseri concerning the Company's obligations in the event of Ms. Sunseri's involuntary termination, dated as of January 30, 1996 (the "Severance Agreement"), in the manner set forth below: 1. Amendments. (a) Paragraph 2 of the Severance Agreement is hereby amended by adding the following clause f): "f) the termination of the Auction Period (as such term is defined in Section 1 of the Agreement of Compromise and Settlement dated as of March 19, 1996 by and among Medical Imaging Centers of America, Inc. ("MICA"), Keith R. Burnett, Robert S. Muehlberg, Denise L. Sunseri and Robert G. Ricci, on the one hand, and Warren G. Lichtenstein, Lawrence Butler, Jack L. Howard, Steel Partners II, L.P., Steel Partners, L.L.C., and Steel Partners Services, Ltd., on the other hand) without the consummation of an Auction Transaction (as such term is defined in Section 1 of the Agreement of Compromise and Settlement) prior to the end of the Auction Period." (b) Paragraph 3(a) of the Severance Agreement is hereby amended by amending and restating the last line of Paragraph 3(a) as follows: "occurrence of any of the events described in paragraph 2, sections e) and f); and" 2. No Other Changes. Except as specifically set forth herein, no change to the Severance Agreement is intended by the parties hereto. Except as modified hereby, the parties to the Severance Agreement hereby reaffirm in all respects all of the covenants, agreements, terms and conditions set forth in the Severance Agreement, which are incorporated in full herein by reference, and all terms, conditions and provisions thereof shall remain in full force and effect, except as amended hereby. 3. Miscellaneous. The headings and titles of this Amendment are for convenience only and do not constitute a part hereof. This Amendment shall be governed by and construed in accordance with the laws of the State of California. This Amendment may be executed in any number of counterparts, any one of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. MEDICAL IMAGING CENTERS OF AMERICA, INC. a California corporation By: /s/ Denise L. Sunseri --------------------------------------------------- Name: Denise L. Sunseri Its: Vice President and Chief Financial Officer /s/ Robert S. Muehlberg ------------------------------------------------------- EX-10.8 11 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT 1 EXHIBIT 10.8 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT This Agreement is made effective as of March 14, 1988 by and between MICA CAL IV, INC. a California corporation (hereinafter referred to as "Corporation"), and Magnetic Imaging Medical Group (hereinafter referred to as "Physician Group"). RECITALS A. Corporation, after careful study, has concluded that there is a need in Huntington Beach for a medical center specializing in performing a variety of medical imaging and diagnostic services by experienced physicians at reasonable cost. B. Corporation has a comprehensive system for establishing and providing financial and related management to such a medical center which makes available to qualified physicians a fully staffed facility, equipment, supplies, management, capital, marketing services, and systems necessary to provide a large volume of medical imaging and diagnostic services to patients at reasonable cost. These services will be obtained from Medical Imaging Centers of America, Inc. ("MICA"). C. Corporation desires to make its system available to physicians who are capable of offering high quality services to the public at a competitive cost. To that end, Corporation has committed substantial resources, and has incurred substantial expenses and future obligations to develop the medical imaging center located at 7677 Center Avenue, Huntington Beach, California 92647 (hereinafter referred to as the "Center"). D. Physician Group desires to contract with Corporation for use of Corporation's management services and system of delivering medical imaging and diagnostic care, a sublease for the Center, and a license for use of any appropriate trade names and marks which Corporation may own or own rights to license. AGREEMENT NOW, THEREFORE, the parties agree as follows: ARTICLE I Duties of Parties 1.1 Management Services of Corporation. Corporation shall provide the following services: 1 2 a. General Administrative Services. Overall supervision and management of the Center, including supervision over the services and personnel described below. b. Personnel. Provision to the Center of all non-physician personnel needed to operate and support the Center, such as nurses, technicians, receptionists, secretarial, clerical, purchasing and marketing personnel. No chief technologist shall be employed or terminated by the Corporation without the consent of Physician Group, which consent shall not be unreasonably withheld. c. Training. Training of all non-physician personnel at the Center. d. Fiscal Services. Fiscal services including accounting, auditing, bookkeeping, budgeting, patient billings and record keeping, accounts receivable, accounts payable processing, and electronic data processing. e. Patient Records. Ownership and maintenance of patient medical records and archives, record retrieval and record monitoring to assist Physician Group with utilization and quality assurance reviews. f. Physician Recruiting. Assistance to Physician Group in recruiting and screening prospective physician-contractors, and physician-employees. Physician Group shall make the final selections. g. Quality Control. Assistance to Physician Group in the development of appropriate quality control programs and protocols, including development of performance and utilization standards, sampling techniques for case review, and preparation of appropriately documented studies. h. Administrative Services for Physician Group. Provision of general administrative services to Physician Group in connection with its business affairs relating to the Center, which shall include maintenance of Physician Group's books and records and accounting services, billing, and such other administrative services as Physician Group may from time to time require with respect to the operation of the Center. i. Management Reports. Preparation of management reports to assist Physician Group in evaluating the performance and productivity of the Center and of other doctors employed by or contracted with Physician Group at the Center. j. Marketing. Marketing of the medical imaging and diagnostic services offered at the Center by Physician Group pursuant to a marketing plan to be jointly developed and shall be subject to approval by Physician Group. 2 3 k. Equipment and Supplies. Provision of all equipment, furnishings, and supplies reasonably necessary for the efficient operation of the Center. l. Janitorial and Maintenance Service. Janitorial, grounds and maintenance services for the Center and its equipment and furnishings. 1.2 Administrative Services of Physician Group. Physician Group shall cooperate with the Corporation and use its best efforts to assure the continuing success of the Center. These efforts shall include, by way of example and not limitation: (1) promotion of services provided by the Center with particular emphasis on direct contact with referring physicians and other health care providers including office visits, seminars and advisory boards to apprise such individuals and groups of the nature and availability of services offered at the Center, (2) provision of technical advice and assistance with respect to the acquisition, installation and maintenance of equipment, (3) participation in planning for the Center, (4) the development of policies and standards for operation. Physician Group shall also provide such administrative services at the Center as shall be necessary to assure that medical services are provided efficiently and commensurate with a high standard of care for the medical community in Huntington Beach. In doing so, Physician Group shall consult with Corporation concerning non-physician staffing requirements, needed equipment and supplies, preparation of a suitable budget, the need for ancillary support, such as laboratory services, so as to optimize the smooth and efficient functioning of the Center. Physician Group shall analyze the efficiency of the Center and monitor and evaluate the Center personnel, both physician and non-physician personnel. Physician Group shall provide its evaluations and recommendations to Corporation. Any such recommendations and evaluations shall be rendered on a confidential basis and may include specific designation of non-medical personnel considered unacceptable by Physician Group. 1.3 Notification of Payer Disputes. Physician Group agrees to notify Corporation of any complaints arising under any agreement between Physician Group and a third-party payer for services provided at the Center, and Physician Group shall immediately notify Corporation of any notice of termination of any agreement with a third-party payer. Physician Group shall consult with the Corporation and cooperate to resolve such problems as may arise under third-party payer agreements. Physician Group shall also consult with Corporation prior to terminating any third-party payer agreement. ARTICLE II Licensing Agreement 2.1 License of Trade Names and Marks. In consideration of the payment provided for herein and the agreement of Physician Group to perform all of the terms, covenants and conditions contained in this Agreement and the sublease for the Center pursuant hereto, Corporation agrees to license to Physician Group the nonexclusive right to use, subject to all legal restrictions upon 3 4 physician advertising, such trade names and marks as MICA may license to the Corporation, or as Corporation may from time to time adopt for use in connection with its business, or the business of the Center but only in respect to business of Physician Group conducted (1) at the Center while Physician Group's sublease is in effect, (2) while this Agreement is in effect, and (3) if the Corporation has not declared a default and Physician Group is in compliance with all of the terms, covenants and conditions contained in this Agreement, and the sublease for the Center. 2.2 Use of Trade Names and Marks. The exact manner of use of trade names and marks licensed to Physician Group shall be subject to the prior written consent of Corporation. Physician Group shall not use said names or marks in publicly disseminated materials without such consent. 2.3 Nonexclusive Right. The license granted to Physician Group in Section 2.1 hereof is nonexclusive. 2.4 Tern of License. The license granted herein shall terminate when Physician Group's sublease expires or terminates, and shall terminate when this Agreement expires or terminates. 2.5 Use of Trade Names and Marks After Term. Upon termination of this license, Physician Group shall immediately discontinue the use of any trade names and marks licensed to Physician Group hereunder in every respect, shall execute all documents necessary to satisfy third- parties, including government agencies regulating corporations and the practice of medicine that Physician Group has no continuing interest in the trade names or marks of Corporation or of MICA, and Physician Group shall not make any reference on their letterhead or in other materials to their former affiliation with Corporation, or any affiliation with MICA. 2.6 Protecting Goodwill. As further consideration for the opportunity to sublease the Center and conduct the practice of medicine from the Center and for the use of such trade names and marks, Physician Group agrees it will take all necessary steps to preserve and protect the reputation and goodwill associated with the Center and said names and marks including, without limitation, the following: a. Assigned Physicians. Physician Group shall contract only with well-qualified licensed medical doctors who are experienced and Board certified in medical imaging and diagnostic care provided at the Center, and the assignment and continued service of an employed or contract medical doctor to work at the Center shall be subject to the approval of Corporation, which shall not be unreasonably withheld. b. Compliance With Law. Physician Group and its physician-contractors and physician-employees shall comply with all laws, regulations, ethical and professional standards applicable to the practice of medicine. 4 5 c. Monitoring of Services. Physician Group shall rigorously monitor utilization and quality of services provided at the Center and shall take all steps necessary to remedy any and all deficiencies in the efficiency or the quality of medical care provided. d. Time Commitment. Corporation shall, after consultation with Physician Group, establish reasonable business hours for the operation of the Center. Physician Group shall engage a sufficient number of physician-employees or physician-contractors to meet the demand and potential demand for medical imaging and diagnostic services at the Center, and to assure the efficient operation of the Center during its established business hours. It is understood that a physician shall be present when procedures are performed for patients. Throughout the term of this Agreement, Physician Group shall exercise its highest skills and best efforts to cause the practice at the Center to grow in volume and profitability. To the latter end, except for undertaking bona fide charity cases on a basis customary for physicians in the Huntington Beach area, without written consent of the Corporation, Physician Group shall only use the Center for performance of medical services which are compensable by the payment of professional fees established under Section 6.3, or as approved by the Corporation. ARTICLE III Sublease of Center Concurrently with executing this Agreement, the parties are entering into a sublease for the Center of even date, which is incorporated by this reference as if fully set forth herein. ARTICLE IV Relationship of Parties 4.1 Practice of Medicine. A fundamental understanding between the parties is that Corporation shall not participate in any manner in the medical services rendered by Physician Group in the conduct of its medical practice at the Center. Corporation may make recommendations, but shall have no control, over matters affecting Physician Group's medical practice, including without limitation the following: furnishing physicians, supervising medical services, or any and all other matters affecting the practice of medicine. All patients treated by Physician Group shall be deemed to be the patients of Physician Group. Physician Group shall not represent in any direct or indirect manner to the public or any third-party that Corporation has participated, is participating, or will participate in the practice of medicine in any manner. 4.2 Relationship of Parties. This Agreement does not constitute either party the agent, legal representative or employee for any purpose whatsoever of the other party, and neither party is granted any right or authority to assume or create any obligation for or on behalf of, or in the 5 6 name of, or in any way to bind the other party. Each party agrees not to incur or contract for any debt or obligation on behalf of the other party, or commit any act, make any representation or advertise in any manner which may adversely affect any right of the other party, or be detrimental to its good name and reputation. ARTICLE V Proprietary Interest and Rights of Corporation and MICA 5.1 Proprietary Interest of Corporation and MICA. Physician Group recognizes the proprietary interest of Corporation and MICA in the Corporation and MICA business system for operating a medical imaging and diagnostic center, including all policies, procedures, operating manuals, forms, customer lists, contracts, and other information regarding such system. Physician Group acknowledges and agrees that such information constitutes trade secrets of corporation and MICA. Physician Group hereby waives any and all right, title and interest in and to such trade secrets and agrees to return all copies of such trade secrets and information related thereto, at its expense, upon termination of the Agreement. 5.2 Confidentiality. Physician Group acknowledges and agrees that Corporation and MICA are entitled to prevent its competitors from obtaining and utilizing its trade secrets. Physician Group agrees to hold the trade secrets of Corporation and MICA in strictest confidence and not to disclose them or allow them to be disclosed directly or indirectly to any person or entity other than persons engaged by Physician Group for use in the course of their employment at the Center, without the prior written consent of Corporation and MICA. Physician Group acknowledges its confidential relationship to Corporation and the confidentiality of its relationship with Corporation and of any information relating to the services and business methods of Corporation or MICA which it may obtain during the term of this Agreement. Physician Group shall not, either during the term of this Agreement, or at any time after the expiration or sooner termination of this Agreement, disclose to anyone other than persons employed at the Center who use the information in the course of their employment any confidential or proprietary information or trade secret of Corporation obtained by it. Physician Group also agrees to place under legal obligation to treat such information as strictly confidential any persons to whom said information is disclosed for the purpose of performance. 5.3 Successor Medical Group. Upon termination of this Agreement, or the sublease of the Center for any reason, whichever first occurs, Corporation shall have the immediate right, in its sole discretion, to designate a professional corporation, partnership or sole proprietor as successor to Physician Group at the Center. If such professional corporation, partnership or sole proprietor is composed solely of duly licensed physicians, they shall be entitled to retain and utilize all existing customer lists and patient records at the Center. Corporation agrees that all records transferred to Physician Group's successor shall be maintained as long as required by law regulating retention of medical records, and copies of said records shall be made available to 6 7 Physician Group at its expense, if required for the purpose of defending any malpractice claim against Physician Group, or for the purpose of providing medical care. The rights of the parties under this section shall survive termination of this Agreement. ARTICLE VI Compensation 6.1 Inducement to Enter Agreement. As partial consideration, and as an inducement to Physician Group for entering this Agreement, Corporation shall be responsible for any losses related to the operation of the Center which do not arise from wrongful or negligent acts or omissions of Physician Group. 6.2 Corporation's Risk. Corporation has incurred substantial expenses and future obligations to establish the Center, the system for the delivery of medical imaging and diagnostic services, including fees for consultants and other professionals, salaries for responsible staff, interest expenses, lease obligations, and costs of equipping the Center. Corporation has also assumed substantial obligations associated with the continuing operation of the Center. Although there is uncertainty about the profitability of the Center during the initial years of operation, Corporation is assuming responsibility for losses as provided in Section 6.1. The parties therefore recognize and agree that in order for Corporation to receive a fair and reasonable return for its expenses and risks, a fair return for lease of premises, services, and the use of its trade names and marks hereunder, as well as to permit the necessary accumulation of capital to establish and maintain a first rate and fully equipped Center, a goal the parties hereto agree to be desirable, the total payments to Corporation should increase in future years. 6.3 Professional Fees. Physician Group, shall in consultation with Corporation, establish a schedule of fees and charges for medical services at the Center. 6.4 Billing and Collections. Billings to patients for all services rendered at the Center shall be in the name of Physician Group. Corporation, or its delegate, shall serve as billing and collection agent for Physician Group, and shall be diligent and timely in the performance of billing and collection services. However, Corporation does not guarantee collection and shall not be responsible for any loss to Physician Group as a result of inability to collect fees and charges. 6.5 Intention of the Parties. It is the intention of the parties hereto that from the revenues of the Center Physician Group shall be fairly and reasonably compensated for its professional services and those of the physicians engaged by it, and Corporation shall be fairly and reasonably compensated for the sublease of the Center, the licensing of trade names and marks, the provision of services by it pursuant to this Agreement, and for the expenses, obligations, and risks assumed by it in connection with the establishment and operation of the Center and the operation of the Corporation system. 7 8 6.6 Fair and Reasonable Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services and those of the physicians it engages by retaining in the aggregate twenty percent (20%) of the revenues actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center. For purposes of this Agreement, aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, supplies, facilities and Center personnel in connection with performance of medical services. 6.7 Fair and Reasonable Compensation to Corporation. Any revenues or receipts in excess of those retained by Physician Group as provided in Section 6.6 hereof shall be paid to Corporation as compensation for the sublease of the Center, provision of services under this Agreement, the licensing of trade names and marks to Physician Group, and for its expenses, obligations, and risks in connection with the establishment of the Center, and the operation of the Corporation system. Said compensation includes the total rent to Corporation for the Center subleased by Physician Group. 6.8 Remittance. All monies which Physician Group is entitled to retain pursuant to Section 6.1 and all monies which Corporation is entitled to receive pursuant to Section 6.7 shall be accounted for and disbursed weekly. ARTICLE VII Term and Termination 7.1 Term. Subject to paragraphs 7.2 and 7.3 below, this Agreement shall become effective on the date first above written and shall continue for a period of five years unless sooner terminated in accordance with this Agreement. 7.2 Termination by the Corporation. This Agreement may be terminated by Corporation upon thirty (30) days' prior written notice to Physician Group upon occurrence of the following: 7.2.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as a result of the acts or omissions of Physician Group or any other reason. 7.2.2 Physician Group, or any shareholder, director or physician-employee of Physician Group or any professional corporation to which this Agreement may be assigned, engages in any criminal act in the nature of conversion, embezzlement or theft relative to the business conducted pursuant to this Agreement; Physician Group will maintain adequate physician- employee dishonesty insurance. 8 9 7.2.3 Physician Group or any professional corporation to which this agreement may be assigned is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Physician Group, or a receiver is appointed for all or substantially all of the Physician Group's assets, unless said filing is dismissed within thirty (30) days. 7.2.4 Breach by Physician Group of any of its obligations under this Agreement, which breach continues for a period of thirty (30) days following written notice of the breach, or otherwise by mutual agreement. 7.2.5 Conduct by Physician Group, its employees or agents which is disruptive of operations of the Center, which interferes with the performance of the Corporation's duties under this Agreement, provided such conduct continues or reoccurs more than thirty (30) days following written notice to Physician Group of such breach. 7.2.6 Conduct by Physician Group, its employees or agents imposing, or which may impose, civil or criminal liabilities (other than liability for medical malpractice) on Corporation. 7.2.7 Failure of Physician Group during any four (4) month period commencing more than eighteen (18) months after the commencement of operations at the Center to perform a sufficient number of diagnostic procedures to enable it to generate a profit based on generally accepted principles of accounting used by the Center. In accordance with the Agreement, Corporation expenses incurred with respect to the Center, for said four month period as they become due include, without limitation, the expense of equipment leases, facility leases, salaries, maintenance contracts, supplies, management fees (excluding bonuses or other incentive management fees), and other expenses and overheads, unless such failure results from equipment or mechanical failures beyond the control of Physician Group. 7.3 Termination By Physician Group. This Agreement may be terminated by Physician Group upon thirty (30) days' written notice to the Corporation upon the occurrence of the following: 7.3.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as the result of acts or omissions of Corporation or for any other reason other than acts or omissions of Physician Group, its employees or agents. 7.3.2 Corporation or any of the officers of the Corporation engage in any criminal act in the nature of conversion, embezzlement or theft relative to the payments due to the Physician Group under this Agreement. Corporation will maintain adequate Employee dishonesty insurance. 