<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
INSIGHT HEALTH SERVICES CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8071 33-0702770
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------------
4400 MACARTHUR BOULEVARD
SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(949) 476-0733
(Address, including zip code, and telephone number of Registrant's principal
executive offices)
------------------------------
MR. THOMAS V. CROAL
SENIOR EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER
4400 MACARTHUR BOULEVARD
SUITE 800
NEWPORT BEACH, CALIFORNIA 92660
(949) 476-0733
(Name, address, including zip code, and telephone number of agent for service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
GERALD P. MCCARTIN, ESQ.
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
(202) 857-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
9 5/8% Series B Senior Subordinated Notes due
2008(1) $100,000,000 100% $100,000,000 $29,500
</TABLE>
(1) The Subsidiary Guarantees (as defined below) of the payment of principal and
interest on the Notes are also being registered hereby. Pursuant to Rule
457(n) under the Securities Act, no registration fee is required with
respect to the Subsidiary Guarantees.
(2) Estimated solely for purposes of calculating the registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD
INCORPORATION INDUSTRIAL IRS EMPLOYER
OR CLASSIFICATION CODE IDENTIFICATION
NAME ORGANIZATION NUMBER NUMBER
- -------------------------------------------------------------- --------------- ------------------- -------------
<S> <C> <C> <C>
InSight Health Corp........................................... Delaware 8071 52-1278857
Radiosurgery Centers, Inc..................................... Delaware 8071 33-0522445
Maxum Health Services Corp.................................... Delaware 8071 75-2135957
Quest Financial Services, Inc................................. Delaware 8071 75-2327889
MTS Enterprises, Inc.......................................... Texas 8071 75-227322
DiagnosTemps, Inc............................................. Delaware 8071 75-2482470
Maxum Health Corp............................................. Delaware 8071 75-2287276
Maxum Health Services of North Texas, Inc..................... Texas 8071 75-2435797
NDDC, Inc..................................................... Texas 8071 75-2407830
Diagnostic Solutions Corp..................................... Delaware 8071 75-2565249
Maxum Health Services of Arlington, Inc....................... Texas 8071 75-2576423
Maxum Health Services of Dallas, Inc.......................... Texas 8071 75-2615132
Open MRI, Inc................................................. Delaware 8071 94-3251529
Radiology Services Corp....................................... Delaware 8071 33-0771659
Mississippi Mobile Technology, Inc............................ Mississippi 8071 64-0769460
Signal Medical Services, Inc.................................. Delaware 8071 33-0802413
</TABLE>
The address, including zip code and telephone number, including area code,
of each of the above Registrant's principal executive offices is: 4400 MacArthur
Boulevard, Suite 800, Newport Beach, California 92660, (949) 476-0733.
<PAGE>
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. UNDER NO CIRCUMSTANCES SHALL
THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH OR TO ANY PERSON TO WHOM SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 4, 1998
PROSPECTUS
$100,000,000
OFFER FOR
ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED
OF
[LOGO]
HEALTH SERVICES CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
InSight Health Services Corp., a Delaware corporation (the "Company") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$100,000,000 of 9 5/8% Series B Senior Subordinated Notes Due 2008 (the
"Exchange Notes") of the Company, which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for a like principal amount of 9 5/8% Senior Subordinated Notes Due 2008
(the "Outstanding Notes" and, with the Exchange Notes, the "Notes") of the
Company with the holders (the "Holders") thereof.
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except that, if the Exchange Offer
is not consummated on or prior to December 9, 1998 or a shelf registration
statement is not declared effective when required, the Company will pay
liquidated damages to each Holder of Outstanding Notes for the first 90 days
following such date in an amount equal to $.05 per week per $1,000 principal
amount of Outstanding Notes held by such Holder. The amount of liquidated
damages will increase by an additional $.05 per week per $1,000 principal amount
of Outstanding Notes at the beginning of each subsequent 90-day period until the
Exchange Offer is consummated or the shelf registration is declared effective,
up to a maximum amount of liquidated damages of $.30 per week per $1,000
principal amount of Outstanding Notes. The Exchange Notes are offered hereunder
in order to satisfy certain obligations of the Company under the Purchase
Agreement dated as of June 9, 1998 (the "Purchase Agreement") among the Company,
the existing Subsidiary Guarantors (as defined below) and the initial purchasers
of the Outstanding Notes (the "Initial Purchasers") and the Registration Rights
Agreement dated June 12, 1998 (the "Registration Rights Agreement") among the
Company, the existing Subsidiary Guarantors and the Initial Purchasers. The
Exchange Notes evidence the same debt as the Outstanding Notes and are issued
under and are entitled to the same benefits under the Indenture (as defined
herein) as the Outstanding Notes. In addition, the Exchange Notes and the
Outstanding Notes are treated as one series of securities under the Indenture.
