Company Name: Medical Imaging Centers of America, Inc.
Public Availability Date:  Mar. 12, 1993

INQUIRY LETTER

BROBECK, PHLEGER & HARRISON
P.O. BOX 128049
SAN DIEGO, CA 92112-8049

December 21, 1992

VIA FEDERAL EXPRESS

Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Medical Imaging Centers of America, Inc.

Dear Ladies and Gentlemen:

On behalf of our client, Medical Imaging Centers of America, Inc. ("MICA"), we respectfully request that the staff of the Division of Corporation Finance (the "Division") recommend that the United States Securities and Exchange Commission (the "Commission") take no action with respect to: (i) the distribution by MICA of MICA common stock (the "Settlement Stock") in connection with a United States District Court-approved settlement of the class-action litigation pending against MICA without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on the exemption from registration contained in Section 3(a)(10) of the Act; (ii) the public resale of the Settlement Stock by members of the plaintiff class (the "Settlement Class") and by counsel for the plaintiffs who are not deemed to be affiliates of MICA without registration under the Act and without compliance with Rule 144 and (iii) the public resale of such shares by any member of the Settlement Class or by counsel for the plaintiffs who are deemed to be affiliates of MICA in compliance with Rule 144 under the Act without regard to the holding period requirement of that Rule.

FACTS

MICA is a corporation subject to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and it is current in all of its required filings under the Exchange Act. MICAs common stock is quoted for trading on the National Association of Securities Dealers Automated Quotation National Market System (the "NASDAQ NMS").

The class-action litigation was filed on September 30, 1991, in the United States District Court for the Southern District of California (the "Court"), by John Winfield on behalf of the Settlement Class. An amended complaint was filed on December 23, 1991. The Settlement Class consists of all persons who purchased common stock of MICA during the period from October 25, 1990 through September 27, 1991, inclusive (the "Class Period"). The Settlement Class excludes the defendants, members of their immediate families, any entity in which defendant has or has had a controlling interest, and the legal representatives, heirs, successors, or assigns of any such excluded person or entity. The defendants named in the complaint are MICA, Antone J. Lazos (MICAs Chairman and Chief Executive Officer) and Diane S. Erk (MICAs former Chief Financial Officer).

The action asserts, among other things, that MICA and the other defendants violated United States federal securities laws. Plaintiffs seek compensatory and punitive damages and ask for a constructive trust and/or injunctive relief if appropriate. MICA and the other defendants have expressly denied any liability.

Counsel for the plaintiffs and counsel for all defendants have entered into a Stipulation and Agreement of Settlement (the "Settlement Agreement") dated November 9, 1992. The Settlement Agreement has been or will shortly be filed with the Court and a copy is enclosed herewith. The Settlement Agreement is subject to Court approval, and a hearing thereon (the "Settlement Hearing") will be scheduled. The purpose of the Settlement Hearing will be to determine whether the terms and conditions of the settlement shall be approved as fair, reasonable and adequate to the Settlement Class.

The Settlement Agreement provides, in part, for the following:

1. In full and complete settlement of all asserted and potential claims of the Settlement Class against the defendants, a settlement fund (the "Settlement Fund") will be established consisting of $2,650,000 in cash to be placed into escrow, by or on behalf of the individual defendants. This amount will earn interest after the date the money is placed into escrow.

2. In addition to the cash portion of the Settlement Fund, MICA shall issue and distribute to the Settlement Class, the Settlement Stock, the number of shares which shall be equal to, in the aggregate, that number of shares of MICAs common stock which results from dividing $800,000 by the average per share closing price of MICA stock as quoted on the NASDAQ NMS for the twenty (20) trading days immediately preceding November 9, 1992. The Settlement Stock issued shall be listed for trading on the same exchange as other outstanding shares of MICA and the Settlement Stock must not constitute "restricted securities" for the purpose of the Act.