9 10 7.3.3 The Corporation is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Corporation, or a receiver is appointed for all or substantially all of the Corporation's assets, unless such filing is dismissed within thirty (30) days. 7.3.4 Corporation fails to perform its material duties as set forth herein for more than thirty (30) days following the giving of written notice of the breach, or otherwise by mutual agreement. 7.4 Rights Upon Termination. The termination of this Agreement shall not release or discharge either party from any obligation, debt or liability which shall have previously accrued and remains to be performed upon the date of termination, or which by its terms is to be performed after the date of termination. Upon termination, the parties shall each be entitled to compensation in accordance with the terms of this Agreement, for services rendered through the date of termination, but such compensation shall be limited to monies with respect to the period prior to termination which are collected within one hundred and twenty (120) days after the date of termination. Any monies collected thereafter shall be the property of the Corporation. ARTICLE VIII General Provisions 8.1 Insurance. Physician Group shall obtain and maintain professional liability insurance and coverages on all medical doctors providing medical services to patients at the Center, with reasonable limits to be agreed upon. Corporation shall obtain and maintain professional liability insurance on all nonprofessional staff, with reasonable limits to be agreed upon. 8.2 Assignment. The rights conferred upon Physician Group hereunder may not be transferred or assigned without the prior written consent of Corporation and any assignment in violation of this section shall be void. However, Physician Group may form a professional medical corporation of which it is the principal shareholder and transfer this Agreement to said professional corporation, provided performance of this Agreement is guaranteed by all shareholders of such corporation. It is understood and agreed that Corporation and its successors shall have the right to assign this Agreement. 8.3 Third-Party Beneficiary. MICA shall be a third-party beneficiary of the provisions of this Agreement pertaining to it. 8.4 Governing Law. This Agreement shall be governed by the laws of the State of California. 10 11 8.5 Article and Section Headings. The article and section headings in this Agreement are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 8.6 Attorneys' Fee. Should any party employ an attorney for the purpose of enforcing this Agreement, or any judgment based thereon, in any court, including bankruptcy courts and courts of appeal, or arbitration proceedings, the prevailing party shall be entitled to receive its attorneys' fees and costs, whether taxable or not. 8.7 Waiver. The waiver of any covenant, condition or duty hereunder by either party shall not prevent that party from later insisting upon full future performance of the same. 8.8 Amendment. No amendment in the terms of this Agreement shall be binding on either party unless in writing and executed by the duly authorized representatives of each party. 8.9 Notice. Any communication under this Agreement shall be given in writing and shall be delivered in person or by prepaid certified or registered mail to each party at such address as either party shall furnish to the other in writing. Notice shall be deemed given when personally delivered, or if given by mail, then two days after deposit in the United States mail, postage prepaid. 8.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 8.11 Entire Agreement. This Agreement and the sublease referenced herein constitute the entire agreement between the parties in connection with the subject matter hereof and shall supersede all prior agreements, whether oral or in writing, whether explicit or implicit, which have been entered into prior to the execution hereof. 11 12 8.12 Notwithstanding any term in this Agreement and the sublease agreement, the Corporation, in an effort to utilize all available capacity of the Center's imaging equipment on a time available basis may sublet the use of the Center's equipment to other physicians, paying the PHYSICIANS a 5% medical supervisory fee. The Corporation will consult with the PHYSICIANS regarding sublease of renter equipment and the PHYSICIANS will cooperate in this effort. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICA CAL IV, INC. By: /s/ Nathan Kaufman ---------------------- PHYSICIAN GROUP By: /s/ Joel Levine, M.D. ---------------------- 12 13 EXTENSION OF AND FIRST AMENDMENT TO MANAGEMENT, LICENSING AND FACILITIES AGREEMENT This Extension of and First Amendment to Management, Licensing and Facilities Agreement is made and entered into this 29th day of May, 1992, by and between MICA CAL IV, INC., a California corporation (the "Corporation") and Magnetic Imaging Medical Group (herein after referred to as "Physician Group"). RECITALS WHEREAS, Corporation and Physician Group entered into a Management, Licensing and Facilities Agreement ("Agreement") on and effective March 14, 1988, as well as a Sublease entered into and effective the same date; and, WHEREAS, under its terms, the Agreement expires March 14, 1993 and the Sublease terminates when the Agreement terminates; and, WHEREAS, the parties' relationship under the Agreement and Sublease has been mutually beneficial, such that each party desires to extend the Agreement, and, as a result of such extension, the Sublease as well; and, WHEREAS, the parties also desire to amend the Agreement in connection with such extension; NOW THEREFORE, in consideration of their mutual covenants and promises and other good and valuable consideration, receipt of which each party hereby acknowledges, Corporation and Physician Group agree: 1. The term of the Agreement shall be extended for an additional term of five (5) years, commencing March 14, 1993 and ending March 14, 1998, the Agreement to remain in effect during such additional term unless sooner terminated in accordance with the Agreement. 2. The Agreement is hereby amended by deleting Section 7.2.7 of the Agreement in its entirety. 3. This Extension of and First Amendment to Management, Licensing and Facilities Agreement shall be effective March 14, 1993. 14 IN WITNESS WHEREOF, Corporation and Physician Group have executed this Extension of and First Amendment to Management, Licensing and Facilities Agreement as of the date first above written. MICA CAL IV, INC. By: /s/ Robert S. Muehlberg ---------------------------------------- Magnetic Imaging Medical Group (MIMG) By: /s/ Joel Levine, M.D. ---------------------------------------- 15 AMENDMENT AMENDMENT TO the Management, Licensing and Facilities Agreements entered into by and between predecessors to MAGNETIC IMAGING MEDICAL GROUP, INC., a California professional corporation (hereinafter referred to as "Physician Group" and MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation ("MICA") which wholly-owned subsidiaries are MICA CAL I, Inc., a California corporation ("M-I") and the managing general partner of Long Beach Medical Imaging Center, Ltd., a California limited partnership ("Long Beach"), MICA CAL II, INC., a California corporation ("M-III") and MICA CAL IV, INC., a California corporation ("M-IV"). R E C I T A L S A. On March 28, 1984, Long Beach entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto as Exhibit A (the "A Agreement"). B. On March 14, 1988, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. This Agreement was extended on May 29, 1992. A true and correct copy of that Agreement as extended is attached hereto as Exhibit B (the "B Agreement"). C. On February 3, 1992, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit C (the "C Agreement"). D. On July 1, 1994, M-III entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit D (the "D Agreement"). E. The A Agreement is an agreement which has a term which does not terminate except on the occurrence of certain events while the B, C, and D Agreements have terms which end on different dates in 1997 and 1998. MICA wished to place limits on the term of the A Agreement and the Physician Group is willing to permit such limits and both parties wish each of the Agreements to be coterminous. All of the parties wish to provide for certainty and continuity of service in their relationship as well as revise certain of the compensation provisions and clarify certain other matters. NOW THEREFORE, in consideration of their mutual covenants and promises and for other good and valuable consideration, receipt of which each party acknowledges, the parties agree as follows: 16 1. Term. The term as set forth in each of the Agreements (Section 7.1 of Exhibits A, B, C and D) is hereby revised to read as follows: 7.1 Term. The term hereunder shall commence January 1, 1996 and shall continue for five (5) years. Provided that Physician Group is not in material default pursuant to this Agreement then and in that event Physician Group shall have the right to extend the term of this Agreement for two (2) consecutive five (5) year terms so long as it shall give written notice to the other party no less than sixty (60) days prior to the end of a term hereunder. If a party believes a material default has occurred it shall promptly give written notice to the other party specifying the nature of the material default and providing a recommended method of cure. The notified party shall have ninety (90) days to correct the material default either in accordance with the suggested methodology or by an alternate equally effective methodology. The failure to provide notice within thirty (30) days of an event giving rise to a material default shall be deemed a waiver of such default. Notwithstanding anything to the contrary set forth in this Agreement, it is understood and agreed that this Agreement is attached to the assets of the Center. To the extent the Center or its assets are sold, assigned or otherwise transferred, this Agreement must be transferred and accepted in full by the acquirer as a condition of such acquisition, assignment or transfer. 2. Compensation. (a) The Compensation as set forth at Section 6.6 in each of those Agreement attached as Exhibits A and B is hereby revised to read as follows: 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first Two Hundred Thousand Dollars ($200,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of Two Hundred Thousand Dollars ($200,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month. (b) The compensation as set forth in Section 6.6 in each of Exhibits C and D is hereby revised to read as follows: 17 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first One Hundred Thousand Dollars ($100,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of One Hundred Thousand Dollars ($100,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month in recognition of their supervisorial responsibilities. 3. Statement of Revenues. A new Section 6.10 shall be added to Exhibit A and a new Section 6.9 to Exhibits B, C and D which provides as follows: 6.9[10] Statement of Revenues. Partnership [Corporation] shall furnish to Physician Group a statement of revenues generated by Physician Group upon or as to which a fee to be paid to Physician Group hereunder is calculated at the end of every month. This statement shall be submitted to Physician Group on the tenth (10th) day of each month reflecting the previous month's revenue from services rendered by Physician Group. Each statement shall be signed and certified to be correct by Partnership [Corporation] or its authorized representative. Partnership [Corporation] shall keep in the Center premises full and accurate books of account, records, cash receipts, and other pertinent data showing its revenues. Such books of account, records, cash receipts and other pertinent data shall be kept for a period of two (2) years. Physician Group shall be entitled during the term and within two (2) years after expiration or termination of this Agreement to inspect and examine all of Partnership's [Corporation's] books of account, records, cash receipts, and other pertinent data relative only to the revenues involving the Center, so that Physician Group can ascertain Center's revenues. Partnership [Corporation] shall cooperate fully with Physician Group in making the inspection. Physician Group shall also be entitled once during each year of the Agreement and once after expiration or termination to an examination of Center's books of account, records, cash receipts and other pertinent data to determine Center's revenues by a certified public accountant to be designated by Physician Group, and who will be paid solely by Physician Group, unless such review shall disclose an understatement by Center of two percent (2%) or more in which case all expenses of such examination will be paid by Partnership [Corporation]. 4. Reference. It is hereby agreed between the parties hereto that wherever the term "Physicians" or "Physician Group" appears in Exhibits A, B, C and D it shall be deemed to mean "Magnetic Imaging Medical Group, Inc., a California professional corporation. 18 5. Indemnification. MICA and Long Beach, jointly and severally, agree to indemnify and hold Physician Group together with its predecessors, harmless against any and all liabilities which it might incur in connection with its service as a General Partner of Long Beach. Physician Group shall promptly notify MICA of the existence of any claim, demand or other matter involving liabilities to third parties to which MICA's indemnification obligations would apply and shall give MICA a reasonable opportunity to defend the same at its own expense and with counsel of its own selection. If MICA, within a reasonable time after notice, fails to defend, Physician Group shall have the right, but not the obligation, to undertake the defense of and to compromise or settle (exercising reasonable business judgment) the claim or other matter on behalf of MICA. [INTENTIONALLY LEFT BLANK] 19 6. Incorporation. Except as specifically revised herein, Exhibits A, B, C and D are incorporated herein in full and restated as revised. Executed this 31st day of January, 1996 at Long Beach, California. MAGNETIC IMAGING MEDICAL GROUP, INC. By /s/ Joel Levine, M.D. ---------------------------- Its CFO ---------------------------- MEDICAL IMAGING CENTERS OF AMERICA, INC. By /s/ Robert S. Muehlberg ---------------------------- Its President and CEO ---------------------------- LONG BEACH MEDICAL IMAGING CENTERS, LTD. By MICA CAL I, INC. Its Managing General Partner By /s/ Robert S. Muehlberg ---------------------------- Its President ---------------------------- MICA CAL III, INC. By /s/ Robert S. Muehlberg ---------------------------- Its President ---------------------------- MICA CAL IV, INC. By /s/ Robert S. Muehlberg ---------------------------- Its President ---------------------------- EX-10.9 12 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT 1 EXHIBIT 10.9 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT This Agreement is made effective as of February 3, 1992 by and between MICA CAL IV, INC., a California corporation (hereinafter referred to as "Corporation"), and Magnetic Imaging Medical Group (hereinafter referred to as "Physician Group"). RECITALS A. Corporation, after careful study, has concluded that there is a need in Laguna Niguel, California for a medical center specializing in performing a variety of medical imaging and diagnostic services by experienced physicians at reasonable cost. B. Corporation has a comprehensive system for establishing and providing financial and related management to such a medical center which makes available to qualified physician groups a fully staffed facility, equipment, supplies, management, capital, marketing services, and system necessary to provide a large volume of medical imaging and diagnostic services to patients at reasonable cost. These services will be obtained from Medical Imaging Centers of America, Inc. ("MICA"). C. Corporation desires to make its system available to physician groups who are capable of offering high quality services to the public at a competitive cost. To that end, Corporation has committed substantial resources, and has incurred substantial expenses and future obligations to develop the medical imaging center located at The Center at Rancho Niguel, 25500 Rancho Niguel Road, Suite 140, Laguna Niguel, California 92677. D. Physician Group desires to contract with Corporation for use of Corporation's management services and system of delivering medical imaging and diagnostic care, a sublease for the Center, and a license for use of any appropriate trade names and marks which corporation may own or own rights to license. AGREEMENT NOW, THEREFORE, the parties agree as follows; ARTICLE I Duties of Parties 1.1 Management Services of Corporation. Corporation shall provide the following services: 1 2 a. General Administrative Services. Overall supervision and management of the Center, including supervision over the services and personnel described below. b. Personnel. Provision to the Center of all non-physician group personnel needed to operate and support the Center, such as technologists, receptionists, secretarial, clerical, purchasing and marketing personnel. No Center Manager shall be employed or terminated by the Corporation without the consent of Physician Group, which consent shall not be unreasonably withheld. c. Training. Training of all non-physician group personnel at the Center. d. Fiscal Services. Fiscal services for the Center including accounting, auditing, bookkeeping, budgeting, patient billings and record keeping, accounts receivable, accounts payable processing, and electronic data processing. e. Patient Records. Ownership and maintenance of patient medical records and archives for patients seen at the Center, record retrieval and record monitoring to assist Physician Group with utilization and quality assurance reviews. f. Quality Control. Assistance to Physician Group in the development of appropriate quality control programs and protocols, including development of performance and utilization standards, sampling techniques for case review, and preparation of appropriately documented studies. g. Administrative Services for Physician Group. Provision of general administrative services to Physician Group in connection with its business affairs relating to the Center, which shall include billing and accounting services with respect to income collected and disbursements made by Corporation, and such other administrative services as may from time to time be necessary for the business of the Center. h. Management Reports. Preparation of management reports to assist Physician Group in evaluating the performance and productivity of the Center and of other doctors employed by or contracted with Physician Group at the Center. i. Marketing. Marketing of the medical imaging and diagnostic services offered at the Center by Physician Group pursuant to a marketing plan to be jointly developed. j. Equipment and Supplies. Provision of all equipment, furnishings, and supplies reasonably necessary for the efficient operation of the Center. k. Janitorial and Maintenance Service. Janitorial, grounds and maintenance services for the Center and its equipment and furnishings. 2 3 1.2 Administrative Services of Physician Group. Physician Group shall cooperate with the Corporation and use its best efforts to assure the continuing success of the Center. These efforts shall include, by way of example and not limitation: (1) promotion of services provided by the Center including professional contact with other health care providers to apprise such individuals and groups of the nature and availability of services offered at the Center, (2) provision of technical advice and assistance with respect to the acquisition, installation and maintenance of equipment, (3) participation in planning for the Center, (4) the development of policies and standards for operation. Physician Group shall also provide such administrative services at the Center as shall be necessary to assure that medical services are provided efficiently and commensurate with a high standard of care for the medical community in Laguna Niguel, California. In doing so, Physician Group shall consult with Corporation concerning non-physician group staffing requirements, needed equipment and supplies, preparation of a suitable budget, the need for ancillary support, so as to optimize the smooth and efficient functioning of the Center. Physician Group shall analyze the efficiency of the Center and monitor and evaluate the Center personnel, both physician group and non-physician group personnel. Physician Group shall provide their evaluations and recommendation to Corporation. Any such recommendations and evaluations shall be rendered on a confidential basis and may include specific designation of non-medical personnel considered unacceptable by Physician Group. 1.3 Notification of Payer Disputes. Physician Group agrees to notify Corporation of any complaints arising under any agreement between Physician Group and a third-party payer for services provided at the Center, and Physician Group shall immediately notify Corporation of any notice of termination of any agreement with a third-party payer. Physician Group shall consult with the Corporation and cooperate to resolve such problems as may arise under third-party payer agreements. Physician Group shall also consult with Corporation prior to terminating any third-party payer agreement. ARTICLE II Licensing Agreement 2.1 License of Trade Names and Marks. In consideration of the payment provided for herein and the agreement of Physician Group to perform all of the terms, covenants and conditions contained in this Agreement and the sublease for the Center pursuant hereto, Corporation agrees to license to Physician Group the nonexclusive right to use, subject to all legal restrictions upon physician group advertising, such trade names and marks as MICA may license to the Corporation, or as Corporation may from time to time adopt for use in connection with its business, or the business of the Center but only in respect to business of Physician Group conducted (1) at the Center while Physician Group's sublease is in effect, (2) while this Agreement is in effect, and (3) if the Corporation has not declared a default and Physician Group is in compliance with all of the terms, covenants and conditions contained in this Agreement, and the sublease for the Center. 3 4 2.2 Use of Trade Names and Marks. The exact manner of use of trade names and marks licensed to Physician Group shall be subject to the prior written consent of Corporation. Physician Group shall not use said names or marks in publicly disseminated materials without such consent. 2.3 Nonexclusive Right. The license granted to Physician Group in Section 2.1 hereof is nonexclusive. 2.4 Term of License. The license granted herein shall terminate when Physician Group's sublease expires or terminates, and shall terminate when this Agreement expires or terminates. 2.5 Use of Trade Names and Marks After Term. Upon termination of this license, Physician Group shall immediately discontinue the use of any trade names and marks licensed to Physician Group hereunder in every respect, shall execute all documents necessary to satisfy third- parties, including government agencies regulating corporations and the practice of medicine that Physician Group has no continuing interest in the trade names or marks of Corporation or of MICA, and Physician Group shall not make any reference on Physician Group's letterhead or in other materials to their former affiliation with Corporation, or any affiliation with MICA. 2.6 Protecting Goodwill. As further consideration for the opportunity to sublease the Center and conduct the practice of medicine from the Center and for the use of such trade names and marks, Physician Group agrees it will take all necessary steps to preserve and protect the reputation and goodwill associated with the Center and said names and marks including, without limitation, the following: a. Assigned Physician Group. Physician Group shall contract only with well- qualified licensed medical doctors who are experienced in medical imaging and diagnostic care provided at the Center, and the assignment and continued service of an employed or contract medical doctor to work at the Center shall be subject to the approval of Corporation, which shall not be unreasonably withheld. b. Compliance With Law. Physician Group and their physician group- contractors and physician group-employees shall comply with all laws, regulations, ethical and professional standards applicable to the practice of medicine. c. Monitoring of Services. Physician Group shall rigorously monitor utilization and quality of services provided at the Center and shall take all steps necessary to remedy any and all deficiencies in the efficiency or the quality of medical care provided. d. Time Commitment. Corporation shall, after consultation with Physician Group, establish reasonable business hours for the operation of the Center. Physician Group shall engage a sufficient number of physician group-employees or physician group-contractors to meet 4 5 the demand and potential demand for medical imaging and diagnostic services at the Center, and to assure the efficient operation of the Center during its established business hours. Throughout the term of this Agreement, Physician Group shall exercise its highest skills and best efforts to cause the practice at the Center to grow in volume and profitability. To the latter end, except for undertaking bona fide charity cases on a basis customary for physician groups in the Laguna Niguel area, without written consent of the Corporation, Physician Group shall only use the Center for performance of medical services which are compensable by the payment of professional fees established under Section 6.3, or as approved by the Corporation. ARTICLE III Sublease of Center Concurrently with executing this Agreement, the parties are entering into a sublease for the Center of even date, which is incorporated by this reference as if fully set forth herein. ARTICLE IV Relationship of Parties 4.1 Practice of Medicine. A fundamental understanding between the parties is that Corporation shall not participate in any manner in the medical services rendered by Physician Group in the conduct of its medical practice at the Center. Corporation may make recommendations, but shall have no control, over matters affecting Physician Group's medical practice, including without limitation the following: furnishing physician groups, supervising medical services, or any and all other matters affecting the practice of medicine. All patients treated by Physician Group shall be deemed to be the patients of Physician Group. Physician Group shall not represent in any direct or indirect manner to the public or any third party that Corporation has participated, is participating, or will participate in the practice of medicine in any manner. 