The net proceeds from the issuance of the Outstanding Notes, together with
the net proceeds of the term loan portion of the Senior Credit Facilities (as
defined herein), were used by the Company to repay existing indebtedness of the
Company under the Senior Credit Facilities and for general corporate purposes.
The Notes mature on June 15, 2008, unless previously redeemed. Interest on
the Notes is payable semiannually on June 15 and December 15, commencing
December 15, 1998. The Notes are redeemable at the option of the Company, in
whole or in part, on or after June 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, if any, to the Redemption Date
(as defined herein). Notwithstanding the foregoing, at any time on or prior to
June 15, 2001, the Company may redeem up to 35% of the sum of (i) the initial
aggregate original principal amount of Notes and (ii) the initial aggregate
principal amount of any Additional Notes (as defined herein) with the net
proceeds of one or more Equity Offerings (as defined herein) at a redemption
price equal to 109.625% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the Redemption Date; provided that at least 65% of the sum
of (i) the initial aggregate principal amount of Notes and (ii) the initial
aggregate principal amount of any Additional Notes remains outstanding
immediately after the occurrence of such redemption. Upon a Change of Control
(as defined herein), the Company will be required to offer to repurchase all
outstanding Notes at 101% of the unpaid principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of repurchase.
The Notes are unsecured senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company, including borrowings under the
Senior Credit Facilities. The Notes rank PARI PASSU with all existing and future
senior subordinated indebtedness of the Company and rank senior to all other
existing and future subordinated indebtedness of the Company. The Notes are
fully and unconditionally guaranteed on an unsecured, senior subordinated basis
(the "Subsidiary Guarantees") by all existing and future subsidiaries of the
Company (other than Permitted Joint Ventures (as defined herein)) (collectively,
the "Subsidiary Guarantors"). The Notes are also effectively subordinated to all
existing and future Senior Indebtedness of the Subsidiary Guarantors. As of
March 31, 1998, after giving pro forma effect to the acquisition of Signal
Medical Services, Inc. ("Signal"), the borrowing under the term loan portion of
the Senior Credit Facilities, the issuance of the Notes and the application of
the net proceeds therefrom, the Company would have had $53.4 million of Senior
Indebtedness outstanding and $100 million available to be borrowed under the
Senior Credit Facilities, all of which would be Senior Indebtedness, and the
Subsidiary Guarantors would have had $53.4 million of Senior Indebtedness
outstanding, all of which would have represented guarantees of indebtedness
under the Senior Credit Facilities.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
The Exchange Notes will be issued in the form of a global note (the "Global
Note"), which will be deposited with, or on behalf of, the Depositary (as
defined herein) and registered in the name of the Depositary or its nominee.
Except as set forth herein, owners of beneficial interests in the Global Note
will not be entitled to have the Exchange Notes represented by the Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Exchange Notes in definitive form and will not be
considered to be the owners or holders of any Exchange Notes under the Global
Note. Payment of principal of and interest on Exchange Notes represented by the
Global Note registered in the name of and held by the Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner and holder of the Global Note. See "Description of Notes --
Book Entry, Delivery and Form."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set forth
in certain no-action letters addressed to other parties in other transactions.
However, the Company has not sought its own no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Based upon
these interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to this Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred by
a holder thereof, other than (i) a broker-dealer who purchased such Outstanding
Notes directly from the Company for resale pursuant to Rule 144A or other
available exemptions under the Securities Act of 1933, as amended (the
"Securities Act") or (ii) a person that is an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes. Holders of Outstanding Notes accepting the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may not
rely on the position of the staff of the Commission as set forth in these
no-action letters and would have to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. A secondary resale transaction in the United States by a
holder who is using the Exchange Offer to participate in the distribution of
Exchange Notes must be covered by an effective registration statement containing
the selling security holder information required by Item 507 of Regulation S-K
under the Securities Act.