3. The costs of providing notice of the settlement to the Settlement Class, locating members of the Settlement Class, soliciting claims, assisting with the filing of claims, processing proofs of claim, administering and distributing the Settlement Fund, administering and distributing the Settlement Stock, paying escrow fees and costs, preparing and filing any required tax returns and other costs of administering the settlement shall be paid out of the Settlement Fund. Any award of attorneys fees or reimbursement of expenses and costs to plaintiffs counsel as may be approved by the Court will be paid out of the Settlement Fund before any distributions to the Settlement Class. Plaintiffs counsel may apply to the Court for an award of attorneys fees of up to 33% of the Settlement Fund, to be paid proportionately in cash and Settlement Stock, and for reimbursement of actual expenses and costs. The Settlement Fund, net of the payments described herein, shall be known as the Net Settlement Fund.

4. The Net Settlement Fund will be allocated and distributed to each member of the Settlement Class who submits a valid proof of claim and release along with proper documentation and who does not request exclusion (the "Authorized Claimants"). The Plan of Allocation to be used to distribute the Net Settlement Fund shall operate as follows:

The Net Settlement Fund shall be distributed on a "claims made" basis. No class member who both purchased and sold his shares during the Class Period shall receive more than 100% of his, her or its out-of-pocket loss from transactions in MICA common stock during the Class Period, plus prejudgment interest thereon. No class member who purchased his shares during the Class Period but still held such shares at the end of the Class Period shall receive more than the difference between the price that class member paid for his shares less the closing price of MICA common stock on September 27, 1991, plus prejudgment interest thereon. The foregoing calculation with respect to each Authorized Claimant shall constitute such Authorized Claimants "Recognized Loss." The aggregate amount of all Authorized Claimants "Recognized Losses" shall constitute the "Total Recognized Loss."

If the Net Settlement Fund exceeds the Total Recognized Loss, the excess amount shall be returned to the defendants in kind and in proportion to their original contribution to the settlement.

If the Net Settlement Fund is less than the Total Aggregate Loss, the percentage of the Net Settlement Fund which any Authorized Claimant shall receive shall be equal to the ratio of that Authorized Claimants Recognized Loss in relation to the Total Aggregate Loss.

Each Authorized Claimant shall be paid his share of the Net Settlement Fund in both cash proceeds and MICA stock so that the ratio of cash to stock received by the Authorized Claimant equals the ratio of cash to stock in the Net Settlement Fund.

Pursuant to the Settlement Agreement, the parties will request the Court to enter an order (the "Notice Order") conditionally certifying the Settlement Class for purposes of the proposed settlement. Pursuant to the Notice Order, notice of the proposed settlement and of the Settlement Hearing will be given by mail to all members of the Settlement Class who can be identified through reasonable effort and otherwise by publication in the national edition of The Wall Street Journal.

The Court also will schedule the Settlement Hearing to determine whether the proposed settlement (including the issuance of the Settlement Stock) is fair, reasonable and adequate to the Settlement Class and to approve the Settlement Agreement. Any member of the Settlement Class who has not requested exclusion from the Settlement Class may appear at the Settlement Hearing and show cause why the proposed settlement and proposed allocation plan should not be approved as fair, reasonable and adequate and/or to present any opposition to the application of plaintiffs counsel for attorneys fees and reimbursement of expenses and costs.

In addition, the Court will be informed that, if it approves the proposed settlement, the Settlement Stock issued as part of the settlement will not be required to be registered under the Act pursuant to the exemption contained in Section 3(a)(10) of the Act.

The Court also will be informed that the Settlement Stock issued shall in all respects carry with it the same rights and privileges as the outstanding MICA common stock has at the time such shares are delivered to the Settlement Class and the Settlement Stock shall be fully paid, non-assessable and free from all liens and encumbrances.

DISCUSSION

A. The Section 3(a)(10) Exemption.

Section 3(a)(10) of the Act provides an exemption from registration under the Act for "any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly in cash, where the terms and conditions of such issuance and exchange are approved, after hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court. . . ."