4.2 Relationship of Parties. This Agreement does not constitute either party the agent, legal representative or employee for any purpose whatsoever of the other party, and neither party is granted any right or authority to assume or create any obligation for or on behalf of, or in the name of, or in any way to bind the other party. Each party agrees not to incur or contract for any debt or obligation on behalf of the other party, or commit any act, make any representation or advertise in any manner which may adversely affect any right of the other party, or be detrimental to its good name and reputation. 5 6 ARTICLE V Proprietary Interest and Rights of Corporation and MICA 5.1 Proprietary Interest of Corporation and MICA. Physician Group recognizes the proprietary interest of Corporation and MICA in the Corporation and MICA business system for operating a medical imaging and diagnostic center, including all policies, procedures, operating manuals, forms, customer lists, contracts, and other information regarding such system. Physician Group acknowledges and agrees that such information constitutes trade secrets of Corporation and MICA. Physician Group hereby waives any and all right, title and interest in and to such trade secrets and agrees to return all copies of such trade secrets and information related thereto, at its expense, upon termination of this Agreement. 5.2 Confidentiality. Physician Group acknowledges and agrees that Corporation and MICA are entitled to prevent its competitors from obtaining and utilizing its trade secrets. Physician Group agrees to hold the trade secrets of Corporation and MICA in strictest confidence and not to disclose them or allow them to be disclosed directly or indirectly to any person or entity other than persons engaged by Physician Group for use in the course of their Employment at the Center, without the prior written consent of Corporation and MICA. Physician Group acknowledges its confidential relationship to Corporation and of any information relating to the services and business methods of Corporation or MICA which it may obtain during the term of this Agreement. Physician Group shall not, either during the term of this Agreement, or at any time after the expiration or sooner termination of this Agreement, disclose to anyone other than persons employed at the Center who use the information in the course of their employment any confidential or proprietary information or trade secret of Corporation obtained by it. Physician Group also agrees to place under legal obligation to treat such information as strictly confidential any persons to whom said information is disclosed for the purpose of performance. 5.3 Successor Medical Group. Upon termination of this Agreement, or the sublease of the Center for any reason, other than acts or omissions of Corporation, whichever first occurs, Corporation shall have the immediate right, in its sole discretion, to designate a professional corporation, corporation or sole proprietor as successor to Physician Group at the Center. If such professional corporation, corporation or sole proprietor is composed solely of duly licensed physician groups, they shall be entitled to retain and utilize all existing customer lists and patient records at the Center. Corporation agrees that all records transferred to Physician Group's successor shall be maintained as long as required by law regulating retention of medical records, and copies of said records shall be made available to Physician Group at their expense, if required for the purpose of defending any malpractice claim against Physician Group, or for the purpose of providing medical care. The rights of the parties under this Section shall survive termination of this Agreement. 6 7 ARTICLE VI Compensation 6.1 Inducement to Enter Agreement. As partial consideration, and as an inducement to Physician Group for entering this Agreement, Corporation shall be responsible for any losses related to the operation of the Center which do not arise from wrongful or negligent acts or omissions of Physician Group. 6.2 Corporation's Risk. Corporation has incurred substantial expenses and future obligations to establish the Center, the system for the delivery of medical imaging and diagnostic services, including fees for consultants and other professionals, salaries for responsible staff, interest expenses, lease obligations, and costs of equipping the Center. Corporation has also assumed substantial obligations associated with the continuing operation of the Center. Although there is uncertainty about the profitability of the Center during the initial years of operation, Corporation is assuming responsibility for losses as provided in Section 6.1. The parties therefore recognize and agree that in order for Corporation to receive a fair and reasonable return for its expenses and risks, a fair return for lease of premises, services, and the use of its trade names and marks hereunder, as well as to permit the necessary accumulation of capital to establish and maintain a first rate and fully equipped Center, a goal the parties hereto agree to be desirable, the total payments to Corporation should increase in future years. 6.3 Professional Fees. Physician Group shall, in consultation with Corporation, establish a schedule of fees and charges for medical services at the Center. This schedule shall not be revised or modified without approval and notice to Corporation. 6.4 Billing and Collections. Billings to patients for all services rendered at the Center shall be in the name of Physician Group. Corporation, or its delegate, shall serve as billing and collection agent for Physician Group, and shall be diligent and timely in the performance of billing and collection services. However, Corporation does not guarantee collection and shall not be responsible for any loss to Physician Group as a result of inability to collect fees and charges. Collections shall be held in an account established by Corporation until distributed, and Corporation is authorized to withdraw from said accounts disbursements due and owing to it for services under the Agreement. 6.5 Intention of the Parties. It is the intention of the parties hereto that from the revenues of the Center Physician Group shall be fairly and reasonably compensated for its professional services and those of the physician groups engaged by it, and Corporation shall be fairly and reasonably compensated for the sublease of the Center, the licensing of trade names and marks, the provision of services by it pursuant to this Agreement, and for the expenses, obligations, and risks assumed by it in connection with the establishment and operation of the Center and the operation of the Corporation system. 7 8 6.6 Fair and Reasonable Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services and those of the physicians it engages by retaining in the aggregate twenty percent (20%) of the revenues actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center. For purposes of this Agreement, aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, supplies, facilities and Center personnel in connection with performance of medical services. 6.7 Fair and Reasonable Compensation to Corporation. Any revenues or receipts in excess of those retained by Physician Group as provided in Section 6.6 hereof shall be paid to Corporation as compensation for the sublease of the Center, provision of services under this Agreement, the licensing of trade names and marks to Physician Group, and for its expenses, obligations, and risks in connection with the establishment of the Center, and the operation of the Corporation system. Said compensation includes rent to Corporation for the Center subleased by Physician Group. 6.8 Remittance. All monies which physician groups are entitled pursuant to Section 6.6 and all monies which Corporation is entitled to receive pursuant to Section 6.7 shall be accounted for and disbursed biweekly. ARTICLE VII Term and Termination 7.1 Term. Subject to paragraphs 7.2 and 7.3 below, this Agreement shall become effective on the date first above written and shall continue for a period of five (5) years unless sooner terminated in accordance with this Agreement. 7.2 Termination by the Corporation. This Agreement may be terminated by Corporation upon thirty (30) days' prior written notice to Physician Group upon occurrence of the following: 7.2.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as a result of the acts or omissions of Physician Group or any reason. 7.2.2 Physician Group, or any shareholder, director or physician group employee of Physician Group engages in any criminal act in the nature of conversion, embezzlement or theft relative to the business conducted pursuant to this Agreement; Physician Group will maintain adequate physician group-employee dishonesty insurance. 8 9 7.2.3 Physician Group, or either of them, is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Physician Group, or a receiver is appointed for all or substantially all of the Physician Group's assets, unless said filing is dismissed within thirty (30) days. 7.2.4 Breach by Physician Group of any of their obligations under this Agreement, which breach continues for a period of thirty (30) days following written notice of the breach, or otherwise by mutual agreement. 7.2.5 Conduct by Physician Group, their employees or agents which is disruptive of operations of the Center, which interferes with the performance of the Corporation's duties under this Agreement, provided such conduct continues or reoccurs more than fifteen (15) days following written notice to Physician Group of such breach. 7.2.6 Conduct by Physician Group, its employees or agents imposing, or which may impose, civil or criminal liabilities (other than liability for medical malpractice) on Corporation. 7.3 Termination By Physician Group. This Agreement may be terminated by Physician Group upon thirty (30) days' written notice to the Corporation upon the occurrence of the following: 7.3.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as the result of acts or omissions of Corporation or for any other reason other than acts or omissions of Physician Group, its employees or agents. 7.3.2 Corporation or any of the officers of the Corporation, engage in any criminal act in the nature of conversion, embezzlement or theft relative to the payments due to the Physician Group under this Agreement. Corporation will maintain adequate employee dishonesty insurance. 7.3.3 The Corporation is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Corporation, or a receiver is appointed for all or substantially all of the Corporation's assets, unless such filing is dismissed within thirty (30) days. 7.3.4 Corporation fails to perform its material duties as set forth herein for more than thirty (30) days following the giving of written notice of the breach, or otherwise by mutual agreement. 7.4 Rights Upon Termination. The termination of this Agreement shall not release or discharge either party from any obligation, debt or liability which shall have previously accrued 9 10 and remains to be performed upon the date of termination, or which by its terms is to be performed after the date of termination. Upon termination, the parties shall each be entitled to compensation in accordance with the terms of this Agreement, for services rendered through the date of termination, but such compensation shall be limited to monies with respect to the period prior to termination which are collected within one hundred and twenty (120) days after the date of termination. Any monies collected thereafter shall be the property of the Corporation. ARTICLE VIII General Provisions 8.1 Insurance. Physician Group shall obtain and maintain professional liability insurance and coverages on all medical doctors providing medical services to patients at the Center, with reasonable limits to be agreed upon. Corporation shall obtain and maintain professional liability insurance on all nonprofessional staff, with reasonable limits to be agreed upon. 8.2 Assignment. The rights conferred upon Physician Group hereunder may not be transferred or assigned without the prior written consent of Corporation and any assignment in violation of this section shall be void. However, each Physician Group may form a professional medical corporation of which he is the principal shareholder and transfer this Agreement to said professional corporation, provided performance of this Agreement is guaranteed by all shareholders of such corporation. It is understood and agreed that Corporation and its successors shall have the right to assign this Agreement. 8.3 Third-Party Beneficiary. MICA shall be a third-party beneficiary of the provisions of this Agreement pertaining to it. 8.4 Governing Law. This Agreement shall be governed by the laws of the State of California. 8.5 Article and Section Headings. The article and section headings in this Agreement are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 8.6 Attorneys' Fee. Should any party employ an attorney for the purpose of enforcing this Agreement, or any judgment based thereon, in any court, including bankruptcy courts and courts of appeal, or arbitration proceedings, the prevailing party shall be entitled to receive its attorneys' fees and costs, whether taxable or not. 8.7 Waiver. The waiver of any covenant, condition or duty hereunder by either party shall not prevent that party from later insisting upon full future performance of the same. 10 11 8.8 Amendment. No amendment in the terms of this Agreement shall be binding on either party unless in writing and executed by the duly authorized representatives of each party. 8.9 Notice. Any communication under this Agreement shall be given in writing and shall be delivered in person or by prepaid certified or registered mail to each party at such address as either party shall furnish to the other in writing. Notice shall be deemed given when personally delivered, or if given by mail, then two days after deposit in the United States mail, postage prepaid. 8.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 8.11 Entire Agreement This Agreement and the sublease referenced herein constitute the entire agreement between the parties in connection with the subject matter hereof and shall supersede all prior agreements, whether oral or in writing, whether explicit or implicit, which have been entered into prior to the execution hereof. 8.12 Notwithstanding any term in this Agreement and the sublease agreement, the Corporation, in an effort to utilize all available capacity of the Centers imaging equipment on a time available basis may sublet the use of the Center's equipment to other physician groups, paying the Physician Group a 5% medical supervisory fee. The Corporation will consult with the Physician Group regarding sublease of renter equipment and the Physician Group will cooperate in this effort. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICA CAL IV, INC. By: /s/ ROBERTS MUEHLBERG --------------------- PHYSICIAN GROUP By: /s/ JOEL LEVINE, MD --------------------- 11 12 AMENDMENT AMENDMENT TO the Management, Licensing and Facilities Agreements entered into by and between predecessors to MAGNETIC IMAGING MEDICAL GROUP, INC., a California professional corporation (hereinafter referred to as "Physician Group" and MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation ("MICA") which wholly-owned subsidiaries are MICA CAL I, Inc., a California corporation ("M-I") and the managing general partner of Long Beach Medical Imaging Center, Ltd., a California limited partnership ("Long Beach"), MICA CAL II, INC., a California corporation ("M-III") and MICA CAL IV, INC., a California corporation ("M-IV"). R E C I T A L S A. On March 28, 1984, Long Beach entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto as Exhibit A (the "A Agreement"). B. On March 14, 1988, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. This Agreement was extended on May 29, 1992. A true and correct copy of that Agreement as extended is attached hereto as Exhibit B (the "B Agreement"). C. On February 3, 1992, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit C (the "C Agreement"). D. On July 1, 1994, M-III entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit D (the "D Agreement"). E. The A Agreement is an agreement which has a term which does not terminate except on the occurrence of certain events while the B, C, and D Agreements have terms which end on different dates in 1997 and 1998. MICA wished to place limits on the term of the A Agreement and the Physician Group is willing to permit such limits and both parties wish each ot eh Agreements to be coterminous. All of the parties wish to provide for certainty and continuity of service in their relationship as well as revise certain of the compensation provisions and clarify certain other matters. NOW THEREFORE, in consideration of their mutual covenants and promises and for other good and valuable consideration, receipt of which each party acknowledges, the parties agree as follows: 13 1. Term. The term as set forth in each of the Agreements (Section 7.1 of Exhibits A, B, C and D) is hereby revised to read as follows: 7.1 Term. The term hereunder shall commence January 1, 1996 and shall continue for five (5) years. Provided that Physician Group is not in material default pursuant to this Agreement then and in that event Physician Group shall have the right to extend the term of this Agreement for two (2) consecutive five (5) year terms so long as it shall give written notice to the other party no less than sixty (60) days prior to the end of a term hereunder. If a party believes a material default has occurred it shall promptly give written notice to the other party specifying the nature of the material default and providing a recommended method of cure. The notified party shall have ninety (90) days to correct the material default either in accordance with the suggested methodology or by an alternate equally effective methodology. The failure to provide notice within thirty (30) days of an event giving rise to a material default shall be deemed a waiver of such default. Notwithstanding anything to the contrary set forth in this Agreement, it is understood and agreed that this Agreement is attached to the assets of the Center. To the extent the Center or its assets are sold, assigned or otherwise transferred, this Agreement must be transferred and accepted in full by the acquirer as a condition of such acquisition, assignment or transfer. 2. Compensation. (a) The Compensation as set forth at Section 6.6 in each of those Agreement attached as Exhibits A and B is hereby revised to read as follows: 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first Two Hundred Thousand Dollars ($200,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of Two Hundred Thousand Dollars ($200,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month. (b) The compensation as set forth in Section 6.6 in each of Exhibits C and D is hereby revised to read as follows: 14 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first One Hundred Thousand Dollars ($100,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of One Hundred Thousand Dollars ($100,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month in recognition of their supervisorial responsibilities. 3. Statement of Revenues. A new Section 6.10 shall be added to Exhibit A and a new Section 6.9 to Exhibits B, C and D which provides as follows: 6.9[10] Statement of Revenues. Partnership [Corporation] shall furnish to Physician Group a statement of revenues generated by Physician Group upon or as to which a fee to be paid to Physician Group hereunder is calculated at the end of every month. This statement shall be submitted to Physician Group on the tenth (10th) day of each month reflecting the previous month's revenue from services rendered by Physician Group. Each statement shall be signed and certified to be correct by Partnership [Corporation] or its authorized representative. Partnership [Corporation] shall keep in the Center premises full and accurate books of account, records, cash receipts, and other pertinent data showing its revenues. Such books of account, records, cash receipts and other pertinent data shall be kept for a period of two (2) years. Physician Group shall be entitled during the term and within two (2) years after expiration or termination of this Agreement to inspect and examine all of Partnership's [Corporation's] books of account, records, cash receipts, and other pertinent data relative only to the revenues involving the Center, so that Physician Group can ascertain Center's revenues. Partnership [Corporation] shall cooperate fully with Physician Group in making the inspection. Physician Group shall also be entitled once during each year of the Agreement and once after expiration or termination to an examination of Center's books of account, records, cash receipts and other pertinent data to determine Center's revenues by a certified public accountant to be designated by Physician Group, and who will be paid solely by Physician Group, unless such review shall disclose an understatement by Center of two percent (2%) or more in which case all expenses of such examination will be paid by Partnership [Corporation]. 4. Reference. It is hereby agreed between the parties hereto that wherever the term "Physicians" or "Physician Group" appears in Exhibits A, B, C and D it shall be deemed to mean "Magnetic Imaging Medical Group, Inc., a California professional corporation. 15 5. Indemnification. MICA and Long Beach, jointly and severally, agree to indemnify and hold Physician Group together with its predecessors, harmless against any and all liabilities which it might incur in connection with its service as a General Partner of Long Beach. Physician Group shall promptly notify MICA of the existence of any claim, demand or other matter involving liabilities to third parties to which MICA's indemnification obligations would apply and shall give MICA a reasonable opportunity to defend the same at its own expense and with counsel of its own selection. If MICA, within a reasonable time after notice, fails to defend, Physician Group shall have the right, but not the obligation, to undertake the defense of and to compromise or settle (exercising reasonable business judgment) the claim or other matter on behalf of MICA. [INTENTIONALLY LEFT BLANK] 16 6. Incorporation. Except as specifically revised herein, Exhibits A, B, C and D are incorporated herein in full and restated as revised. Executed this 31st day of January, 1996 at Long Beach, California. MAGNETIC IMAGING MEDICAL GROUP, INC. By /s/ Joel Levine, M.D. ----------------------------- Its CFO ----------------------------- MEDICAL IMAGING CENTERS OF AMERICA, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President and CEO ----------------------------- LONG BEACH MEDICAL IMAGING CENTERS, LTD. By MICA CAL I, INC. Its Managing General Partner By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL III, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL IV, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- EX-10.10 13 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT 1 EXHIBIT 10.10 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT This Agreement is made effective as of March 28, 1984 by and between LONG BEACH MEDICAL IMAGING CENTER, LTD., a California limited partnership (hereinafter referred to as "PARTNERSHIP"), and LANCE SIEGER, M.D., JOEL B. LEVINE, M.D. and KEITH R. BURNETT, M.D. (herein after referred to as "Physicians"). RECITALS A. PARTNERSHIP, after careful study, has concluded that there is a need in Long Beach/Lakewood, California region for a medical center specializing in performing a variety of medical imaging and diagnostic services by experienced physicians at reasonable cost. B. PARTNERSHIP has a comprehensive system for establishing and providing financial and related management to such a medical center which makes available to qualified physicians the facilities, equipment, supplies, management, capital, staffing support, marketing services, and systems necessary to provide a large volume of medical imaging and diagnostic services to patients at reasonable cost, which PARTNERSHIP has obtained through arrangements with Medical Imaging Centers of America, Inc. ("MICA"), an affiliate of PARTNERSHIP. C. PARTNERSHIP desires to make its system available to physicians who are capable of offering high quality services to the public at a competitive cost. To that end, PARTNERSHIP has committed substantial resources, and has incurred substantial expenses and future obligations to develop the Center located in the greater Long Beach area, California (hereinafter referred to as the "Center"). The exact location of the Center has not yet been determined, and once a site has been selected the precise address will be set forth in a separate memorandum which will be attached hereto and incorporated herein by reference. D. Physicians desire to contract with PARTNERSHIP for use of PARTNERSHIP's management services and system of delivering medical imaging and diagnostic care, a sublease for the Center, and a license for use of any appropriate trade names and marks which PARTNERSHIP may own or own rights to license. 