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Outstanding Notes as a result of market-making
activities or other trading activities and will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period (the "Exchange Offer
Registration Period") the longer of (A) the period until consummation of the
Exchange Offer and (B) two years after the effectiveness of the Registration
Statement (as defined herein) (unless, in the case of (B), all resales of
Exchange Notes covered by the Registration Statement have been made), the
Company will make this Prospectus, as amended or supplemented, available to any
such broker-dealer for use in connection with any such resale; provided,
however, that the Company shall not be required to maintain the effectiveness of
the Registration Statement for more than 60 days following the consummation of
the Exchange Offer unless the Company has been notified in writing on or prior
to the 60th day following the consummation of the Exchange Offer by one or more
broker-dealers that such holder has received Exchange Notes as to which it will
be required to deliver this Prospectus upon resale. See "Plan of Distribution."
Any broker-dealer
i
<PAGE>
who is an affiliate of the Company may not rely on such no-action letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transactions. See
"Exchange Offer."
There is currently no market for the Exchange Notes. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Exchange Notes, they are not obligated to do so, and any such
market-making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
Exchange Notes. The Company does not intend to apply for listing of the Exchange
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System ("Nasdaq").
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Outstanding Notes held by them.
To the extent that Outstanding Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Outstanding Notes could be
adversely affected. It is not expected that an active market for the Outstanding
Notes will develop while they are subject to restrictions on transfer.
The Company will accept for exchange any and all Outstanding Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be , 1998 (the
"Expiration Date"), unless the Exchange Offer is extended by the Company, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for payment by the Company. The Exchange Offer
is not conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. The Exchange Notes will bear interest from
the last interest payment date of the Outstanding Notes to occur prior to the
issue date of the Exchange Notes or, if no such interest has been paid, from
June 12, 1998. Holders of the Outstanding Notes whose Outstanding Notes are
accepted for exchange will not receive interest on such Outstanding Notes for
any period subsequent to the last interest payment date to occur prior to the
issue date of the Exchange Notes or, if no such interest has been paid, from
June 12, 1998, and will be deemed to have waived the right to receive any
interest payment on the Outstanding Notes accrued from and after such date.
ii
<PAGE>
NOTE REGARDING FORWARD-LOOKING INFORMATION
The information contained in this Prospectus contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which are identified by the use of forward-looking terminology such as
"may," "will," "could," "should," "expect," "anticipate," "intend," "plan,"
"estimate" or "continue" or the negative thereof or other variations thereof.
Such forward-looking statements are necessarily based on various assumptions and
estimates and are inherently subject to various risks and uncertainties,
including risks and uncertainties relating to the possible invalidity of the
underlying assumptions and estimates and possible changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including customers, suppliers, business partners and competitors and
legislative, regulatory, judicial and other governmental authorities and
officials. In addition to any risks and uncertainties specifically identified in
the text surrounding such forward-looking statements, the statements under the
caption "Risk Factors" beginning on page 13 of this Prospectus or in the
reports, proxy statements, and other information referred to in "Available
Information" constitute cautionary statements identifying important factors that
could cause actual amounts, results, events and circumstances to differ
materially from those reflected in such forward-looking statements.
MARKET SHARE DATA
Except as otherwise indicated, the market share data presented herein are
based upon estimates by management of the Company, utilizing various third party
sources, where available. While management believes that such estimates are
reasonable and reliable, in certain cases, such estimates cannot be verified by
information available from independent sources. Accordingly, no assurance can be
given that such market share data are accurate in all material respects.
------------------------
AVAILABLE INFORMATION
The Company is subject to certain of the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports and other information with the Commission.