The principle that the Section 3(a)(10) exemption is available for securities distributed by an issuer pursuant to the settlement of a class action which has been approved by a court as fair and reasonable after a hearing of which all members of the class have been given notice has been well established in a series of no-action letters. Newbridge Networks Corporations (July 13, 1992); Windmere Corporation (May 20, 1992); Riverbend International Corporation (March 30, 1990); Cavanagh Communities Corporation (July 22, 1987); Anacomp Inc. (July 24, 1985); Basic Earth Sciences Systems, Inc. (October 24, 1985); and Karacorp Industries, Inc. (July 22, 1976).

The Division has articulated the following four requirements that must be met in order for the Section 3(a)(10) exemption to be available to an issuer that issues securities in settlement of pending class-action litigation: (1) the court must hold a hearing on the fairness of the terms and conditions of the issuance of all such securities; (2) all persons to whom such securities are to be issued must receive notice of the hearing and of the right to be heard; (3) the court must be advised prior to the hearing that if the terms and conditions of the settlement are approved, registration of the securities will not be required under the Act by virtue of the courts approval; and (4) the court must approve the fairness of the terms and conditions of the settlement. Cavanagh Communities Corporations (July 22, 1987).

The circumstances under which MICAs Settlement Stock will be issued in connection with the proposed settlement will fulfill all of these requirements. First, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure the Court will hold the Settlement Hearing to determine whether the proposed settlement (including the issuance of the Settlement Stock to the Settlement Class) is fair, reasonable and adequate. Second, the Settlement Class will have received notice of the Settlement Hearing and have the right to appear at the Settlement Hearing. Notice of the Settlement Hearing will be given by mail to anyone who can be identified through reasonable effort and otherwise by publication in The Wall Street Journal. Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, these notification procedures will be approved by the Court in the Notice Order. Third, the Court will be informed that, if it approves the proposed settlement, the Settlement Stock will not be required to be registered under the Act pursuant to the Section 3(a)(10) exemption.

Finally, under Rule 23(e), in order for the Settlement Agreement to be binding, the Court must find that the terms and conditions of the proposed settlement are fair, reasonable and adequate and in the best interests of all those who will be affected by it. In the series of no-action letters cited above, the Division has consistently taken the position that court approval pursuant to Rule 23(e) of a settlement involving the issuance of securities to members of the plaintiff class satisfies the requirements of the Section 3(a)(10) exemption. E.g., Windmere Corporation (May 20, 1992) and Riverbend International Corporation (March 30, 1990). In addition, even in situations not involving the settlement of pending litigation, the Division has also taken the position that a determination by a court that the terms of a proposed transaction are fair or reasonable satisfies the requirements of Section 3(a)(10). LAC Minerals Ltd. (June 27, 1991) (court to determine that an intelligent and honest man might reasonably approve the terms of the transaction); O.F.C. Corporation (August 4, 1989) (court found proposed transaction to be fair).

Based upon the foregoing, and in the event that the court approval necessary for the proposal settlement to become effective is received, it is our opinion that the issuance of Settlement Stock by MICA in connection with the settlement as described above would be exempt from the registration requirements of the Act under Section 3(a)(10).

B. Public Resale of Settlement Stock Issued in the Settlement.

The Division has taken the position that securities issued without registration pursuant to Section 3(a)(10) to persons who are not deemed to be affiliates of the issuer are not "restricted securities" under Rule 144 and may be publicly resold without registration in reliance on the exemption contained in Section 4(1) of the Act. Newbridge Networks Corporation (July 13, 1992); Riverbend International Corporation (March 30, 1990); Cavanagh Communities Corporation (July 22, 1987); Anacomp Inc. (July 24, 1985); Basic Earth Sciences Systems, Inc. (September 24, 1985); and Karacorp Industries, Inc. (August 22, 1976).