1 2 AGREEMENT NOW THEREFORE, the parties agree as follows: ARTICLE I Duties of Parties 1.1 Management Services of PARTNERSHIP. PARTNERSHIP shall provide to Physicians the following services: a. General Administrative Services. Overall supervision and management of the Center which does not constitute the practice of medicine, including supervision over the services and personnel described below. b. Personnel. Provision of all non-physician personnel needed to operate and support the Center, such as nurses, technicians, receptionists, secretarial, clerical, purchasing and marketing personnel. c. Training. Training of all non-physician personnel at the Center. d. Fiscal Services. Fiscal services including accounting, auditing, bookkeeping, budgeting, patient billings and record keeping, accounts receivable, accounts payable processing, and electronic data processing. e. Patient Records. Ownership and maintenance of patient medical records and archives, record retrieval and record monitoring to assist Physicians with utilization and quality assurance reviews. f. Physician Recruiting. Assistance to Physicians in recruiting and screening prospective physician-contractors, and physician-employees. g. Quality Control. Assistance to Physicians in the development of appropriate quality control programs and protocols, including development of performance and utilization standards, sampling techniques for case review, and preparation of appropriately documented studies. h. Administrative Services for Physicians. Provision of general administrative services to Physicians in connection with their business affairs relating to the Center, which shall include maintenance of Physicians' books and records and accounting services, billing, and such other administrative services as Physicians may from time to time require with respect to the operation of the Center. 2 3 i. Management Reports. Preparation of management reports to assist Physicians in evaluating the performance and productivity of the Center and of other doctors employed by or contracted with Physicians at the Center. j. Marketing. Marketing of the medical imaging and diagnostic services offered at the Center by Physicians pursuant to a marketing plan to be jointly developed and approved by Physicians. k. Equipment and Supplies. Provision of all equipment, furnishings, and supplies reasonably necessary for the efficient operation of the Center. l. Janitorial and Maintenance Service. Janitorial, grounds and maintenance services for the Center and its equipment and furnishings. 1.2 Administrative Services of Physicians. Physicians shall provide such administrative services at the Center as shall be necessary to assure that medical services are provided efficiently and commensurate with a high standard of care for the Long Beach/Lakewood medical community. In doing so, Physicians shall consult with PARTNERSHIP concerning non-physician staffing requirements, needed equipment and supplies, preparation of a suitable budget, the need for ancillary support, such as laboratory services, so as to optimize the smooth and efficient functioning of the Center. Physicians shall analyze the efficiency of the Center and monitor and evaluate the Center personnel, both physician and non-physician personnel. Physicians shall provide their evaluations and recommendations to PARTNERSHIP. Any such recommendations and evaluations shall be rendered on a confidential basis and may include specific designation of non-medical personnel considered unacceptable by Physicians. ARTICLE II Licensing Agreement 2.1 License of Trade Names and Marks. In consideration of the payment provided for herein and the agreement of Physicians to perform all of the terms, covenants and conditions contained in this Agreement and the sublease for the Center pursuant hereto, PARTNERSHIP agrees to license to Physicians the nonexclusive right to use, subject to all legal restrictions upon physician advertising, such trade names and marks as PARTNERSHIP may from time to time adopt for use in connection with its business, the business of MICA, or the business of the Center but only in respect to business of Physicians conducted (1) at the Center while Physicians' sublease is in effect, (2) this Agreement is in full force and effect, and (3) Physicians are in compliance with all of the terms, covenants and conditions contained in this Agreement, and the sublease for the Center. 3 4 2.2 Use of Trade Names and Marks. The exact manner of use of trade names and marks licensed to Physicians shall be subject to the prior written consent of PARTNERSHIP. Physicians shall not use said names or marks in publicly disseminated materials without such consent. 2.3 Nonexclusive Right. The license granted to Physicians in Section 2.1 hereof is nonexclusive. 2.4 Term of License. The license granted herein shall terminate when Physicians sublease expires or terminates, and shall terminate in all respects when this Agreement expires or terminates. 2.5 Use of Trade Names and Marks After Term. Upon termination of this license, Physicians shall immediately discontinue the use of any trade names and marks licensed to Physicians hereunder in every respect, shall execute all documents necessary to satisfy the Secretary of State and the Board of Medical Quality Assurance for the State of California that they have no continuing interest in the trade names or marks of PARTNERSHIP or of MICA, and Physicians shall not make any reference on their letterhead or in other materials to their former affiliation with PARTNERSHIP or to MICA. 2.6 Protecting Goodwill. As further consideration for the opportunity to sublease the Center and conduct the practice of medicine from the Center and for the use of such trade names and marks, Physicians agree they will take all necessary steps to preserve and protect the reputation and goodwill associated with the Center and said names and marks including, without limitation, the following: a. Assigned Physicians. Physicians shall contract only with well-qualified licensed medical doctors who are experienced in medical imaging and diagnostic care at the Center, and the assignment of an employed or contract medical doctor to work at the Center shall be subject to the reasonable approval of PARTNERSHIP. b. Compliance With Law. Physicians and their physician-contractors and physician-employees shall comply with all laws, regulations, ethical and professional standards applicable to the practice of medicine. c. Monitoring of Services. Physicians shall rigorously monitor utilization and quality of services provided at the Center and shall take all steps necessary to remedy any and all deficiencies in the efficiency or the quality of medical care provided. d. Time Commitment. PARTNERSHIP shall, after consultation with Physicians, establish reasonable business hours for the operation of the Center. Physicians shall engage a sufficient number of physician-employees or physician-contractors to meet the demand and potential demand for medical imaging and diagnostic services at the Center, and to assure the 4 5 efficient operation of the Center during its established business hours. Throughout the term of this Agreement, Physicians shall exercise their highest skills and best efforts to cause the practice at the Center to grow in volume and profitability. To the latter end, except for undertaking bona fide charity cases on a basis customary for physicians in the Long Beach/Lakewood area, without written consent of the PARTNERSHIP, Physicians shall only use the Center for performance of medical services which are compensable by the payment of professional fees established under Section 6.3, and activities which directly support that performance. ARTICLE III Sublease of Center Concurrently with executing this Agreement, the parties are entering into a sublease of the Center, which is incorporated by this reference as if fully set forth herein. ARTICLE IV Relationship of Parties 4.1 Practice of Medicine. A fundamental understanding between the parties is that PARTNERSHIP shall not participate in any manner in the medical services rendered by Physicians in the conduct of their medical practice at the Center. PARTNERSHIP may make recommendations, but shall have no control, over matters affecting Physicians' medical practice, including without limitation the following: furnishing physicians, supervising medical services, or any and all other matters affecting the practice of medicine. All patients treated by Physicians shall be deemed to be the patients of Physicians. Physicians shall not represent in any direct or indirect manner to the public or any third party that PARTNERSHIP has participated, is participating, or will participate in the practice of medicine in any manner. 4.2 Relationship of Parties. This Agreement does not constitute either party the agent, legal representative or employee for any purpose whatsoever of the other party, and neither party is granted any right or authority to assume or create any obligation for or on behalf of, or in the name of, or in any way to bind the other party. Each party agrees not to incur or contract for any debt or obligation on behalf of the other party, or commit any act, make any representation or advertise in any manner which may adversely affect any right of the other party, or be detrimental to its good name and reputation. In the performance of their services under this Agreement, the Physicians shall act in the capacity of owners of the medical practice at the Center. PARTNERSHIP in its performance under this Agreement shall act in the capacity of an independent contractor to Physicians. 5 6 ARTICLE V Proprietary Interest and Rights of PARTNERSHIP and MICA 5.1 Proprietary Interests of PARTNERSHIP and MICA. Physicians (and each of them) recognize the proprietary interest of PARTNERSHIP and MICA in the PARTNERSHIP and MICA business system for operating a medical imaging and diagnostic center, including all policies, procedures, operating manuals, forms, customer lists, contracts, and other information regarding such system. Physicians (and each of them) acknowledge and agree that such information constitutes trade secrets of PARTNERSHIP and MICA. Physicians (and each of them) hereby waive any and all right, title and interest in and to such trade secrets and agree to return all copies of such trade secrets and information related thereto, at its expense, upon termination of the Agreement. 5.2 Confidentiality. Physicians (and each of them) acknowledge and agree that each of PARTNERSHIP and MICA is entitled to prevent its competitors from obtaining and utilizing its trade secrets. Physicians (and each of them) agree to hold the trade secrets of PARTNERSHIP and MICA in strictest confidence and not to disclose them or allow them to be disclosed directly or indirectly to any person or entity other than persons engaged by Physicians for use in the course of their employment at the Center, without the prior written consent of PARTNERSHIP and MICA. Physicians (and each of them) acknowledge their fiduciary obligations to PARTNERSHIP and MICA and the confidentiality of their relationship with PARTNERSHIP and MICA and of any information relating to the services and business methods of PARTNERSHIP and MICA which they may obtain during the term of this Agreement. Physicians (and each of them) shall not, either during the term of this Agreement, or at any time after the expiration or sooner termination of this Agreement, disclose to anyone other than persons employed at the Center who use the information in the course of their employment any confidential or proprietary information or trade secret of PARTNERSHIP or MICA obtained by them. Physicians (and each of them) also agree to place any persons to whom said information is disclosed for the purpose of performance under legal obligation to treat such information as strictly confidential. 5.3 Successor Medical Group. Upon termination of this Agreement, or the sublease of the Center, whichever first occurs, PARTNERSHIP shall have the immediate right, in its sole discretion, to designate a professional corporation, partnership or sole proprietor as successor to Physicians at the Center. If such professional corporation, partnership or sole proprietor is composed solely of duly licensed physicians, or other licensed health care professionals, they shall be entitled to retain and utilize all existing customer lists and patient records at the Center. PARTNERSHIP agrees that all records transferred to Physicians' successor shall be maintained as long as required by law regulating retention of medical records, and copies of said records shall be made available to Physicians at their expense, if required for the purpose of defending any malpractice claim against Physicians or any of them. 6 7 ARTICLE VI Compensation 6.1 Inducement to Enter Agreement. As partial consideration, and as an inducement to Physicians for entering this Agreement, PARTNERSHIP shall be responsible for any losses related to the operation of the Center which do not arise from wrongful or negligent acts or omissions of Physicians or any of them. 6.2 PARTNERSHIP's Risk. PARTNERSHIP has incurred substantial expenses and future obligations to establish the Center, the system for the delivery of medical imaging and diagnostic services, including fees for consultants and other professionals, salaries for responsible staff, interest expenses, lease obligations, and costs of equipping the Center. PARTNERSHIP has also assumed substantial obligations associated with the continuing operation of the Center. Although there is uncertainty about the profitability of the Center during the initial years of operation, PARTNERSHIP is assuming responsibility for losses as provided in Section 6.1. The parties therefore recognize and agree that in order for PARTNERSHIP to receive a fair and reasonable return for its expenses and risks, a fair return for lease of premises, services, and the use of its trade names and marks hereunder, as well as to permit the necessary accumulation of capital to establish and maintain a first rate and fully equipped Center, a goal the parties hereto agree to be desirable, the total payments to PARTNERSHIP should increase in future years. 6.3 Professional Fees. Physicians shall, in consultation with PARTNERSHIP, establish a schedule of fees and charges for medical services at the Center. 6.4 Billing and Collections. Billings to patients for all services rendered at the Center shall be in the name of Physicians. PARTNERSHIP, or its delegate, shall serve as billing and collection agent for Physicians, and shall be diligent and timely in the performance of billing and collection services. However, PARTNERSHIP does not guarantee collection and shall not be responsible for any loss to Physicians as a result of inability to collect fees and charges. 6.5 Intention of the Parties. It is the intention of the parties hereto that from the revenues of the Center Physicians shall be fairly and reasonably compensated for their professional services and those of the physicians engaged by them, and PARTNERSHIP shall be fairly and reasonably compensated for the sublease of the Center, the licensing of trade names and marks, the provision of services by it pursuant to this Agreement, and for the expenses, obligations, and risks assumed by it in connection with the establishment and operation of the Center and the operation of the PARTNERSHIP system. 6.6 Fair and Reasonable Compensation of Physicians. The parties hereto agree Physicians will be fairly and reasonably compensated for their services and those of the physicians it engages by retaining in the aggregate twenty-five percent (25%) of the amount of money actually collected ("collected receipts") by the Center for each medical imaging diagnostic or other 7 8 medical procedure ("medical services") performed at the Center. All collected receipts for anything directly associated with the services of Physicians, related to the Center, including charges for use of equipment, supplies, facilities and assisting personnel shall be deemed to be for medical services for purposes of this Agreement. 6.7 Fair and Reasonable Compensation to PARTNERSHIP. Any revenues or receipts in excess of those retained by Physicians as provided in Section 6.6 hereof shall be paid to PARTNERSHIP as compensation for the sublease of the Center, provision of services under this Agreement, the licensing of trade names and marks to Physicians and for its expenses, obligations, and risks in connection with the establishment of the Center, and the operation of the PARTNERSHIP system. Said compensation includes rent to PARTNERSHIP for the Center subleased by Physicians. 6.8 Remittance. All monies which Physicians are entitled to retain pursuant to Section 6.1 and all monies which PARTNERSHIP is entitled to receive pursuant to Section 6.7 shall be accounted for and disbursed monthly. 6.9. Advance. Beginning on the first day of the first calendar month following the date on which the Center becomes fully operational (which the parties shall fix by written agreement) and on the 1st day of each of the next five calendar months (provided this Agreement has not otherwise been terminated) PARTNERSHIP will pay to each of Joel and Keith as an advance against compensation, which they are entitled to retain under Section 6.6 the sum of $6,667.00. In any month when compensation to that individual exceeds $6,667.00, the excess shall be paid to PARTNERSHIP until such time as all advances to said individual have been repaid in full. ARTICLE VII Term and Termination 7.1 Term. This Agreement became effective on the date first above written and shall continue for a period of at least six months thereafter, and indefinitely thereafter until terminated. 7.2 Termination. Either party may terminate this Agreement, with or without cause, within the six-month period referred to in Section 7.1 by giving the other party written notice of termination. This Agreement may be terminated at any time by either party in the event of a material breach by the other party to this Agreement, which is not cured by the breaching party within 60 days after written notice of the breach has been given to the breaching party. 7.3 Rights Upon Termination. The termination of this Agreement shall not release or discharge either party from any obligation, debt or liability which shall have previously accrued and remain to be performed upon the date of termination, or which by its terms is to be performed after the date of termination. 8 9 ARTICLE VIII General Provisions 8.1 Indemnification. Each party shall indemnify, hold harmless and defend the other party from any liability, loss, claims, lawsuits, damages, injury, cost, expense or other detriment arising out of or incident to the performance under this Agreement by such indemnifying party, its employees, independent contractors, and agents, including, without limitation, all consequential damages and attorneys' fees. Physicians shall obtain and maintain professional liability insurance and coverages on all medical doctors, naming PARTNERSHIP as an additional insured, with reasonable limits to be agreed upon. PARTNERSHIP shall obtain and maintain professional liability insurance on all nonprofessional staff, naming Physicians as additional insured, with reasonable limits to be agreed upon. 8.2 Assignment. The rights conferred upon Physicians hereunder may not be transferred or assigned without the prior written consent of PARTNERSHIP and any assignment in violation of this section shall be void. 8.3 Governing Law. This Agreement shall be governed by the laws of the State of California. 8.4 Article and Section Headings. The article and section heading in this Agreement are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof. 8.5 Attorneys' Fees. Should any party employ an attorney for the purpose of enforcing this Agreement, or any judgment based thereon, in any court, including bankruptcy courts and courts of appeal, or arbitration proceedings, the prevailing party shall be entitled to receive its attorneys' fees and costs, whether taxable or not. 8.6 Waiver. The waiver of any covenant, condition or duty hereunder by either party shall not prevent that party from later insisting upon full performance of the same. 8.7 Amendment. No amendment in the terms of this Agreement shall be binding on either party unless in writing and executed by the duly authorized representatives of each party. 8.8 Notice. Any communication under this Agreement shall be given in writing and shall be delivered in person or by prepaid certified or registered mail to each party at such address as either party shall furnish to the other in writing. Notice shall be deemed given when personally delivered, or if given by mail, then two days after deposit in the United States mail, postage prepaid. 9 10 8.9 Entire Agreement. This Agreement and the sublease referenced herein constitute the entire agreement between the parties in connection with the subject matter hereof and shall supersede all prior agreements, whether oral or in writing, whether explicit or implicit, which have been entered into prior to the execution hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement at San Clemente, California as of the date first above written. LONG BEACH MEDICAL IMAGING CENTER, LTD. By: MICA-CAL-I, INC. By: /s/ Antone J. Lazos ---------------------- President PHYSICIANS: /s/ Joel B. Levine, M.D. ----------------------------- JOEL B. LEVINE, M.D. /s/ Lance Sieger, M.D. ----------------------------- LANCE SIEGER, M.D. /s/ Keith R. Burnett, M.D. ----------------------------- KEITH R. BURNETT, M.D. 10 11 AMENDMENT AMENDMENT TO the Management, Licensing and Facilities Agreements entered into by and between predecessors to MAGNETIC IMAGING MEDICAL GROUP, INC., a California professional corporation (hereinafter referred to as "Physician Group" and MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation ("MICA") which wholly-owned subsidiaries are MICA CAL I, Inc., a California corporation ("M-I") and the managing general partner of Long Beach Medical Imaging Center, Ltd., a California limited partnership ("Long Beach"), MICA CAL II, INC., a California corporation ("M-III") and MICA CAL IV, INC>, a California corporation ("M-IV"). R E C I T A L S A. On March 28, 1984, Long Beach entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto as Exhibit A (the "A Agreement"). B. On March 14, 1988, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. This Agreement was extended on May 29, 1992. A true and correct copy of that Agreement as extended is attached hereto as Exhibit B (the "B Agreement"). C. On February 3, 1992, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit C (the "C Agreement"). D. On July 1, 1994, M-III entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit D (the "D Agreement"). E. The A Agreement is an agreement which has a term which does not terminate except on the occurrence of certain events while the B, C, and D Agreements have terms which end on different dates in 1997 and 1998. MICA wished to place limits on the term of the A Agreement and the Physician Group is willing to permit such limits and both parties wish each ot eh Agreements to be coterminous. All of the parties wish to provide for certainty and continuity of service in their relationship as well as revise certain of the compensation provisions and clarify certain other matters. NOW THEREFORE, in consideration of their mutual covenants and promises and for other good and valuable consideration, receipt of which each party acknowledges, the parties agree as follows: 12 1. Term. The term as set forth in each of the Agreements (Section 7.1 of Exhibits A, B, C and D) is hereby revised to read as follows: 7.1 Term. The term hereunder shall commence January 1, 1996 and shall continue for five (5) years. Provided that Physician Group is not in material default pursuant to this Agreement then and in that event Physician Group shall have the right to extend the term of this Agreement for two (2) consecutive five (5) year terms so long as it shall give written notice to the other party no less than sixty (60) days prior to the end of a term hereunder. If a party believes a material default has occurred it shall promptly give written notice to the other party specifying the nature of the material default and providing a recommended method of cure. The notified party shall have ninety (90) days to correct the material default either in accordance with the suggested methodology or by an alternate equally effective methodology. The failure to provide notice within thirty (30) days of an event giving rise to a material default shall be deemed a waiver of such default. Notwithstanding anything to the contrary set forth in this Agreement, it is understood and agreed that this Agreement is attached to the assets of the Center. To the extent the Center or its assets are sold, assigned or otherwise transferred, this Agreement must be transferred and accepted in full by the acquirer as a condition of such acquisition, assignment or transfer. 2. Compensation. (a) The Compensation as set forth at Section 6.6 in each of those Agreement attached as Exhibits A and B is hereby revised to read as follows: 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first Two Hundred Thousand Dollars ($200,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of Two Hundred Thousand Dollars ($200,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month. (b) The compensation as set forth in Section 6.6 in each of Exhibits C and D is hereby revised to read as follows: 13 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first One Hundred Thousand Dollars ($100,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of One Hundred Thousand Dollars ($100,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month in recognition of their supervisorial responsibilities. 