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected without charge and copied, upon payment of
prescribed rates, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Such reports, proxy
statements and other information concerning the Company are also available for
inspection at the offices of The Nasdaq SmallCap Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006. Copies of such material and any part
thereof are also available by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, and via the Commission's address on the World Wide Web at
http://www.sec.gov. In addition, the Indenture provides that whether or not the
Company is subject to the reporting requirements of the Exchange Act, the
Company will furnish without cost to each holder of Notes and file with the
Commission and the Trustee copies of the annual reports, quarterly reports and
other documents which the Company would have been required to file with the
Commission pursuant to Section 13(a) and 15(d) of the Exchange Act or any
successor provision thereto if the Company were so required.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") filed by
the Company and the Subsidiary Guarantors with the Commission under the
Securities Act. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. Separate
iii
<PAGE>
financial statements of the Subsidiary Guarantors are not presented because the
Company's management has determined that they would not be material to
investors. Reference is hereby made to the Registration Statement and related
exhibits and schedules filed therewith for further information with respect to
the Company and the Subsidiary Guarantors and the Exchange Notes offered hereby.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
iv
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "INSIGHT"
REFER TO INSIGHT HEALTH SERVICES CORP., ITS CONSOLIDATED SUBSIDIARIES,
PARTNERSHIPS AND LIMITED LIABILITY COMPANIES, INCLUDING SIGNAL, AND REFERENCES
TO THE COMPANY'S "SUBSIDIARIES" REFER TO THE COMPANY'S CONSOLIDATED
SUBSIDIARIES, PARTNERSHIPS AND LIMITED LIABILITY COMPANIES, INCLUDING SIGNAL.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO "PRO
FORMA TRANSACTIONS" REFER TO PRO FORMA RESULTS FOR THE COMPANY AFTER GIVING
EFFECT TO THE ISSUANCE OF THE OUTSTANDING NOTES, THE BORROWING UNDER THE TERM
LOAN PORTION OF THE SENIOR CREDIT FACILITIES AND THE APPLICATION OF THE NET
PROCEEDS THEREFROM, THE RECAPITALIZATION (AS DEFINED HEREIN) AND THE
ACQUISITIONS OF SIGNAL AND MOBILE IMAGING CONSORTIUM, LIMITED PARTNERSHIP AND
MOBILE IMAGING CONSORTIUM--NEW HAMPSHIRE (TOGETHER, "MIC") AND THE OTHER
ACQUISITIONS REFERRED TO HEREIN (EXCLUDING THE ACQUISITIONS OF MOUNTAIN
DIAGNOSTICS AND REDWOOD CITY MRI) DURING THE RELEVANT PERIOD AS IF THEY HAD
OCCURRED AT THE BEGINNING OF THE RELEVANT PERIOD. SEE "SUMMARY UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL DATA." SEE ALSO "RISK FACTORS" FOR INFORMATION THAT
SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS.
THE COMPANY
The Company is a leading nationwide provider of diagnostic imaging and
related information services, including magnetic resonance imaging ("MRI"),
computed tomography ("CT"), mammography, ultrasound, x-ray and lithotripsy
services. The Company believes it is unique in its ability to offer a broad
continuum of diagnostic imaging services, ranging from single modality mobile
services to comprehensive multi-modality diagnostic imaging centers to the joint
ownership and management of the multi-modality radiology department of a
hospital or multi-specialty physician group. The breadth of the Company's
services allows it to meet the diverse and developing needs of its customers,
which include leading health care providers such as managed care organizations,
hospitals, radiologists and insurance companies. InSight delivers these services
through strong regional networks of diagnostic imaging facilities, which will
continue to be the principal method of development for the Company. The Company
believes its regional networks increase its economies of scale and enhance its
appeal to managed care organizations, thereby increasing its overall scan
volume. The Company has a substantial presence in California, Texas, New
England, the Carolinas and the Midwest (Illinois, Indiana and Ohio), and
provides its services through 50 fixed site imaging facilities ("Fixed
Facilities"), including 16 multi-modality imaging centers ("Multi-Modality
Centers"), and 51 mobile imaging facilities ("Mobile Facilities"). For the
twelve months ended March 31, 1998, MRI services accounted for approximately 77%
of the Company's total revenues.