The Division also has taken the position that recipients of securities issued without registration pursuant to Section 3(a)(10) who are affiliates may resell such securities pursuant to the provisions of Rule 144. Because such securities will not be "restricted securities," the holding period requirements of Rule 144(d) is inapplicable. Newbridge Networks Corporation (July 13, 1992) and Riverbend International Corporation (March 30, 1990).

In Riverbend International Corporation (March 30, 1990) the Division took the position that, in situations where plaintiffs counsel receives up to one-third of the securities issued in connection with a settlement, such securities are not "restricted securities" for purpose of Rule 144 and may be freely resold without registration, although any person receiving securities in a settlement, including counsel, who is deemed to be an affiliate must make resales in compliance with Rule 144, except for the holding period requirement. The exact amount of the award of attorneys fees in this case is not known at this time. The Settlement Agreement, however, provides that plaintiffs counsel may apply to the Court for an award of attorneys fees in an amount of up to 33% of the Settlement Fund and for reimbursement of actual expenses and costs.

Based upon the foregoing, and in the event that the court approval necessary for the proposed settlement to become effective is received, it is also our opinion that the Settlement Stock to be issued to the members of the Settlement Class, or to plaintiffs counsel, in the settlement will not be "restricted securities" as defined in Rule 144(a)(3) under the Act and that such members of the Settlement Class, or plaintiffs counsel, who acquire the Settlement Stock and who are not deemed to be affiliates of MICA may freely resell such stock without registration under the exemption contained in Section 4(1) of the Act, while members of the Settlement Class, or plaintiffs counsel, who are deemed to be affiliates may resell such shares in compliance with Rule 144 under the Act except for the holding period under that Rule.

REQUEST FOR ADVICE

We respectfully request the concurrence of the Division in the foregoing opinions, and the conclusion of the Division that it will not recommend any action to the Commission under the Act in the event of the issuance of the Settlement Stock to the Settlement Class, or to plaintiffs counsel, as described in this letter or in the event of a public resale of such Settlement Stock by any such member of the Settlement Class, or plaintiffs counsel receiving such shares in the manner described herein, in the absence of an effective registration statement under the Act.

In the event the Division should reach a preliminary conclusion that it will be unable to take the no-action position we are requesting, we would appreciate an opportunity to discuss the matter further prior to the issuance of a formal response.

If we can provide any assistance or further information, please do not hesitate to call the undersigned at (619) 234-1966. We respectfully request that the Staff respond to this letter as soon as possible so that we will be in a position to advise the Court of the status of this matter at the Settlement Hearing, as the Settlement Agreement requires the receipt of a favorable no-action letter from the Division as a condition of the settlement.

In accordance with Release No. 33-6269, seven additional copies of this letter are enclosed.

Very truly yours,

John A. de Groot

STAFF REPLY LETTER

March 12, 1993

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE

Re: Medical Imaging Centers of America. Inc. ("MICA")

Incoming letter dated December 21, 1992

Based upon the facts presented in your letter and contingent upon approval of the Settlement Agreement by the Court, the Division will not recommend any enforcement action to the Commission if MICA, in reliance upon your opinion as counsel that registration is not required, issues shares of MICAs common stock (the "Settlement Stock") in connection with the settlement of the class action pending against MICA, as described in your letter, without registration under the Securities Act of 1933. Recipients of Settlement Stock who are not affiliates of MICA may resell such Settlement Stock for their own accounts without regard to Rule 144. Recipients of such Settlement Stock who are affiliates of MICA may resell pursuant to Rule 144. Because the shares of Settlement Stock will not be restricted securities, the holding period requirement of Rule 144(d) is inapplicable.

Because these positions are based on the representations made to the Division in your letter, it should be noted that any different facts or conditions might require another conclusion. Further, this response only expresses the Divisions position on enforcement action and does not purport to express any legal conclusion on the questions presented.

Sincerely,

Martin P. Dunn

Deputy Chief Counsel