3. Statement of Revenues. A new Section 6.10 shall be added to Exhibit A and a new Section 6.9 to Exhibits B, C and D which provides as follows: 6.9[10] Statement of Revenues. Partnership [Corporation] shall furnish to Physician Group a statement of revenues generated by Physician Group upon or as to which a fee to be paid to Physician Group hereunder is calculated at the end of every month. This statement shall be submitted to Physician Group on the tenth (10th) day of each month reflecting the previous month's revenue from services rendered by Physician Group. Each statement shall be signed and certified to be correct by Partnership [Corporation] or its authorized representative. Partnership [Corporation] shall keep in the Center premises full and accurate books of account, records, cash receipts, and other pertinent data showing its revenues. Such books of account, records, cash receipts and other pertinent data shall be kept for a period of two (2) years. Physician Group shall be entitled during the term and within two (2) years after expiration or termination of this Agreement to inspect and examine all of Partnership's [Corporation's] books of account, records, cash receipts, and other pertinent data relative only to the revenues involving the Center, so that Physician Group can ascertain Center's revenues. Partnership [Corporation] shall cooperate fully with Physician Group in making the inspection. Physician Group shall also be entitled once during each year of the Agreement and once after expiration or termination to an examination of Center's books of account, records, cash receipts and other pertinent data to determine Center's revenues by a certified public accountant to be designated by Physician Group, and who will be paid solely by Physician Group, unless such review shall disclose an understatement by Center of two percent (2%) or more in which case all expenses of such examination will be paid by Partnership [Corporation]. 4. Reference. It is hereby agreed between the parties hereto that wherever the term "Physicians" or "Physician Group" appears in Exhibits A, B, C and D it shall be deemed to mean "Magnetic Imaging Medical Group, Inc., a California professional corporation. 14 5. Indemnification. MICA and Long Beach, jointly and severally, agree to indemnify and hold Physician Group together with its predecessors, harmless against any and all liabilities which it might incur in connection with its service as a General Partner of Long Beach. Physician Group shall promptly notify MICA of the existence of any claim, demand or other matter involving liabilities to third parties to which MICA's indemnification obligations would apply and shall give MICA a reasonable opportunity to defend the same at its own expense and with counsel of its own selection. If MICA, within a reasonable time after notice, fails to defend, Physician Group shall have the right, but not the obligation, to undertake the defense of and to compromise or settle (exercising reasonable business judgment) the claim or other matter on behalf of MICA. [INTENTIONALLY LEFT BLANK] 15 6. Incorporation. Except as specifically revised herein, Exhibits A, B, C and D are incorporated herein in full and restated as revised. Executed this 31st day of January, 1996 at Long Beach, California. MAGNETIC IMAGING MEDICAL GROUP, INC. By /s/ Joel Levine, M.D. ----------------------------- Its CFO ----------------------------- MEDICAL IMAGING CENTERS OF AMERICA, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President and CEO ----------------------------- LONG BEACH MEDICAL IMAGING CENTERS, LTD. By MICA CAL I, INC. Its Managing General Partner By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL III, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL IV, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- EX-10.11 14 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT 1 EXHIBIT 10.11 MANAGEMENT, LICENSING AND FACILITIES AGREEMENT This Agreement is made effective as of July 1, 1994 by and between MICA CAL III, Inc., a California corporation (hereinafter referred to as "Corporation"), and MIMG, Inc., (hereinafter referred to a "Physician Group"). RECITALS A. Corporation, after careful study, has concluded that there is a need in Downey for a medical center specializing in performing a variety of medical imaging and diagnostic services by experienced physicians at reasonable cost. B. Corporation has a comprehensive system for establishing and providing financial and related management to such a medical center which makes available to qualified physicians a fully staffed facility, equipment, supplies, management, capital, marketing services, and systems necessary to provide a large volume of medical imaging and diagnostic services to patients at a reasonable cost. These services will be obtained from Medical Imaging Centers of America, Inc. ("MICA"). C. Corporation desires to make its system available to physicians who are capable of offering high quality services to the public at a competitive cost. To that end, Corporation has committed substantial resources, and has incurred substantial expenses and future obligations to develop the medical imaging center located at 8515 East Florence Avenue, Suite 100, Downey, California 90240 (hereinafter referred to as the "Center"). D. Physician Group desires to contract with Corporation for use of Corporation's management services and system of delivering medical imaging and diagnostic care, a sublease for the Center, and a license for use of any appropriate trade names and marks which Corporation may own or own rights to license. AGREEMENT NOW, THEREFORE, the parties agree as follows: ARTICLE I Duties of Parties 1.1 Management Services of Corporation. Corporation shall provide the following services: 1 2 (a) General Administrative Services. Overall supervision and management of the Center, including supervision over the services and personnel described below. (b) Personnel. Provision to the Center of all non-physician personnel needed to operate and support the Center, such as nurses, technicians, receptionists, secretarial, clerical, purchasing and marketing personnel. No chief technologist shall be employed or terminated by the Corporation without the consent of Physician Group, which consent shall not be unreasonably withheld. (c) Training. Training of all non-physician personnel at the Center. (d) Fiscal Services. Fiscal services including accounting, auditing, bookkeeping, budgeting, patient billings and record keeping, accounts receivable, accounts payable processing, and electronic data processing. (e) Patient Records. Ownership and maintenance of patient medical records and archives, record retrieval and record monitoring to assist Physician Group with utilization and quality assurance reviews. (f) Physician Recruiting. Assistance to Physician Group in recruiting and screening prospective physician-contractors, and physician-employees. Physician Group shall make the final selections. (g) Quality Control. Assistance to Physician Group in the development of appropriate quality control programs and protocols, including development of performance and utilization standards, sampling techniques for case review, and preparation of appropriately documented studies. (h) Administrative Services for Physician Group. Provision of general administrative services to Physician Group in connection with its business affairs relating to the Center, which shall include maintenance of Physician Group's books and records and accounting services, billing, and such other administrative services as Physician Group may from time to time require with respect to the operation of the Center. (i) Management Reports. Preparation of management reports to assist Physician Group in evaluating the performance and productivity of the Center and of other doctors employed by or contracted with Physician Group at the Center. (j) Marketing. Marketing of the medical imaging and diagnostic services offered at the Center by Physician Group pursuant to a marketing plan to be jointly developed and shall be subject to approval by Physician Group. 2 3 (k) Equipment and Supplies. Provision of all equipment, furnishings, and supplies reasonably necessary for the efficient operation of the Center. (l) Janitorial and Maintenance Service. Janitorial, grounds and maintenance services for the Center and its equipment and furnishings. 1.2 Administrative Services of Physician Group. Physician Group shall cooperate with the Corporation and use its best efforts to assure the continuing success of the Center. These efforts shall include, by way of example and not limitation: (1) promotion of services provided by the Center with particular emphasis on direct contact with referring physicians and other health care providers including office visits, seminars and advisory boards to apprise such individuals and groups of the nature and availability of services offered at the Center, (2) provision of technical advice and assistance with respect to the acquisition, installation and maintenance of equipment, (3) participation in planning of the Center, (4) the development of policies and standards for operation. Physician Group shall also provide such administrative services at the Center as shall be necessary to assure that medical services are provided efficiently and commensurate with a high standard of care for the medical community in Downey. In doing so, Physician Group shall consult with Corporation concerning non-physician staffing requirements, needed equipment and supplies, preparation of a suitable budget, the need for ancillary support, such as laboratory services, so as to optimize the smooth and efficient functioning of the Center. Physician Group shall analyze the efficiency of the Center and monitor and evaluate the Center personnel, both physician and non-physician personnel. Physician Group shall provide its evaluations and recommendations to Corporation. Any such recommendations shall be rendered on a confidential basis and may include specific designation of non-medical personnel considered unacceptable by Physician Group. 1.3 Notification of Payer Disputes. Physician Group agrees to notify Corporation of any complains arising under any agreement between Physician Group and a third-party payer for services provided at the Center, and Physician Group shall immediately notify Corporation of any notice of termination of any agreement with a third-party payer. Physician Group shall consult with the Corporation and cooperate to resolve such problems as may arise under third-party payer agreements. Physician Group shall also consult with Corporation prior to terminating any third-party payer agreement. ARTICLE II Licensing Agreement 2.1 License of Trade Names and Marks. In consideration of the payment provided for herein and the agreement of Physician Group to perform all of the terms, covenants and conditions contained in this Agreement and the sublease for the Center pursuant hereto, Corporation agrees to license to Physician Group the nonexclusive right to use, subject to all legal restrictions upon physician advertising, such trade names and marks as MICA may license to the 3 4 Corporation, or as Corporation may from time to time adopt for use in connection with its business, or the business of the Center but only in respect to business of Physician Group conducted (1) at the Center while Physician Group's sublease is in effect, (2) while this Agreement is in effect, and (3) if the Corporation has not declared a default and Physician Group is in compliance with all of the terms, covenants and conditions contained in this Agreement, and the sublease for the Center. 2.2 Use of Trade Names and Marks. The exact manner of use of trade names and marks licensed to Physician Group shall be subject to the prior written consent of Corporation. Physician Group shall no use said names or marks in publicly disseminated materials without such consent. 2.3 Nonexclusive Right. The license granted to Physician Group in Section 2.1 hereof is nonexclusive. 2.4 Term of License. The license granted herein shall terminate when Physician Group's sublease expires or terminates, and shall terminate when this Agreement expires or terminates. 2.5 Use of Trade Names and Marks After Term. Upon termination of this license, Physician Group shall immediately discontinue the use of any trade names and marks licensed to Physician Group hereunder in every respect, shall execute all documents necessary to satisfy third-parties, including government agencies regulating corporations and the practice of medicine that Physician Group has no continuing interest in the trade names or marks of Corporation or of MICA, and Physician Group shall not make any reference on their letterhead or in other materials to their former affiliation with Corporation, or any affiliation with MICA. 2.6 Protecting Goodwill. As further consideration for the opportunity to sublease the Center and conduct the practice of medicine from the Center and for the use of such trade names and marks, Physician Group agrees it will take all necessary steps to preserve and protect the reputation and goodwill associated with the Center and said names and marks including, without limitation, the following: (a) Assigned Physicians. Physician Group shall contract only with well- qualified licensed medical doctors who are experienced and Board certified in medical imaging and diagnostic care provided at the Center, and the assignment and continued service of an employed or contract medical doctor to work at the Center shall be subject to the approval of Corporation, which shall not be unreasonably withheld. (b) Compliance with Law. Physician Group and its physician- contractors and physician-employees shall comply with all laws, regulations, ethical and professional standards applicable to the practice of medicine. 4 5 (c) Monitoring of Services. Physician Group shall rigorously monitor utilization and quality of services provided at the Center and shall take all steps necessary to remedy any and all deficiencies in the efficiency or the quality of medical care provided. (d) Time Commitment. Corporation shall, after consultation with Physician Group, establish reasonable business hours for the operation of the Center. Physician Group shall engage a sufficient number of physician-employees or physician-contractors to meed the demand and potential demand for medical imaging and diagnostic services at the Center, and to assure the efficient operation of the Center during its established business hours. It is understood that a physician shall be present when procedures are performed for patients. Throughout the term of this Agreement, Physician Group shall exercise its highest skills and best efforts to cause the practice at the Center to grow in volume and profitability. To the latter end, except for undertaking bona fide charity cases on a basis customary for physicians in the Downey area, without written consent of the Corporation, Physician Group shall only use the Center for performance of medical services which are compensable by the payment of professional fees established under Section 6.3, or as approved by the Corporation. ARTICLE III Sublease of Center Concurrently with executing this Agreement, the parties are entering into a sublease for the Center of even date, which is incorporated by this reference as if fully set forth herein. ARTICLE IV Relationship of Parties 4.1 Practice of Medicine. A fundamental understanding between the parties is that Corporation shall not participate in any manner in the medical services rendered by Physician Group in the conduct of its medical practice at the Center. Corporation may make recommendations, but shall have no control, over matters affecting Physician Group's medical practice, including without limitation the following: furnishing physicians, supervising medical services, or any and all other matters affecting the practice of medicine. All patients treated by Physician Group shall be deemed to be the patients of Physician Group. Physician Group shall not represent any direct or indirect manner to the public or any third-party that Corporation has participated, is participating, or will participate in the practice of medicine in any manner. 4.2 Relationship or Parties. This Agreement does not constitute either party the agent, legal representative or employee for any purpose whatsoever of the other party, and neither party is granted any right or authority to assume or create any obligation for or on behalf of, or 5 6 in the name of, or in any way to bind the other party. Each party agrees not to incur or contract for any debt or obligation on behalf of the other party, or commit any act, make any representation or advertise in any manner which may adversely affect any right of the other party, or be detrimental to its good name and reputation. ARTICLE V Proprietary Interest and Rights of Corporation and MICA 5.1 Proprietary Interest of Corporation and MICA. Physician Group recognized the proprietary interest of Corporation and MICA in the Corporation and MICA business system for operating and medical imaging and diagnostic center, including all policies, procedures, operating manuals, forms, customer lists, contracts, and other information regarding such system. Physician Group acknowledges and agrees that such information constitutes trade secrets of Corporation and MICA. Physician Group hereby waives any and all right, title and interest in and to such trade secrets and agrees to return all copies of such trade secrets and information related thereto, at its expense, upon termination of the Agreement. 5.2 Confidentiality. Physician Group acknowledges and agrees that Corporation and MICA are entitled to prevent its competitors from obtaining and utilizing its trade secrets. Physician Group agrees to hold the trade secrets of Corporation and MICA in strictest confidence and not to disclose them or allow them to be disclosed directly or indirectly to any person or entity other than persons engaged by Physician Group for use in the course of their employment at the Center, without the prior written consent of Corporation and MICA. Physician Group acknowledges its confidential relationship to Corporation and the confidentiality of its relationship with Corporation and any information relating to the services and business methods of Corporation or MICA which it may obtain during the term of this Agreement. Physician Group shall not, either during the term of this Agreement, or at any time after the expiration of sooner termination of this Agreement, disclose to anyone other than persons employed at the Center who use the information in the course of their employment any confidential or proprietary information or trade secret of Corporation obtained by it. Physician Group agrees to place under legal obligation to treat such information as strictly confidential any persons to who said information is disclosed for the purpose of performance. 5.3 Successor Medical Group. Upon termination of this Agreement, or the sublease of the Center for any reason, whichever first occurs, Corporation shall have the immediate right, in its sole discretion, to designate a professional corporation, partnership or sole proprietor as successor to Physician Group at the Center. If such professional corporation, partnership or sole proprietor is composed solely of duly licensed physicians, they shall be entitled to retain and utilize all existing customer lists and patient records at the Center. Corporation agrees that all records transferred to Physician Group's successor shall be maintained as long as required by law regulating retention of medical records, and copies of said records shall be made 6 7 available to Physician Group at its expense, if required for the purpose of defending any malpractice claim against Physician Group, or for the purpose of providing medical care. The rights of the parties under this Section shall survive termination of this Agreement. ARTICLE VI Compensation 6.1 Inducement to Enter Agreement. As partial consideration, and as an inducement to Physician Group for entering this Agreement, Corporation shall be responsible for any losses related to the operation of the Center which do not arise from wrongful or negligent acts or omissions of Physician Group.. 6.2 Corporation's Risk. Corporation has incurred substantial expenses and future obligations to establish the Center, the system for the delivery of medical imaging and diagnostic services, including fees for consultants and other professionals, salaries for responsible staff, interest expenses, lease obligations, and costs of equipping the Center. Corporation has also assumed substantial obligations associated with the continuing operation of the Center. Although there is uncertainty about the profitability of the Center during the initial years of operation, Corporation is assuming responsibility for losses as provided in Section 6.1. The parties therefore recognize and agree that in order for Corporation to receive a fair and reasonable return for its expenses and risks, a fair return for lease of premises, services, and the use of its trade names and marks hereunder, as well as to permit the necessary accumulation of capital to establish and maintain a first rate and fully equipped Center, a goal the parties hereto agree to be desirable, the total payments to Corporation should increase in future years. 6.3 Professional Fees. Physician Group, shall in consultation with Corporation, establish a schedule of fees and charges for medical services at the Center. 6.4 Billing and Collections. Billings to patients for all services rendered at the Center shall be in the name of Physician Group. Corporation, or its delegate, shall serve as billing and collection agent for Physician Group, and shall be diligent and timely in the performance of billing and collection services. However, Corporation does not guarantee collection and shall not be responsible for any loss to Physician Group as a result of inability to collect fees and charges. 6.5 Intention of the Parties. It is the intention of the parties hereto that from the revenues of the Center Physician Group shall be fairly and reasonably compensated for its professional services and those of the physicians engaged by it, and Corporation shall be fairly and reasonably compensated for the sublease of the Center, the licensing of trade names and marks, the provision of services by it pursuant to this Agreement, and for the expenses, obligations, and risks assumed by it in connection with the establishment and operation of the Center and the operation of the Corporation system. 7 8 6.6 Fair and Reasonable Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services and those of the physicians it engages by retaining in the aggregate eighteen percent (18%) of the revenues actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center. For purposes of this Agreement, aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, supplies, facilities and Center personnel in connection with performance of medical services. 6.7 Fair and Reasonable Compensation to Corporation. Any revenues or receipts in excess of those retained by Physician Group as provided in Section 6.6 hereof shall be paid to Corporation as compensation for the sublease of the Center, provision of services under this Agreement, the licensing of trade names and marks to Physician Group, and for its expenses, obligations, and risks in connection with the establishment of the Center, and the operation of the Corporation system. Said compensation includes the total rent to Corporation for the Center subleased by Physician Group. 6.8 Remittance. All monies which Physician Group is entitle to retain pursuant to Section 6.1 and all monies which Corporation is entitled to receive pursuant to Section 6.7 shall be accounted for and disbursed weekly. ARTICLE VII Term and Termination 7.1 Term. Subject to paragraphs 7.2 and 7.3 below, this Agreement shall become effective on the date first above written and shall continue for a period of three (3) years unless sooner terminated in accordance with this Agreement. 7.2 Termination by the Corporation. This Agreement may be terminated by Corporation upon thirty (30) days' prior written notice to Physician Group upon occurrence of the following: 7.2.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as a result of the acts or omissions of Physician Group or any other reason. 7.2.2 Physician Group, or any shareholder, director or physician-employee of Physician Group or any professional corporation to which this Agreement may be assigned, engages in any criminal act in the nature of conversation, embezzlement or theft relative to the business conducted pursuant to this Agreement; Physician Group will maintain adequate physician-employee dishonesty insurance. 8 9 7.2.3 Physician Group or any professional corporation to which this Agreement may be assigned, is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Physician Group, or a receiver is appointed for all or substantially all of the Physician Group's assets, unless said filing is dismissed within thirty (30) days. 7.2.4 Breach by Physician Group of any of its obligations under this Agreement, which breach continues for a period of thirty (30) days following written notice of the breach, or otherwise by mutual consent. 7.2.5 Conduct by Physician Group, its employees or agents which is disruptive of operations of the Center, which interferes with the performance of the Corporation's duties under this Agreement, provided such conduct continues or reoccurs more than thirty (30) days following written notice to Physician Group of such breach. 7.2.6 Conduct by Physician Group, its employees or agents imposing, or which may impose, civil or criminal liabilities (other than liability for medical malpractice) on Corporation. 7.3 Termination by Physician Group. This Agreement may be terminated by Physician Group upon thirty (30) days' written notice to the Corporation upon the occurrence of the following: 7.3.1 The Prime Lease pursuant to which Corporation is leasing the Center is terminated as the result of acts or omissions of Corporation or for any other reason other than acts or omissions of Physician Group, its employees or agents. 