The Company was formed in June 1996 as a result of the merger (the "Merger")
of American Health Services Corp. ("AHS") and Maxum Health Corp. ("MHC"), two
publicly held providers of diagnostic imaging services. The Merger was
consummated in order to achieve cost savings, enhanced marketing capabilities,
increased market presence and greater financial resources, and to take advantage
of the positive consolidating trends in the diagnostic imaging industry. Under
the leadership of its experienced management team, the Company has successfully
implemented its business strategy and capitalized on the business strengths
afforded by the Merger through a geographically disciplined growth strategy
focused on providing the highest quality, most cost-effective diagnostic
information within its regional diagnostic imaging networks. The Company's
operating profits have increased during each of the seven quarters since the
Merger (excluding a one-time non-cash charge of $6.3 million incurred in
connection with the Recapitalization) due in part to its successful integration
of seven acquisitions and increases in scan volumes at its existing facilities.
For the twelve months ended March 31, 1998, after giving effect to the Pro Forma
Transactions, the Company had revenues of $135.3 million and adjusted EBITDA of
$38.1 million.
1
<PAGE>
DIAGNOSTIC IMAGING INDUSTRY OVERVIEW
Diagnostic imaging uses non-surgical techniques to generate representations
of internal structures and organs on film or video. The Company believes that
diagnostic imaging services accounted for 1997 revenues in the United States in
excess of $50 billion, constituting approximately 5% of total health care
spending. The Company believes that outpatient diagnostic imaging services,
including MRI services, accounted for approximately $6 billion of revenues in
the United States in 1996, which is the most recent year for which such
information is available. The approximately 4,000 MRI systems in the United
States include approximately 2,400 hospital-owned systems, 1,000 independent
fixed site systems and 600 mobile systems.
MRI uses high strength magnetic fields and radio waves to produce
cross-sectional images of the anatomy, enabling physicians to differentiate
between internal organs, structures and tissues, thereby facilitating the early
diagnosis of diseases and disorders. MRI frequently lessens the cost and amount
of care needed and often eliminates the need for invasive diagnostic procedures.
MRI is the preferred imaging modality for the brain, the spine and soft tissue
because it produces a superior image and does not expose patients to ionizing
radiation. As a result of MRI's increasing cost efficiency and clinical
effectiveness, MRI services have experienced substantial growth as measured by
total scan volume, which increased at a compounded annual growth rate of 8.6%
from 7.7 million in 1993 to 10.7 million in 1997. The Company believes that
growth in MRI scan volumes has been attributable to increased physician
acceptance, substitution of MRI for other imaging modalities (including x-ray
based techniques), expanding applications for MRI technology and health care
reform, which has led to a significant increase in outpatient services.
The MRI services industry is highly fragmented. Recently, however, the
industry has begun to undergo consolidation. The Company believes such
consolidation is primarily driven by (i) economies of scale in the provision of
services to a larger customer base; (ii) growth of managed care in the delivery
of health care services; and (iii) the decision by many smaller, capital
constrained operators to sell their MRI businesses rather than make substantial
investments in new imaging systems. Despite ongoing industry consolidation, the
top ten MRI service providers accounted for less than 15% of the nation's total
outpatient diagnostic imaging revenues in 1996, which is the most recent year
for which such information is available.
COMPETITIVE STRENGTHS
The Company believes it is well-positioned to take advantage of current
trends in the diagnostic imaging industry and attributes its favorable market
position to the following strengths:
STRONG REGIONAL NETWORKS WITH SIGNIFICANT MARKET PRESENCE. InSight has
developed a substantial presence in its targeted markets by forming regional
networks of diagnostic imaging services that provide superior service and
convenience to the Company's customers, including managed care organizations,
hospitals, radiologists and insurance companies. The Company believes these
networks enable InSight to increase its overall scan volume by effectively
addressing its customers' demands for high-quality service, customized
diagnostic information, flexible scheduling, single invoices and convenient
locations. In addition, such regional networks enable the Company to benefit
from enhanced economies of scale, including greater purchasing power, reduced
overhead, centralized billing and more efficient use of marketing expenditures.
CONTINUUM OF SERVICES. The Company believes it is unique in its ability to
offer a broad continuum of diagnostic services, from single modality Mobile
Facilities to comprehensive Multi-Modality Centers to the joint ownership and
management of the multi-modality radiology department of a hospital or multi-
specialty physician group. Through this continuum of increasing value-added
services, the Company is able to meet the diverse and developing needs of its
customers as their individual requirements change.
2
<PAGE>
STRONG RELATIONSHIPS WITH HOSPITALS AND MANAGED CARE. The Company's
contractual relationships with its hospital and managed care customers accounted
for approximately 83% of the Company's revenues during the twelve months ended
March 31, 1998.
HOSPITALS. The Company has over 200 exclusive contracts with hospitals for
Mobile Facility services and 13 exclusive contracts with hospitals for Fixed
Facility services. The Company provides MRI services to hospitals that require
such services but that do not want to incur the substantial capital investment
associated with MRI systems. InSight's Mobile Facilities employ systems housed
in specially designed trailers and typically operate under contracts with
average terms of three years to provide a specified schedule of service on a
fee-per-scan basis. The Company designs schedules for each system to rotate
among multiple hospitals in a manner that optimizes equipment utilization. Since
the Merger, the Company has experienced a renewal rate of approximately 85% for
its Mobile Facility hospital contracts. InSight's contracts with hospitals to
provide Fixed Facility and other diagnostic imaging services generally last from
five to ten years.
MANAGED CARE ORGANIZATIONS. The Company recognizes managed care as the
driving force behind its changing customer mix and has focused its marketing
efforts on appealing to what it believes are the primary concerns of managed
care: quality, cost, convenience and service. As a result, the Company currently
has in excess of 400 contracts with managed care organizations for diagnostic
imaging services at the Company's Fixed Facilities, primarily on a discounted
fee-for-service basis. The Company provides managed care organizations with
"one-stop shopping" consisting of centralized scheduling, single invoices, wide
geographic coverage, quality assurance and utilization management. The Company
experienced a 25% increase in the number of its managed care contracts from
March 31, 1997 to March 31, 1998.
TECHNOLOGICALLY ADVANCED EQUIPMENT. The Company's Fixed Facilities and
Mobile Facilities are operated with state-of-the-art equipment. Of the Company's
100 conventional MRI systems, 79% have a magnet strength of at least 1.0 Tesla.
In addition, the Company operates 13 Open MRI systems, nine of which are less
than one year old. The Company believes its technologically advanced equipment
allows the Company to perform the variety and volume of scans and to produce the
high quality images that its customers demand. In order to increase throughput
and productivity, the Company's MRI systems are periodically upgraded with the
latest software, which reduces the time per scan and improves image quality. As
a result of these upgrades, the Company's maintenance capital expenditures have
been stable and the Company expects such expenditures to remain stable for the
foreseeable future. In addition, the Company believes it is well-positioned to
benefit from new applications (e.g. mammography and stroke detection) for MRI
technology.
EXPERIENCED MANAGEMENT TEAM. The Company has a highly experienced senior
management team with an average of 15 years industry experience. Since the
Merger, management has successfully implemented the Company's business strategy,
resulting in increasing quarterly operating profitability (excluding a one-time
non-cash charge of $6.3 million incurred in connection with the
Recapitalization). In addition, the Company's successful integration of seven
acquisitions has produced increased revenues and cash flows. Management will
continue to develop the Company's business strategy by growing through regional
network expansion, pursuing opportunities within existing networks, focusing on
managed care and introducing new products.
STRONG EQUITY SPONSORSHIP. InSight enjoys strong strategic support from its
equity sponsors, The Carlyle Group and General Electric Company ("GE"). In
October 1997, certain affiliates of The Carlyle Group ("Carlyle") purchased $25
million of a new series of the Company's preferred stock, currently convertible
into approximately 30% of the Company's common stock on a fully diluted basis,
and GE exchanged its existing preferred stock for a new series of the Company's
preferred stock, currently convertible into approximately 33% of the Company's
common stock on a fully diluted basis. The Carlyle Group is a global investment
firm which originates, structures and acts as lead equity investor in targeted
industries. Designees of Carlyle and GE serve on the Company's Board of
Directors (the "Board").
3
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to further develop and expand regional
diagnostic imaging networks that emphasize quality of care, produce
cost-effective diagnostic information and provide superior service and
convenience to its customers. The Company's strategy primarily consists of the
following components:
GROWTH THROUGH REGIONAL NETWORK EXPANSION. The Company intends to further
participate in the consolidation occurring in the diagnostic imaging industry by
continuing to build its market presence in its existing regional diagnostic
imaging networks through geographically disciplined acquisitions. In addition,
the Company may develop or acquire additional regional networks in strategic
locations where the Company can offer a broad range of services to its customers
and realize increased economies of scale.