7.3.2 Corporation or any of the officers of the Corporation engage in any criminal act in the nature of conversation, embezzlement or theft relative to the payments due to the Physician Group under this Agreement. Corporation will maintain adequate employee dishonesty insurance. 7.3.3 The Corporation is liquidated or dissolved, or files a petition seeking protection under any state or federal insolvency or similar law affecting the rights of creditors generally, or a similar filing is made against the Corporation, or a receiver is appointed for all or substantially all of the Corporation's assets, unless such filing is dismissed within thirty (30) days. 7.3.4 Corporation fails to perform its material duties as set forth herein for more than thirty (30) days following the giving of written notice of the breach, or otherwise by mutual agreement. 9 10 7.4 Rights Upon Termination. The termination of this Agreement shall not release or discharge either party from any obligation, debt or liability which shall have previously accrued and remain to be performed upon the date of termination. Upon termination, the parties shall each be entitled to compensation in accordance with the terms of this Agreement, for services rendered through the date of termination, but such compensation shall be limited to monies with respect to the period prior to termination which are collected within one hundred and eighty (180) days after the date of termination. Any monies collected thereafter shall be the property of the Corporation. ARTICLE VIII General Provisions 8.1 Insurance. Physician Group shall obtain and maintain professional liability insurance and coverages on all medical doctors providing medical services to patients at the Center, with reasonable limits to be agreed upon. Corporation shall obtain and maintain professional liability insurance on all nonprofessional staff, with reasonable limits to be agreed upon. 8.2 Assignment. The rights conferred upon Physician Group hereunder may not be transferred or assigned without the prior written consent of Corporation and any assignment in violation of this section shall be void. However, Physician Group may form a professional medical corporation of which it is the principal shareholder and transfer this Agreement to said professional corporation, provided performance of this Agreement is guaranteed by all shareholders of such corporation. It is understood and agreed that Corporation and its successors shall have the right to assign this Agreement, provided that the terms of the professional Physician Group's agreement are not changed. 8.3 Third-Party Beneficiary. MICA shall be a third-party beneficiary of the provisions of this Agreement pertaining to it. 8.4 Governing Law. This Agreement shall be governed by the laws of the State of California. 8.5 Article and Section Headings. The article and section headings in this Agreement are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit, or aid in the construction of any term or provision hereof. 8.6 Attorney's Fee. Should any party employ an attorney for the purpose of enforcing this Agreement, or any judgement based thereon, in any court, including bankruptcy courts and courts of appeal, or arbitration proceedings, the prevailing party shall be entitled to receive its attorneys' fees and costs, whether taxable or not. 10 11 8.7 Waiver. The waiver of any covenant, condition or duty hereunder by either party shall not prevent that party from later insisting upon full future performance of the same. 8.8 Amendment. No amendment in the terms of this Agreement shall be binding on either party unless in writing and executed by the duly authorized representatives of each party. 8.9 Notice. Any communication under this Agreement shall be given in writing and shall be delivered in person or by prepaid certified mail to each party at such address as either party shall furnish to the other in writing. Notice shall be deemed given when personally delivered, or if given by mail, then two days after deposit in the United States mail, postage prepaid. 8.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 8.11 Entire Agreement. This Agreement and the sublease referenced herein constitute the entire agreement between the parties in connection with the subject matter hereof and shall supersede all prior agreements, whether oral or in writing, whether explicit or implicit, which have been entered into prior to the execution hereof. 8.12 Notwithstanding any term in this Agreement and the sublease agreement, the Corporation, in an effort to utilize all available capacity of the Center's imaging equipment on a time available basis may sublet the use of the Center's equipment to other physicians, paying the Physician Group a 5% medical supervisory fee. The Corporation will consult with the Physician Group regarding sublease of renter equipment and the Physician Group will cooperate in this effort. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MICA CAL III, INC. By: /s/ Robert S. Muehlberg -------------------------- PHYSICIAN GROUP - MIMG, INC. By: /s/ Joel Levine, M.D. -------------------------- CFO, MIMG, Inc. 11 12 AMENDMENT AMENDMENT TO the Management, Licensing and Facilities Agreements entered into by and between predecessors to MAGNETIC IMAGING MEDICAL GROUP, INC., a California professional corporation (hereinafter referred to as "Physician Group" and MEDICAL IMAGING CENTERS OF AMERICA, INC., a California corporation ("MICA") which wholly-owned subsidiaries are MICA CAL I, Inc., a California corporation ("M-I") and the managing general partner of Long Beach Medical Imaging Center, Ltd., a California limited partnership ("Long Beach"), MICA CAL II, INC., a California corporation ("M-III") and MICA CAL IV, INC., a California corporation ("M-IV"). R E C I T A L S A. On March 28, 1984, Long Beach entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto as Exhibit A (the "A Agreement"). B. On March 14, 1988, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. This Agreement was extended on May 29, 1992. A true and correct copy of that Agreement as extended is attached hereto as Exhibit B (the "B Agreement"). C. On February 3, 1992, M-IV entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit C (the "C Agreement"). D. On July 1, 1994, M-III entered into a Management, Licensing and Facilities Agreement with the predecessor to the Physician Group. A true and correct copy of that Agreement is attached hereto and marked as Exhibit D (the "D Agreement"). E. The A Agreement is an agreement which has a term which does not terminate except on the occurrence of certain events while the B, C, and D Agreements have terms which end on different dates in 1997 and 1998. MICA wished to place limits on the term of the A Agreement and the Physician Group is willing to permit such limits and both parties wish each ot eh Agreements to be coterminous. All of the parties wish to provide for certainty and continuity of service in their relationship as well as revise certain of the compensation provisions and clarify certain other matters. NOW THEREFORE, in consideration of their mutual covenants and promises and for other good and valuable consideration, receipt of which each party acknowledges, the parties agree as follows: 13 1. Term. The term as set forth in each of the Agreements (Section 7.1 of Exhibits A, B, C and D) is hereby revised to read as follows: 7.1 Term. The term hereunder shall commence January 1, 1996 and shall continue for five (5) years. Provided that Physician Group is not in material default pursuant to this Agreement then and in that event Physician Group shall have the right to extend the term of this Agreement for two (2) consecutive five (5) year terms so long as it shall give written notice to the other party no less than sixty (60) days prior to the end of a term hereunder. If a party believes a material default has occurred it shall promptly give written notice to the other party specifying the nature of the material default and providing a recommended method of cure. The notified party shall have ninety (90) days to correct the material default either in accordance with the suggested methodology or by an alternate equally effective methodology. The failure to provide notice within thirty (30) days of an event giving rise to a material default shall be deemed a waiver of such default. Notwithstanding anything to the contrary set forth in this Agreement, it is understood and agreed that this Agreement is attached to the assets of the Center. To the extent the Center or its assets are sold, assigned or otherwise transferred, this Agreement must be transferred and accepted in full by the acquirer as a condition of such acquisition, assignment or transfer. 2. Compensation. (a) The Compensation as set forth at Section 6.6 in each of those Agreement attached as Exhibits A and B is hereby revised to read as follows: 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first Two Hundred Thousand Dollars ($200,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of Two Hundred Thousand Dollars ($200,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month. (b) The compensation as set forth in Section 6.6 in each of Exhibits C and D is hereby revised to read as follows: 14 6.6 Compensation of Physician Group. The parties hereto agree Physician Group will be fairly and reasonably compensated for its services by retaining in the aggregate Twenty percent (20%) of the first One Hundred Thousand Dollars ($100,000) of revenues each month actually collected for each medical imaging diagnostic or other medical procedure ("medical services") performed by Physician Group at the Center with Physician Group receiving Eighteen percent (18%) of such revenues in excess of One Hundred Thousand Dollars ($100,000) actually collected each month. For purposes of this Agreement aggregate revenues collected shall mean all collected receipts for medical imaging, diagnostic and other medical procedures performed at the Center, including charges for use of equipment, facilities and Center personnel in connection with performance of medical services (the aggregate of the "Professional" and "Technical" components). Notwithstanding the foregoing, in those instances in which Technical only services are performed at the Center, or in which injections are provided, Physician Group shall receive an amount equal to Ten percent (10%) of the revenues actually collected for such services each month in recognition of their supervisorial responsibilities. 3. Statement of Revenues. A new Section 6.10 shall be added to Exhibit A and a new Section 6.9 to Exhibits B, C and D which provides as follows: 6.9[10] Statement of Revenues. Partnership [Corporation] shall furnish to Physician Group a statement of revenues generated by Physician Group upon or as to which a fee to be paid to Physician Group hereunder is calculated at the end of every month. This statement shall be submitted to Physician Group on the tenth (10th) day of each month reflecting the previous month's revenue from services rendered by Physician Group. Each statement shall be signed and certified to be correct by Partnership [Corporation] or its authorized representative. Partnership [Corporation] shall keep in the Center premises full and accurate books of account, records, cash receipts, and other pertinent data showing its revenues. Such books of account, records, cash receipts and other pertinent data shall be kept for a period of two (2) years. Physician Group shall be entitled during the term and within two (2) years after expiration or termination of this Agreement to inspect and examine all of Partnership's [Corporation's] books of account, records, cash receipts, and other pertinent data relative only to the revenues involving the Center, so that Physician Group can ascertain Center's revenues. Partnership [Corporation] shall cooperate fully with Physician Group in making the inspection. Physician Group shall also be entitled once during each year of the Agreement and once after expiration or termination to an examination of Center's books of account, records, cash receipts and other pertinent data to determine Center's revenues by a certified public accountant to be designated by Physician Group, and who will be paid solely by Physician Group, unless such review shall disclose an understatement by Center of two percent (2%) or more in which case all expenses of such examination will be paid by Partnership [Corporation]. 4. Reference. It is hereby agreed between the parties hereto that wherever the term "Physicians" or "Physician Group" appears in Exhibits A, B, C and D it shall be deemed to mean "Magnetic Imaging Medical Group, Inc., a California professional corporation. 15 5. Indemnification. MICA and Long Beach, jointly and severally, agree to indemnify and hold Physician Group together with its predecessors, harmless against any and all liabilities which it might incur in connection with its service as a General Partner of Long Beach. Physician Group shall promptly notify MICA of the existence of any claim, demand or other matter involving liabilities to third parties to which MICA's indemnification obligations would apply and shall give MICA a reasonable opportunity to defend the same at its own expense and with counsel of its own selection. If MICA, within a reasonable time after notice, fails to defend, Physician Group shall have the right, but not the obligation, to undertake the defense of and to compromise or settle (exercising reasonable business judgment) the claim or other matter on behalf of MICA. [INTENTIONALLY LEFT BLANK] 16 6. Incorporation. Except as specifically revised herein, Exhibits A, B, C and D are incorporated herein in full and restated as revised. Executed this 31st day of January, 1996 at Long Beach, California. MAGNETIC IMAGING MEDICAL GROUP, INC. By /s/ Joel Levine, M.D. ----------------------------- Its CFO ----------------------------- MEDICAL IMAGING CENTERS OF AMERICA, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President and CEO ----------------------------- LONG BEACH MEDICAL IMAGING CENTERS, LTD. By MICA CAL I, INC. Its Managing General Partner By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL III, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- MICA CAL IV, INC. By /s/ Robert S. Muehlberg ----------------------------- Its President ----------------------------- EX-10.12 15 AGREEMENT OF COMPROMISE & SETTLEMENT DATED 3/19/96 1 EXHIBIT 10.12 AGREEMENT OF COMPROMISE AND SETTLEMENT This AGREEMENT OF COMPROMISE AND SETTLEMENT dated as of March 19, 1996 (this "Settlement Agreement") is entered into by and among Medical Imaging Centers of America, Inc., a California corporation ("MICA"), Keith R. Burnett, Robert S. Muehlberg, Denise L. Sunseri and Robert G. Ricci, on the one hand, and Warren G. Lichtenstein, Lawrence Butler, Jack L. Howard, Steel Partners II, L.P., a Delaware limited partnership ("Steel"), Steel Partners, L.L.C., a Delaware limited liability company, and Steel Partners Services, Ltd., a New York corporation (collectively, the "Steel Parties"), on the other hand. MICA and the Steel Parties are sometimes collectively referred to herein as the "Parties." WHEREAS, the Parties understand that the results of the election conducted at the February 26, 1996 Special Meeting of shareholders will be subject to immediate challenge by the Party that did not prevail and might never be accepted as valid by such Party; WHEREAS, contemporaneously with the execution of this Agreement, MICA is entering into a Standstill Agreement with Arrowhead; and WHEREAS, MICA has determined that the agreements set forth herein are in the best interests of MICA and its shareholders. FOR AND IN CONSIDERATION of the mutual covenants contained herein, the parties, intending to be legally bound hereby, agree as follows: 1. Certain Defined Terms. As used in this Settlement Agreement, the following terms (whether or not capitalized) shall have the following meanings: "Action" means Medical Imaging Centers of America, Inc. v. Lichtenstein, et al., Case No. 96-0039B (AJB) filed in the United States District Court for the Southern District of California. "Auction Period" means the period commencing with the date hereof and ending with the earlier to occur of (i) in the event that MICA has not made a public announcement stating that an agreement has been reached with respect to an Auction Transaction prior to June 19, 1996 (the third monthly anniversary of the date hereof), the close of business on such date, (the date of such public announcement shall be referred to herein as the "Announcement Date"), (ii) in the event a definitive agreement (the "Definitive Agreement") relating to an Auction Transaction is not entered into prior to the earlier to occur of (A) 30 days after the Announcement Date and (B) July 19, 1996 (the fourth monthly anniversary of the date hereof) (the earlier of such dates, the "Definitive 2 Agreement Date"), the close of business on the Definitive Agreement Date, (iii) in the event an Auction Transaction is not consummated prior to the close of business on the Consummation Date, the close of business on the Consummation Date and (iv) the effective date, if any, of the resignation of Mr. Robert S. Muehlberg from the Board or as an employee or officer of MICA. "Auction Process" means the auction process described in Section 5 of this Settlement Agreement. "Auction Transaction" means a Sale Transaction recommended by the Board pursuant to the Auction Process. "Arrowhead" means Arrowhead Holdings Corporation, a Delaware corporation. "Board" means the Board of Directors of MICA. "Common Stock" means the common stock, no par value, of MICA. "Consummation Date" means November 19, 1996 (the eighth monthly anniversary of the date hereof), provided that if on such date, the parties to an Auction Transaction are working in good faith to complete an Auction Transaction but are unable to do so as a result of any undue delay resulting from any governmental regulatory process which is required as a condition to consummate the Auction Transaction, the Consummation Date shall be extended until the ninth monthly anniversary of the date hereof. "Effective Date" means March 19, 1996. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Financial Advisor" means Batchelder & Partners, Inc. "MICA Securities" means any securities issued by MICA or any of its direct or indirect subsidiaries, including the Common Stock and any other debt or equity securities of MICA or any of its direct or indirect subsidiaries that are outstanding as of the date hereof or may hereafter be issued. "Person" means any individual, corporation, association, general or limited partnership, limited liability company, limited liability partnership, joint venture, trust, estate, other entity or organization or group. 2 3 "Rights Plan Action" means Steel Partners II, L.P. v. Medical Imaging Centers of America, Inc., Case No. 96-0274B (AJB), filed in the United States District Court for the Southern District of California. "Sale Transaction" means any transaction, whether by tender offer, merger or otherwise, and whether for cash or securities of the other party to the Sale Transaction, pursuant to which MICA will be sold, merged or combined with another entity if as a result thereof the shareholders of MICA immediately prior to such transaction would, after the consummation of the Sale Transaction, own less than 50% of the equity of the merged or combined entity on a fully diluted basis, or any comparable or similar type transaction which would not constitute an "ownership change" with the meaning of Section 382 of the Internal Revenue Code of 1986, as amended. "Schedule 13D" means the Schedule 13D filed with the SEC on or about March 18, 1995 by the Steel Parties, as amended through Amendment No. 14. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Solicitation Action" means any of the following: (i) giving notice pursuant to MICA's By-Laws of an intention to nominate directors, or cause the taking of any other action by MICA, at a meeting of shareholders or by consent; (ii) filing with the SEC any proxy or consent solicitation materials (whether preliminary, definitive or as described in Rule 14a-11 or 14a-12 under the Exchange Act) with respect to such meeting or consent; (iii) mailing or otherwise disseminating to shareholders any such solicitation materials; (iv) otherwise engaging in a solicitation of proxies or consents with respect to such meeting or consent; (v) nominating at such meeting candidates for election as directors; (vi) engaging in or taking any of the other actions set forth in Section 6(c) hereof; or (vii) casting votes or ballots at such meeting or by consent pursuant to proxies or consents so solicited (but the term "Solicitation Action" shall not include the casting of votes or ballots by the Steel Parties with respect to shares of Common Stock beneficially owned by them so long as the Steel Parties have not engaged in or taken any of the actions specified in clauses (i) through (vi) above). "Standstill Period" means the period commencing with the date hereof and ending with the later to occur of (i) the end of the Auction Period and (ii) the date on which the current members of the Board resign from their position as members of the Board pursuant to section 5(e) of this Settlement Agreement and are replaced with designees of the Steel Parties. 3 4 "Transaction" means any business combination involving MICA, including without limitation an acquisition, merger, spin-off, spin-out, consolidation, tender offer, share exchange or exchange offer. "Voting Securities" means any capital stock of MICA having the right to vote in the election of directors, plus convertible securities, options, warrants or rights that may be converted, exchanged or exercised to acquire such stock; and excludes preferred stock having no voting rights in the election of directors other than a normal and customary right to elect a specified number of directors in the event of a default in the payment of interest. The terms "participant," "proxy" and "solicitation" shall be used as defined in Regulation 14A under the Exchange Act (whether or not the pertinent securities are subject to Regulation 14A). The terms "beneficial ownership" and "group" shall be used as defined in Regulation 13D-G under the Exchange Act. The terms "affiliate" and "associate" shall be used as defined in Rule 12b-2 under the Exchange Act. 2. Representations and Warranties of the Steel Parties . Each Steel Party severally and not jointly, represents and warrants to MICA as follows: (a) Such Steel Party has the requisite legal power and authority to execute, deliver and carry out this Settlement Agreement and has taken all necessary legal action to authorize the execution, delivery and performance of this Settlement Agreement and the transactions contemplated hereby. (b) This Settlement Agreement has been duly and validly authorized, executed and delivered by such Steel Party and constitutes its valid and binding obligation, enforceable against such Steel Party in accordance with its terms. (c) Neither such Steel Party nor any of its affiliates beneficially owns, or has any direct, indirect or contingent pecuniary interest in, any MICA Securities other than as disclosed in the Schedule 13D. (d) Neither such Steel Party nor any of its affiliates is a member of any group with respect to MICA Securities and there are no other persons who are part of such a group with it or any of its affiliates except (i) as disclosed in the Schedule 13D, (ii) MICA has alleged in the Action (that the Steel Parties and certain other persons and entities are part of such a group, which allegations are denied by the Steel Parties) and (iii) to the extent the Steel Parties may be a group with Arrowhead. 3. Representations and Warranties of MICA . MICA represents and warrants to the Steel Parties as follows: 4 5 (a) MICA is duly organized and validly existing and in good standing under the laws of the State of California, has the requisite corporate power and authority to execute, deliver and carry out this Settlement Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance of this Settlement Agreement and the transactions contemplated hereby. (b) This Settlement Agreement has been duly and validly authorized, executed and delivered by MICA and constitutes its valid and binding obligation, enforceable against MICA in accordance with its terms. (c) Except with respect to the issuance and/or exercise of stock options pursuant to existing stock option plans and/or outstanding options and an amendment to the By-laws of MICA in the form attached hereto as Exhibit E, neither the employment agreement of each of Robert Muehlberg and Denise Sunseri, the By-laws of the Company, the number or terms of the options or shares granted to the employees of the Company or the members of the Board, nor the number of outstanding shares of Common Stock, have in any material way been amended, altered or increased, as the case may be, since the last public disclosure of such terms, provisions or number of outstanding options or shares of Common Stock. (d) MICA is not, and will not be, required pursuant to its agreement with the Financial Advisor to utilize the services of the Financial Advisor after the replacement of the Board pursuant to Section 5(e) and, to pay any fees to the Financial Advisor with respect to transactions entered into subsequent to the replacement of the Board pursuant to Section 5(e). 4. Treatment of the Election . The Parties agree that the February 26, 1996 Special Meeting of Shareholders will be adjourned without MICA's receiving a final report from the Inspector of Election certifying the results of voting by shareholders on proposals by the Steel Parties to remove the current directors of MICA and replace them with nominees designated by the Steel Parties and without any further actions at such meeting. 