PURSUE OPPORTUNITIES WITHIN EXISTING NETWORKS. The Company will continue to
market current diagnostic imaging applications through its existing facilities
to optimize and increase overall procedure volume. The Company also expects to
increase scan volumes as new applications develop for the Company's existing
diagnostic imaging equipment. In addition, the Company's management remains
focused on maximizing cost savings through increased purchasing power and the
reduction of overhead.
FOCUS ON MANAGED CARE. As the Company continues to strengthen its regional
diagnostic imaging networks, management recognizes the importance of managed
care customers and has developed specialized "one-stop shopping" for managed
care organizations. InSight intends to capitalize on its existing relationships
in the managed care industry and believes its regional networks and
strategically located Fixed Facilities give it a significant competitive
advantage in marketing to managed care organizations.
NEW PRODUCT INTRODUCTIONS. The Company is currently implementing a variety
of new products and services designed to further leverage its core business
strengths, including:
OPEN MRI SYSTEMS. The Company intends to expand beyond its existing 13 Open
MRI systems by establishing Open MRI imaging services throughout its regional
diagnostic imaging networks. Open MRI services allow for the diagnosis of a
patient without requiring the patient to enter into a conventional large-bore
MRI. The "open" application of the MRI technology offers treatment previously
unavailable to certain patients, including infants, pediatric patients,
claustrophobic patients, large or obese patients and patients suffering from
post-traumatic stress syndrome. Certain MRI applications, such as kinematic
studies, are more easily conducted in an Open MRI than in a conventional MRI.
RADIOLOGY CO-SOURCE PRODUCT. The Company seeks to develop its co-sourcing
product, which will involve the joint ownership and management (outsourcing) of
the physical and technical operations of the multi-modality radiology department
of a hospital or multi-specialty physician group. The Company believes it has
the expertise to manage these operations more efficiently and cost-effectively
than many hospitals and multi-specialty groups and views the co-source product
as a significant opportunity to expand its products and services from the $6
billion outpatient diagnostic imaging services industry to the $50 billion
diagnostic imaging services industry as a whole.
4
<PAGE>
RECENT DEVELOPMENTS
On July 21, 1998, Glenn P. Cato, the Company's Senior Executive Vice
President and Chief Operating Officer, resigned and Thomas V. Croal, the
Company's Executive Vice President and Chief Financial Officer, was elected
Senior Executive Vice President and Chief Operating Officer to replace Mr. Cato.
Mr. Croal will continue to act as the Company's Chief Financial Officer until
his replacement is appointed.
On June 12, 1998, concurrently with the issuance of the Outstanding Notes,
the Company entered into an amendment to and restatement of the Senior Credit
Facilities, pursuant to which, among other things, the Company refinanced and
consolidated its prior $20 million tranche term loan and $40 million tranche
term loan into a single $50 million term loan. See "Description of Senior Credit
Facilities." The Company utilized a portion of the net proceeds from the sale of
the Outstanding Notes, together with the net proceeds of the borrowing under the
term loan portion of the Senior Credit Facilities, to repay outstanding
indebtedness under the Senior Credit Facilities (including indebtedness incurred
in connection with the acquisition of Signal) in the approximate aggregate
amount of $114.5 million. The remainder of such proceeds were or will be used
for general corporate purposes.
On May 18, 1998, the Company acquired Signal, a Farmington, Connecticut
based provider of mobile and fixed site MRI services, mobile lithotripsy
services, fixed site CT services and other outsourced health care services. The
purchase price, including the assumption of indebtedness, was $45.7 million
(subject to certain post-closing adjustments). Signal operates 16 mobile MRI
systems and several other diagnostic imaging systems, primarily in New England
and the Southeast.
------------------------
The Company's principal executive offices are located at 4400 MacArthur
Boulevard, Suite 800, Newport Beach, California 92660 and its telephone number
is (949) 476-0733. The Company's common stock is quoted on The Nasdaq SmallCap
Market under the symbol "IHSC."