5. Auction Process and Procedures; Board Transition . (a) Each of the parties hereto agree that, as soon as practicable after the date hereof, MICA will announce the initiation of, and initiate, an auction process (the "Auction Process") for the purpose of engaging in an Auction Transaction with the goal of obtaining maximum value for the shareholders of MICA, as determined in good faith by the Board after receiving a customary fairness opinion from the Financial Advisor. MICA will keep the Steel Parties fully informed as to the status of the Auction Process and will consider in good faith any suggestions of the Steel Parties in connection with the Auction Process; provided, however, that MICA shall not be required to disclose information to the Steel Parties 5 6 regarding the Auction Process to the extent, in the reasonable opinion of legal counsel to the Board, the disclosure of such information to the Steel Parties would compromise the integrity of the Auction Process. The Steel Parties will be invited to participate as a bidder in the Auction Process, including as part of a group with Arrowhead, on the same terms and conditions, including, terms and conditions relating to due diligence and discussions and contacts with financing sources, permitted for other bidders, and, except as specified in paragraph (d) of this Section 5, the Steel Parties shall not, and shall cause their affiliates and associates not to, interfere with the Auction Process. (b) MICA agrees, that except with respect to conducting the Auction Process, the consummation of an Auction Transaction pursuant to the Auction Process and actions directly in furtherance of the Auction Process and the consummation of an Auction Transaction, during the Standstill Period, the business and operations of MICA will be run in the ordinary course of business consistent with past practice and, without the prior written consent of Steel, MICA will not: (i) amend its Articles of Incorporation or By-Laws; (ii) other than pursuant to the terms of presently outstanding options, rights, warrants or convertible securities in accordance with their respective terms and pursuant to any existing option plans, in accordance with past practice, issue, pledge or sell, or authorize the issuance, pledge or sale of additional shares of capital stock or other securities of any class or series, including, without limitation, securities exchangeable for or convertible into capital stock of any class or series, or any calls, commitments, rights, warrants or options to acquire any securities or capital stock; (iii) split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, directly and indirectly, any shares of its capital stock, or any of its other securities or declare and pay any dividends on its capital stock; (iv) except as specified in Section 7(b), increase the compensation or benefits payable or to become payable to its directors, officers or employees, or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay to (except pursuant to existing agreements or policies), or enter into or amend any employment, consulting or severance or other agreement with, any director, officer or other employee of MICA's; (v) acquire, sell, lease or dispose of any assets which are material to MICA, or enter into any commitment to do any of the foregoing or enter into any material commitment or transaction; 6 7 (vi) except with respect to the purchase of the general partnership interest in the Long Beach imaging center, acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the stock or assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof; (vii) appoint any new director to the Board, unless such director agrees to be bound by the terms of this Settlement Agreement; and (viii) authorize or agree in writing or otherwise to take any of the foregoing actions. (c) Other than an Auction Transaction in the form of a tender offer for 100% of all outstanding Common Stock, the consummation of any Auction Transaction will be subject to the Auction Transaction being duly approved by the shareholders of MICA at a special meeting called for the purpose of submitting the proposed Auction Transaction to a vote of the shareholders of MICA (the "Shareholder Vote"). (d) The provisions of Section 6 of this Settlement Agreement, including, without limitation, Section 6(c), shall be applicable to the Shareholder Vote; provided, however; that this Agreement shall not limit the manner in which the Steel Parties may vote with respect to the Shareholder Vote and if requested by Steel, Steel shall be entitled to include in the proxy distributed by MICA to its shareholders in connection with the Shareholder Vote, a statement of reasonable length specifying its opinion on the merits of the Auction Transaction; (e) In the event an Auction Transaction is not consummated on or prior to the end of the Auction Period, then, in the event that on the last day of the Auction Period the Steel Parties are the beneficial owner of at least 263,841 shares of Common Stock, (i) subject to the satisfaction of the requirements under Rule 14f-1 of the Exchange Act, which MICA and the Steel Parties will use all reasonable efforts to satisfy as soon as practicable, the Persons who are members of the Board at such time will resign and will cause such members to be replaced with designees of the Steel Parties (resulting in the Board being composed solely of designees of the Steel Parties) and (ii) if requested by the Steel Parties, MICA will promptly call the annual meeting of shareholders, to be scheduled as soon as practicable but in no case later than 45 days after the end of the Auction Period, for the purpose of electing the Board of Directors of MICA. (f) The Steel Parties will support and take all reasonable efforts in good faith to cooperate with MICA and the Board in connection with the Auction Process, and the Steel Parties acknowledge their respective intent to vote in favor of an Auction Transaction, provided such Auction Transaction, in the sole judgment of the Steel Parties, 7 8 maximizes shareholder value. In addition, if during the Auction Period any Steel Party is contacted by any person concerning the Auction Process, the applicable Steel Party will promptly inform the Board of such contact and, unless otherwise instructed by the Board, refer any such person to the Board. 6. Restrictions on Purchase and Sale of MICA Securities and Certain Other Actions . Each of the Steel Parties agrees that it will not, and it will cause its respective affiliates not to, except as expressly permitted by this Settlement Agreement, including, without limitation, as specified in Section 5 of this Settlement Agreement, without the prior written consent of MICA, for a period commencing on the date hereof and ending at the close of business of the last day of the Auction Period: (a) (i) acquire, offer to acquire, directly or indirectly, by purchase or otherwise, beneficial ownership of MICA Securities (or any direct or indirect rights, options or warrants for any MICA Securities) or (ii) encourage any Person to acquire, or advise any Person with respect to the acquisition or proposed acquisition of MICA Securities; provided, however; that this clause (ii) shall not prohibit Jack Howard from acting in his capacity as a broker and executing transactions initiated by current or future customers with respect to MICA Securities so long as Jack Howard does not solicit or otherwise advise the applicable customer with respect to such trade; (b) knowingly sell or otherwise convey in a transaction other than an open market transaction (either singly or collectively) MICA Securities to a single Person or group which owns more than 5% of the then currently outstanding MICA Securities or, as a result of such sale will own more than 5% of MICA's then currently outstanding Securities; (c) solicit, or encourage any other Person to solicit, or advise any Person with respect to the solicitation of, proxies or consents with respect to any MICA Securities, or become a participant or otherwise engage in any solicitation of proxies or consents (A) with respect to any matter submitted or to be submitted to the vote of the holders of any MICA Securities at any annual or special meeting or by written consent, including, without limitation, with respect to the election of directors of MICA in opposition to the nominees recommended by the Board or otherwise for the purpose of acquiring control of the Board or management of MICA, or (B) for the purpose of calling a special meeting of MICA's shareholders or the holders of any MICA Securities; or advise or seek to advise any Person with respect to the voting of any MICA Securities; or submit, or encourage any other Person to submit, or advise or assist any Person with respect to the submission of, any nominations or proposals to MICA or to the holders of MICA Securities for consideration by its shareholders or the holders of any MICA Securities at any annual or special meeting of such holders or in any action to be taken by written consent pursuant to MICA's articles of incorporation or bylaws, Rule 14a-8 under 8 9 the Exchange Act, the provisions of any document governing the terms of any such MICA Securities or governing the rights of the holders thereof, or otherwise; engage in any Solicitation Action; or otherwise take any action to request a special meeting of the holders of any MICA Securities; (d) deposit any MICA Securities in a voting trust or subject them to a voting agreement or other agreement or arrangement of similar effect or otherwise join or form a partnership, limited partnership, syndicate or other group (except insofar as a group consisting solely of Steel Parties and Arrowhead is alleged to exist by MICA at the date hereof) for the purpose of acquiring, holding, voting or disposing of any MICA Securities; (e) engage in, or offer, agree or propose to engage in, any Transaction; or arrange, or in any way participate, directly or indirectly, in any financing for any Transaction or for the purchase by any person of any MICA Securities or any assets of MICA; (f) otherwise act alone or in concert with others to seek representation on the Board or to acquire control of MICA or any of its securities or assets; (g) request any amendment of any of the terms of this Settlement Agreement (other than a request to discuss its position with participants in the Auction Process); (h) institute, prosecute or pursue against MICA (or any of its officers, directors, representatives, trustees, employees, attorneys, advisors, agents, affiliates or associates) (a) any claim with respect to any action hereafter duly approved by the Board or (b) any claim on behalf of a class of holders of MICA's Securities; (i) publicly oppose any duly authorized Board action or recommendation; and (j) assist or advise, or enter into any agreement or arrangement to assist or advise any other person in taking any action referenced in any of paragraphs (a) through (i) above. 7. Redemption of Rights; Amendments to Certain Severance Packages . (a) Effective as of the Effective Date, MICA shall redeem all outstanding rights issued pursuant to the Rights Agreement dated as of October 2, 1991, between MICA and Harris Trust Company of California, as amended (with the record date for such redemption on the close of business on the date ten days after the public 9 10 announcement of such redemption) and, until the end of the Standstill Period, shall not adopt a new shareholder rights plan without the prior written consent of Steel. (b) MICA shall promptly amend the severance packages of Mr. Robert S. Muehlberg and Ms. Denise L. Sunseri to provide that the termination of the Auction Period without the consummation of an Auction Transaction shall constitute an "involuntary termination" for the purpose of their respective severance packages. 8. Reimbursement of Expenses . Simultaneously with the execution of this Settlement Agreement, MICA shall reimburse the Steel Parties, by wire transfer to an account specified by the Steel Parties in writing to MICA, for the expenses incurred by the Steel Parties in connection with their solicitation of proxies for the February 26, 1996 Special Meeting of Shareholders of MICA, for which invoices have been provided to MICA, up to the amount of $425,000. 9. Press Release . Upon the effectiveness of this Agreement, MICA shall issue a press release in the form of Exhibit A hereto. No Party to this Settlement Agreement nor any of their respective affiliates, associates or representatives shall issue any other press release or other publicly available document concerning this Settlement Agreement that is inconsistent with, or is otherwise contrary to, the statements in such press release. None of the Parties shall publicly make any negative statements regarding any other Party, the Board or the Auction Process. 10. Mutual Releases . For and in consideration of the agreements contained herein, the Parties hereto release one another as follows: (a) Steel Parties . Each of the Steel Parties, on behalf of itself and of all its affiliates, successors and assigns ("related parties"), hereby releases, acquits and forever discharges Dr. Burnett, Dr. Ricci, Mr. Muehlberg, Ms. Sunseri and MICA, together with its present and former affiliates, officers, directors, employees, agents, advisors, attorneys, successors and assigns, of and from any and all claims, causes of action (whether at law or equity), demands, expenses and damages which such Steel Party or its related parties may have had, or may now have, or may hereafter have (whether through operation of law, assignment or subrogation), from the beginning of time to the Effective Date, real or suspected, known or unknown, actual or contingent, direct or derivative, including, but not limited to, any such claims, causes of action, demands, expenses and damages relating to or arising out of the Action or the Rights Plan Action or any of the matters claimed, asserted or alleged, or that could have been claimed, asserted or alleged, in the Action or the Rights Plan Action, excepting only any action, cause of action or suit arising by virtue of the breach of this Settlement Agreement. 10 11 (b) MICA. MICA, on behalf of itself and all of its affiliates, successors and assigns ("related parties"), hereby releases, acquits and forever discharges the Steel Parties, together with their respective present and former affiliates, officers, directors, employees, agents, attorneys, successors and assigns, of and from any and all claims, causes of action (whether at law or equity), demands, expenses and damages which MICA may have had, or may now have, or may hereafter have (whether through operation of law, assignment or subrogation), from the beginning of time to the Effective Date, real or suspected, known or unknown, actual or contingent, direct or derivative, including but not limited to (i) any such claims, causes of action, demands, expenses and damages relating to or arising out of the Action or the Rights Plan Action, (ii) any claim that the Steel Parties have, as of the date hereof, violated, or are in violation of, the federal securities laws based upon any alleged non-disclosure concerning the Steel Parties' relationship with a foreign investment fund or alleged relationship with any existing customer(s) of Jack L. Howard or Cowles Sabol & Co. or (iii) or any of the matters claimed, asserted or alleged, or that could have been claimed, asserted or alleged, in the Action or the Rights Plan Action, excepting only any action, cause of action or suit arising by virtue of the breach of this Settlement Agreement. With respect to each of the releases set forth above, each person or entity granting or receiving such a release (i) agrees that such releases do not preclude any Party hereto from seeking to enforce any undertaking or promise contained in this Settlement Agreement or from seeking redress for the breach of any representation or warranty contained in this Settlement Agreement; (ii) agrees not to challenge, and shall use its best efforts to cause each of its affiliates, associates and representatives not to challenge, the validity of any provisions of this Settlement Agreement; and (iii) expressly waives all rights and benefits each may have under and by virtue of the terms of Section 1542 of the California Civil Code, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Except as may be otherwise required by law, the Steel Parties will not encourage or cooperate with plaintiffs in any derivative, class action or shareholder litigation related to MICA or its directors with respect to any claim released hereunder. Except as may be otherwise required by law, MICA will not encourage or cooperate with plaintiffs in any pending or subsequently initiated derivative, class action or shareholder litigation related to MICA to which any of the Steel Parties is a party, with respect to any claims released hereunder. In the event that any part of this Settlement Agreement is temporarily, preliminarily or permanently enjoined or restrained by a court of competent jurisdiction, the Parties hereto shall use their reasonable best efforts to cause any such injunction or 11 12 restraining order to be vacated or dissolved or otherwise declared or determined to be of no further force or effect. 11. Dismissal . Promptly following the execution of this Settlement Agreement, a stipulation of dismissal of the Action with prejudice as to all parties to the Action, in the form attached hereto as Exhibit B, and a stipulation of dismissal of the Rights Plan Action with prejudice as to all parties to the Rights Plan Action, in the form attached hereto as Exhibit C, shall be executed and filed with the United States District Court for the Southern District of California. 12. Miscellaneous. (a) No Admission of Liability or Wrongdoing . This Settlement Agreement and any proceedings taken hereunder are not and shall not in any way be construed as or deemed to be evidence of (i) any admission or concession on the part of any Party of the merits or lack of merits of any claim or counterclaim asserted in the Action or the Rights Plan Action, or (ii) any admission or concession on the part of any Party of any liability or wrongdoing whatsoever, which liability and wrongdoing are hereby expressly denied and disclaimed by each of the Parties. (b) No Duress, Etc. The Parties agree that this Settlement Agreement is entered into without duress, in good faith and for sufficient consideration, and that it is fair, just and reasonable to all Parties. (c) Full Knowledge, Independent Advice, Etc. This Settlement Agreement is entered into with full knowledge of any and all rights which the Parties may have by reason of the pending litigation. All Parties have received or have had made available to them all financial and other information they or their counsel considered necessary to make an informed judgment concerning the Settlement Agreement. Each Party has received independent legal advice, has conducted such investigation as he or his counsel thought appropriate, and has consulted with such other independent advisors as each of them and their counsel deemed appropriate, regarding the Action and the Rights Plan Action, this Settlement Agreement and their rights and asserted rights in connection therewith. None of the Parties is relying upon any representations or statements made by any other Party, or such other Party's employees, agents, representatives or attorneys, regarding this Settlement Agreement or its preparation except to the extent such representations are expressly set forth herein. (d) Reasonable Efforts . All Parties hereto agree to exercise all reasonable efforts and to take all reasonable steps necessary to effectuate the settlement set forth in this Settlement Agreement, including, without limitation, the provisions herein 12 13 relating to the adjournment of the February 26, 1996 Special Meeting without any final action to remove the current members of the Board being taken. (e) Successors . This Settlement Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, successors and assigns, and upon any corporation or other entity into or with which any Party hereto may merge, combine or consolidate (provided that the Party is the survivor in such merger, combination or consolidation). (f) Governing Law . This Settlement Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without reference to the conflict of laws principles thereof. (g) Amendment and Waiver . No waiver or amendment of any other provision hereof shall be effective as against any Party unless such Party agrees to such amendment or waiver in writing. (h) Authority . Each person executing this Settlement Agreement represents that he or it has read and fully understands this Settlement Agreement and that he or it has the authority to execute this Settlement Agreement in his individual capacity or in the capacity identified on the signature page below. (i) Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the addresses set forth on Exhibit D (or at such other address for a party as shall be specified in a notice given in accordance with this paragraph). Each such notice, request, claim, demand or other communication shall be effective (i) if given by telecopy transmission, when such transmission to the telecopy number specified in Exhibit D has been made and the appropriate electronic confirmation that the entire communication has been received by the recipient equipment has been received by the sender or (ii) if given by any other means, when actually received at the address specified in this paragraph; provided, in each case, that a notice given other than during normal business hours or on a day other than on a business day at the place of receipt shall not be effective until the opening of business on the next business day at the place of receipt. (j) Specific Performance . Each of the Parties acknowledges and agrees that irreparable harm would occur if any provision of this Settlement Agreement were not performed in accordance with the terms thereof, or were otherwise breached, and that such harm could not be remedied by an award of money damages. Accordingly, the 13 14 Parties hereto agree that any non-breaching party shall be entitled to an injunction to prevent breaches of this Settlement Agreement and to enforce specifically the terms and provisions hereof. More specifically, each of the Parties hereto hereby agrees that any action or proceeding brought under or to enforce any provision of this Settlement Agreement shall be commenced exclusively in the United States District Court for the Southern District of California and each Party hereto hereby consents to the personal jurisdiction of and venue in such United States District Court. (k) Counterparts . This Settlement Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (l) Effectiveness . This Settlement Agreement shall become effective on the Effective Date. (m) Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (n) Construction . The headings used herein are for reference only and shall not affect the construction of this Settlement Agreement. 14 15 IN WITNESS WHEREOF, the Parties hereto have caused this Settlement Agreement to be executed as of the date first above written. Medical Imaging Centers of America, Inc. By: /s/Robert S. Muehlberg --------------------------------------- Name: Robert S. Muehlberg Its: Chairman, Chief Executive Officer and President /s/Keith R. Burnett, M.D. ------------------------------------------ Keith R. Burnett, M.D. /s/Robert S. Muehlberg ------------------------------------------ Robert S. Muehlberg /s/Denise L. Sunseri ------------------------------------------ Denise L. Sunseri 16 /s/Robert G. Ricci, D.O. --------------------------- Robert G. Ricci, D.O. /s/Warren G. Lichtenstein --------------------------- Warren G. Lichtenstein /s/Lawrence Butler --------------------------- Lawrence Butler /s/Jack L. Howard --------------------------- Jack L. Howard Steel Partners II, L.P. By:/s/Warren G.Lichtenstein ------------------------ Name: Its: 17 Steel Partners, L.L.C. By: /s/Warren G. Lichtenstein -------------------------- Name: Its: Steel Partners Services, Ltd. By: /s/Warren G. Lichtenstein -------------------------- Name: Its: EX-10.13 16 STANDSTILL AGREEMENT DATED 3/19/96 1 EXHIBIT 10.13 STANDSTILL AGREEMENT This STANDSTILL AGREEMENT dated as of March 19, 1996 (this "Standstill Agreement") is entered into by and among Medical Imaging Centers of America, Inc., a California corporation ("MICA"), Keith R. Burnett, Robert S. Muehlberg, Denise L. Sunseri and Robert G. Ricci, on the one hand, and Arrowhead Holdings Corporation, a Delaware corporation ("Arrowhead"), on the other hand. WHEREAS, MICA, Steel Partners II, L.P., a Delaware limited partnership ("Steel") and certain other persons are party to that certain Agreement of Compromise and Settlement dated as of the date hereof (the "Settlement Agreement"); WHEREAS, the Settlement Agreement contemplates that contemporaneously with the execution of the Settlement Agreement, the parties hereto will execute this Standstill Agreement. FOR AND IN CONSIDERATION of the mutual covenants contained herein, the parties, intending to be legally bound hereby, agree as follows: 1. Certain Defined Terms . As used in this Standstill Agreement, the following terms (whether or not capitalized) shall have the following meanings: "Action" means Medical Imaging Centers of America, Inc. v. Lichtenstein, et al., Case No. 96-0039B (AJB) filed in the United States District Court for the Southern District of California. "Auction Period" means the period commencing with the date hereof and ending with the earlier to occur of (i) in the event that MICA has not made a public announcement stating that an agreement has been reached with respect to an Auction Transaction prior to June 19, 1996 (the third monthly anniversary of the date hereof), the close of business on such date, (the date of such public announcement shall be referred to herein as the "Announcement Date"), (ii) in the event a definitive agreement (the "Definitive Agreement") relating to an Auction Transaction is not entered into prior to the earlier to occur of (A) 30 days after the Announcement Date and (B) July 19, 1996 (the fourth monthly anniversary of the date hereof) (the earlier of such dates, the "Definitive Agreement Date"), the close of business on the Definitive Agreement Date, (iii) in the event an Auction Transaction is not consummated prior to the close of business on the Consummation Date, the close of business on the Consummation Date and (iv) the effective date, if any, of the resignation of Mr. Robert S. Muehlberg from the Board or as an employee or officer of MICA. 1 2 "Auction Process" means the auction process described in Section 5 of the Settlement Agreement. "Auction Transaction" means a Sale Transaction recommended by the Board pursuant to the Auction Process. "Board" means the Board of Directors of MICA. "Common Stock" means the common stock, no par value, of MICA. "Consummation Date" means November 19, 1996 (the eighth monthly anniversary of the date hereof), provided that if on such date, the parties to an Auction Transaction are working in good faith to complete an Auction Transaction but are unable to do so as a result of any undue delay resulting from any governmental regulatory process which is required as a condition to consummate the Auction Transaction, the Consummation Date shall be extended until the ninth monthly anniversary of the date hereof. "Effective Date" means March 19, 1996. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Financial Advisor" means Batchelder & Partners, Inc. "MICA Securities" means any securities issued by MICA or any of its direct or indirect subsidiaries, including the Common Stock and any other debt or equity securities of MICA or any of its direct or indirect subsidiaries that are outstanding as of the date hereof or may hereafter be issued. "Parties" mean MICA and Arrowhead. "Person" means any individual, corporation, association, general or limited partnership, limited liability company, limited liability partnership, joint venture, trust, estate, other entity or organization or group. "Sale Transaction" means any transaction, whether by tender offer, merger or otherwise, and whether for cash or securities of the other party to the Sale Transaction, pursuant to which MICA will be sold, merged or combined with another entity if as a result thereof the shareholders of MICA immediately prior to such transaction would own less than 50% of the voting equity on a fully diluted basis of the merged or combined entity immediately after the consummation of the Sale Transaction or any comparable or similar type transaction which would not constitute an "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended. 2 3 "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Solicitation Action" means any of the following: (i) giving notice pursuant to MICA's By-Laws of an intention to nominate directors, or cause the taking of any other action by MICA, at a meeting of shareholders or by consent; (ii) filing with the SEC any proxy or consent solicitation materials (whether preliminary, definitive or as described in Rule 14a-11 or 14a-12 under the Exchange Act) with respect to such meeting or consent; (iii) mailing or otherwise disseminating to shareholders any such solicitation materials; (iv) otherwise engaging in a solicitation of proxies or consents with respect to such meeting or consent; (v) nominating at such meeting candidates for election as directors; (vi) engaging in or taking any of the other actions set forth in Section 4(c) hereof; or (vii) casting votes or ballots at such meeting or by consent pursuant to proxies or consents so solicited (but the term "Solicitation Action" shall not include the casting of votes or ballots by the Arrowhead with respect to shares of Common Stock beneficially owned by it so long as Arrowhead has not engaged in or taken any of the actions specified in clauses (i) through (vi) above). "Transaction" means any business combination involving MICA, including without limitation an acquisition, merger, spin-off, spin-out, consolidation, tender offer, share exchange or exchange offer. "Voting Securities" means any capital stock of MICA having the right to vote in the election of directors, plus convertible securities, options, warrants or rights that may be converted, exchanged or exercised to acquire such stock; and excludes preferred stock having no voting rights in the election of directors other than a normal and customary right to elect a specified number of directors in the event of a default in the payment of interest. The terms "participant," "proxy" and "solicitation" shall be used as defined in Regulation 14A under the Exchange Act (whether or not the pertinent securities are subject to Regulation 14A). The terms "beneficial ownership" and "group" shall be used as defined in Regulation 13D-G under the Exchange Act. The terms "affiliate" and "associate" shall be used as defined in Rule 12b-2 under the Exchange Act. 2. Representations and Warranties of Arrowhead . Arrowhead represents and warrants to MICA as follows: (a) It has the requisite legal power and authority to execute, deliver and carry out this Standstill Agreement and has taken all necessary legal action to 3 4 authorize the execution, delivery and performance of this Standstill Agreement and the transactions contemplated hereby. (b) This Standstill Agreement has been duly and validly authorized, executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms. (c) Neither Arrowhead nor any of its affiliates beneficially owns, or has any direct, indirect or contingent pecuniary interest in, any MICA Securities other than as disclosed in Schedule 1 hereto. (d) Neither Arrowhead nor any of its affiliates is a member of any group with respect to MICA Securities and there are no other persons who are part of such a group with it or any of its affiliates, except as MICA has alleged in the Action and, to the extent Arrowhead may be part of a group with Steel and its affiliates. 3. Representations and Warranties of MICA . MICA represents and warrants to Arrowhead as follows: (a) MICA is duly organized and validly existing and in good standing under the laws of the State of California, has the requisite corporate power and authority to execute, deliver and carry out this Standstill Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance of this Standstill Agreement and the transactions contemplated hereby. (b) This Standstill Agreement has been duly and validly authorized, executed and delivered by MICA and constitutes its valid and binding obligation, enforceable against MICA in accordance with its terms. 4. Restrictions on Purchase and Sale of MICA Securities and Certain Other Actions . Arrowhead agrees that it will not, and it will cause its respective affiliates not to, except as specified in Section 7(n) and pursuant to the Auction Process, without the prior written consent of MICA, for a period commencing on the date hereof and ending at the close of business of the last day of the Auction Period: (a) (i) acquire, offer to acquire, directly or indirectly, by purchase or otherwise, beneficial ownership of MICA Securities (or any direct or indirect rights, options or warrants for any MICA Securities) or (ii) encourage any Person to acquire, or advise any Person with respect to the acquisition or proposed acquisition of MICA Securities; (b) knowingly sell or otherwise convey in a transaction other than an open market transaction (either singly or collectively) MICA Securities to a single 4 5 Person or group which owns more than 5% of the then currently outstanding MICA Securities or, as a result of such sale will own more than 5% of MICA's then currently outstanding Securities; (c) solicit, or encourage any other Person to solicit, or advise any Person with respect to the solicitation of, proxies or consents with respect to any MICA Securities, or become a participant or otherwise engage in any solicitation of proxies or consents (A) with respect to any matter submitted or to be submitted to the vote of the holders of any MICA Securities at any annual or special meeting or by written consent, including, without limitation, with respect to the election of directors of MICA in opposition to the nominees recommended by the Board or otherwise for the purpose of acquiring control of the Board or management of MICA, or (B) for the purpose of calling a special meeting of MICA's shareholders or the holders of any MICA Securities; or advise or seek to advise any Person with respect to the voting of any MICA Securities; or submit, or encourage any other Person to submit, or advise or assist any Person with respect to the submission of, any nominations or proposals to MICA or to the holders of MICA Securities for consideration by its shareholders or the holders of any MICA Securities at any annual or special meeting of such holders or in any action to be taken by written consent pursuant to MICA's articles of incorporation or bylaws, Rule 14a-8 under the Exchange Act, the provisions of any document governing the terms of any such MICA Securities or governing the rights of the holders thereof, or otherwise; engage in any Solicitation Action; or otherwise take any action to request a special meeting of the holders of any MICA Securities; (d) deposit any MICA Securities in a voting trust or subject them to a voting agreement or other agreement or arrangement of similar effect or otherwise join or form a partnership, limited partnership, syndicate or other group (except insofar as a group consisting solely of Steel and Arrowhead is alleged to exist by MICA at the date hereof) for the purpose of acquiring, holding, voting or disposing of any MICA Securities; (e) engage in, or offer, agree or propose to engage in, any Transaction; or arrange, or in any way participate, directly or indirectly, in any financing for any Transaction or for the purchase by any person of any MICA Securities or any assets of MICA; (f) otherwise act alone or in concert with others to seek representation on the Board or to acquire control of MICA or any of its securities or assets; (g) request any amendment or waiver of any of the terms of this Standstill Agreement (other than a request to discuss its position with participants in the Auction Process); 5 6 (h) institute, prosecute or pursue against MICA (or any of its officers, directors, representatives, trustees, employees, attorneys, advisors, agents, affiliates or associates) (a) any claim with respect to any action hereafter duly approved by the Board or (b) any claim on behalf of a class of holders of MICA's Securities; (i) publicly oppose any duly authorized Board action or recommendation; and (j) assist or advise, or enter into any agreement or arrangement to assist or advise any other person in taking any action referenced in any of paragraphs (a) through (i) above. Nothing contained in this Section 4 shall prohibit Arrowhead from casting votes or ballots with respect to shares of Common Stock beneficially owned by it so long as Arrowhead has not engaged in or taken any of the actions specified in clauses (a) through (j) above. 5. Redemption of Rights; Amendments to Certain Severance Packages . Effective as of the Effective Date, MICA shall redeem all outstanding rights issued pursuant to the Rights Agreement dated as of October 2, 1991, between MICA and Union Bank, as amended (with a record date for such redemption on the close of business on the date ten days after the public announcement of such redemption). 6. Mutual Releases . For and in consideration of the agreements contained herein, the Parties hereto release one another as follows: (a) Arrowhead . Arrowhead, on behalf of itself and of all its affiliates, successors and assigns ("related parties"), hereby releases, acquits and forever discharges MICA, together with its present and former affiliates, officers, directors, employees, agents, advisors, attorneys, successors and assigns, of and from any and all claims, causes of action (whether at law or equity), demands, expenses and damages which Arrowhead or its related parties may have had, or may now have, or may hereafter have (whether through operation of law, assignment or subrogation), from the beginning of time to the Effective Date, real or suspected, known or unknown, actual or contingent, direct or derivative, excepting only any action, cause of action or suit arising by virtue of the breach of this Standstill Agreement. (b) MICA . MICA, on behalf of itself and all of its affiliates, successors and assigns ("related parties"), hereby releases, acquits and forever discharges Arrowhead, together with its present and former affiliates, officers, directors, employees, agents, attorneys, successors and assigns, of and from any and all claims, causes of action (whether at law or equity), demands, expenses and damages which MICA may have had, or may now have, or may hereafter have (whether through 6 7 operation of law, assignment or subrogation), from the beginning of time to the Effective Date, real or suspected, known or unknown, actual or contingent, direct or derivative, excepting only any action, cause of action or suit arising by virtue of the breach of this Standstill Agreement. With respect to each of the releases set forth above, each person or entity granting or receiving such a release (i) agrees that such releases do not preclude any Party hereto from seeking to enforce any undertaking or promise contained in this Standstill Agreement or from seeking redress for the breach of any representation or warranty contained in this Standstill Agreement; (ii) agrees not to challenge, and shall use its best efforts to cause each of its affiliates, associates and representatives not to challenge, the validity of any provisions of this Standstill Agreement; and (iii) expressly waives all rights and benefits each may have under and by virtue of the terms of Section 1542 of the California Civil Code, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Except as may be otherwise required by law, Arrowhead will not encourage or cooperate with plaintiffs in any derivative, class action or shareholder litigation related to MICA or its directors with respect to any claim released hereunder. Except as may be otherwise required by law, MICA will not encourage or cooperate with plaintiffs in any pending or subsequently initiated derivative, class action or shareholder litigation related to MICA to which Arrowhead is a party, with respect to any claim released hereunder. In the event that any part of this Standstill Agreement is temporarily, preliminarily or permanently enjoined or restrained by a court of competent jurisdiction, the Parties hereto shall use their reasonable best efforts to cause any such injunction or restraining order to be vacated or dissolved or otherwise declared or determined to be of no further force or effect. 7. Miscellaneous. (a) No Admission of Liability or Wrongdoing . This Standstill Agreement and any proceedings taken hereunder are not and shall not in any way be construed as or deemed to be evidence of any admission or concession on the part of any Party of any liability or wrongdoing whatsoever, which liability and wrongdoing are hereby expressly denied and disclaimed by each of the Parties. 7 8 (b) No Duress, Etc. The Parties agree that this Standstill Agreement is entered into without duress, in good faith and for sufficient consideration, and that it is fair, just and reasonable to all Parties. (c) Full Knowledge, Independent Advice, Etc. This Standstill Agreement is entered into with full knowledge of any and all rights which the Parties may have by reason of the pending litigation. All Parties have received or have had made available to them all financial and other information they or their counsel considered necessary to make an informed judgment concerning this Standstill Agreement. Each Party has received independent legal advice, has conducted such investigation as he or his counsel thought appropriate, and has consulted with such other independent advisors as each of them and their counsel deemed appropriate, regarding this Standstill Agreement and their rights and asserted rights in connection therewith. None of the Parties is relying upon any representations or statements made by any other Party, or such other Party's employees, agents, representatives or attorneys, regarding this Standstill Agreement or its preparation except to the extent such representations are expressly set forth herein. (d) Successors . This Standstill Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, successors and assigns, and upon any corporation or other entity into or with which any Party hereto may merge, combine or consolidate (provided that the Party is the survivor in such merger, combination or consolidation). (e) Governing Law . This Standstill Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without reference to the conflict of laws principles thereof. (f) Amendment and Waiver . No waiver or amendment of any other provision hereof shall be effective as against any Party unless such Party agrees to such amendment or waiver in writing. (g) Authority . Each person executing this Standstill Agreement represents that he or it has read and fully understands this Standstill Agreement and that he or it has the authority to execute this Standstill Agreement in his individual capacity or in the capacity identified on the signature page below. (h) Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the addresses set forth on Exhibit A (or at 8 9 such other address for a party as shall be specified in a notice given in accordance with this paragraph). Each such notice, request, claim, demand or other communication shall be effective (i) if given by telecopy transmission, when such transmission to the telecopy number specified in Schedule 7(h) hereto has been made and the appropriate electronic confirmation that the entire communication has been received by the recipient equipment has been received by the sender or (ii) if given by any other means, when actually received at the address specified in this paragraph; provided, in each case, that a notice given other than during normal business hours or on a day other than on a business day at the place of receipt shall not be effective until the opening of business on the next business day at the place of receipt. (i) Specific Performance . Each of the Parties acknowledges and agrees that irreparable harm would occur if any provision of this Standstill Agreement were not performed in accordance with the terms thereof, or were otherwise breached, and that such harm could not be remedied by an award of money damages. Accordingly, the Parties hereto agree that any non-breaching party shall be entitled to an injunction to prevent breaches of this Standstill Agreement and to enforce specifically the terms and provisions hereof. More specifically, each of the Parties hereto hereby agrees that any action or proceeding brought under or to enforce any provision of this Standstill Agreement shall be commenced exclusively in the United States District Court for the Southern District of California and each Party hereto hereby consents to the personal jurisdiction of and venue in such United States District Court and agrees further that service of process or notice in any such action or proceeding shall be effective if given in the manner set forth in Section 7(h) hereof. (j) Counterparts . This Standstill Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Effectiveness . This Standstill Agreement shall become effective on the Effective Date. (l) Severability . If one or more provisions of this Standstill Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Standstill Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. (m) Construction . The headings used herein are for reference only and shall not affect the construction of this Standstill Agreement. 9 10 (n) Auction Process . Arrowhead will be invited to participate as a bidder in the Auction Process, including as part of a group with Steel,on the same terms and conditions, including, terms and conditions relating to due diligence and discussions and contacts with financing sources, permitted for other bidders and, Arrowhead shall not, and shall cause its affiliates and associates not to, interfere with the Auction Process. (o) Arrowhead and its affiliates shall not have any liability to MICA and its affiliates pursuant to this Standstill Agreement, the Settlement Agreement or otherwise, for actions or omissions of Steel prior to or subsequent to the execution of this Standstill Agreement (so long as Arrowhead does not violate the terms of this Standstill Agreement); provided, however, that nothing contained herein shall constitute an admission by Arrowhead that Arrowhead has any liability for actions of Steel and its affiliates. 10 11 IN WITNESS WHEREOF, the Parties hereto have caused this Standstill Agreement to be executed as of the date first above written. Medical Imaging Centers of America, Inc. By: /s/Robert S. Muehlberg --------------------------------------- Name: Robert S. Muehlberg Its: Chairman, Chief Executive Officer and President Arrowhead Holdings Corporation By: /s/James Beneson, Jr. --------------------------------------- Name: Its: /s/Keith R. Burnett ------------------------------------------- Keith R. Burnett /s/Robert S. Muehlberg ------------------------------------------- Robert S. Muehlberg 12 /s/Denise L. Sunseri ------------------------------------------- Denise Sunseri /s/Robert G. Ricci ------------------------------------------- Robert G. Ricci 13 Schedule 1 Beneficial Ownership of MICA Securities Arrowhead and its affiliates are the beneficial owners of 130,680 shares of Common Stock. 14 Schedule 7(h) Notice Information If to: Medical Imaging Centers of America, Inc., to: Medical Imaging Centers of America, Inc. 9444 Farnham Street, Suite 100 San Diego, CA 92123 Attn: Chief Executive Officer Telephone: (619) 560-0110 Telecopy: (619) 560-4575 with copies to: Latham & Watkins 701 "B" Street, Suite 2100 San Diego, CA 92101-8197 Attn: Scott Wolfe, Esq. Telephone: (619) 236-1234 Telecopy: (619) 696-7419 Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Attn: Paul M. Reinstein, Esq. Telephone: (212) 859-8156 Telecopy: (212) 859-4000 If to: Arrowhead Holdings Corporation to: Arrowhead Holdings Corporation 8221 Brecksville Road Brecksville, OH 44141 Attn: John Curci Telephone: Telecopy: 15 with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers 1401 Walnut Street Philadelphia, PA 19102 Attn: Mort Branzburg, Esq. Telephone: (215) 569-3007 Telecopy: (215) 568-6603 EX-11.1 17 EARNINGS PER SHARE COMPUTATION 1 MEDICAL IMAGING CENTERS OF AMERICA, INC. Exhibit 11.1 COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31, ----------------------- (in thousands except per share information) 1995 1994 1993 - ------------------------------------------- ---- ---- ---- (B) (B) Net income (loss) for computation of primary earnings per share $5,656 ($ 494) ($29,613) Fully diluted: Adjustment for interest and amortization for the conversion of debentures 646 -- -- ------ ------ ------- Net income (loss) for computation of fully diluted earnings per share $6,302 ($ 494) ($29,613) ====== ====== ======= - -------------------------------------------------------------------------------------------------------- Average shares: Common shares 2,451 2,426 2,361 Stock option and warrant equivalent shares (A) 134 -- -- ------ ------ ------- Average shares for computation of primary earnings per share 2,585 2,426 2,361 Fully diluted: Stock option and warrant equivalent shares - difference from primary (A) 25 -- -- Conversion of debentures 608 -- -- ------ ------ ------- Average shares for computation of fully diluted earnings per share 3,219 2,426 2,361 ====== ====== ======= - -------------------------------------------------------------------------------------------------------- Net income (loss) per share: Primary $ 2.19 ($ 0.20) ($ 12.54) ====== ====== ======= Fully diluted $ 1.96 ($ 0.20) ($ 12.54) ====== ====== ======= - --------------------------------------------------------------------------------------------------------
(A) The treasury stock method was used to calculate the common stock equivalent number of shares from options and warrants. (B) Adjustments for interest and amortization, option and warrant equivalent shares and additional shares from the conversion of debentures issued in 1989 are not included in the calculation for the years ended December 1994 and 1993 as their effect would be antidilutive. EX-21 18 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21 Subsidiaries List
Percent Name State of Incorporation Ownership - ---- ---------------------- --------- MICA CAL I, INC. California 100 MICA CAL II, INC. California 100 MICA CAL III, INC. California 100 MICA CAL IV, INC. California 100 MICA CAL VII, INC. California 100 MICA CAL X, INC. California 100 MICA FLO I, INC. California 100 MICA OR I, INC. Oregon 100 MICA PACIFIC, INC. California 100 MICA IMAGING, INC. Illinois 100 AFFILIATED MEDICAL IMAGING California 100 NETWORK, INC.
EX-23 19 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8) pertaining to the 1983 Employee Stock Option Plan, the 1984 Employee Stock Option Plan, the 1985 Employee Stock Option Plan and the 1994 Employee Stock Option Plan of Medical Imaging Centers of America, Inc. of our report date February 2, 1996, except for Note 2, as to which the date is March 19, 1996, with respect to the consolidated financial statements of Medical Imaging Centers of America, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP San Diego, California March 25, 1996 EX-27 20 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 10,732 0 12,214 4,503 0 19,168 47,105 30,031 39,648 18,831 16,582 0 0 54,691 (51,678) 39,648 3,345 46,537 2,846 28,233 9,961 1,059 3,557 5,622 180 5,656 0 0 0 5,656 2.19 1.96
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