EXCHANGE OFFER
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<S> <C>
Securities Offered................ Up to $100,000,000 principal amount of 9 5/8% Series B
Senior Subordinated Notes Due 2008, which have been
registered under the Securities Act. The terms of the
Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer
restrictions and registration rights relating to the
Outstanding Notes and except that if the Exchange Offer
has not been consummated on or prior to December 9, 1998
or a shelf registration statement is not declared
effective when required, then the Company will pay
liquidated damages to each Holder of Outstanding Notes
for the first 90 days following such date in an amount
equal to $.05 per week per $1,000 principal amount of
Outstanding Notes held by such Holder. The amount of
liquidated damages will increase by an additional $.05
per week per $1,000 principal amount of Outstanding
Notes at the beginning of each subsequent 90-day period
until the Exchange Offer is consummated or the shelf
registration is declared effective, up to a maximum
amount of liquidated damages of $.30 per week per $1,000
principal amount of Outstanding Notes.
</TABLE>
5
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<S> <C>
The Exchange Offer................ The Exchange Notes are being offered in exchange for a
like principal amount of Outstanding Notes. The issuance
of the Exchange Notes is intended to satisfy obligations
of the Company contained in the Registration Rights
Agreement. The Exchange Notes evidence the same debt as
the Outstanding Notes and will be issued, and holders
thereof are entitled to the same benefits as holders of
the Outstanding Notes, under the Indenture.
Tenders, Expiration Date;
Withdrawal........................ The Exchange Offer will expire at 5:00 p.m., New York
City time on , 1998, or such later date and
time to which it is extended. Tenders of Outstanding
Notes may be withdrawn at any time prior to the
Expiration Date. Any Outstanding Notes not accepted for
exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer. See "The Exchange Offer" for a
description of the procedures for tendering the
Outstanding Notes.
Federal Income Tax Consequences... The exchange pursuant to the Exchange Offer should not
result in income, gain or loss to the holders of Notes
who participate in the Exchange Offer or to the Company
for U.S. federal income tax purposes. See "Certain
Federal Income Tax Considerations".
Use of Proceeds................... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Exchange Agent.................... State Street Bank and Trust Company, N.A. is serving as
Exchange Agent (the "Exchange Agent") pursuant to the
Exchange Offer.
</TABLE>
CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain no-action letters addressed to
other parties in other transactions. However, the Company has not sought its own
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Based upon these interpretations by the staff of the
Commission, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by a holder thereof, other than (i) a
broker-dealer who purchased such Outstanding Notes directly from the Company for
resale pursuant to Rule 144A or other available exemptions under the Securities
Act or (ii) a person that is an "affiliate" (as defined in Rule 405 of the
Securities Act) of the Company without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of such Exchange Notes.
Holders of Outstanding Notes accepting the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission as set forth in these no-action letters
and would have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. A secondary resale transaction in the United States by a holder who
is using the Exchange Offer to participate in the distribution of Exchange Notes
must be covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K under the
Securities Act.
6
<PAGE>
Each broker-dealer (other than an "affiliate" of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Outstanding Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such Outstanding
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for the
Exchange Offer Registration Period, the Company will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale; provided, however, that the Company shall not
be required to maintain the effectiveness of the Registration Statement for more
than 60 days following the consummation of the Exchange Offer unless the Company
has been notified in writing on or prior to the 60th day following the
consummation of the Exchange Offer by one or more broker-dealers that such
holder has received Exchange Notes as to which it will be required to deliver
this Prospectus upon resale. See "Plan of Distribution". Any broker-dealer who
is an affiliate of the Company may not rely on such no-action letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transactions. See
"Exchange Offer."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except that, if the Exchange Offer
has not been consummated on or prior to December 9, 1998 or a shelf registration
statement is not declared effective when required, then the Company will pay
liquidated damages to each Holder of Outstanding Notes for the first 90 days
following such date in an amount equal to $.05 per week per $1,000 principal
amount of Outstanding Notes held by such Holder. The amount of liquidated
damages will increase by an additional $.05 per week per $1,000 principal amount
of Outstanding Notes at the beginning of each subsequent 90-day period until the
Exchange Offer is consummated or the shelf registration is declared effective,
up to a maximum amount of liquidated damages of $.30 per week per $1,000
principal amount of Outstanding Notes. The Exchange Notes will bear interest
from the last interest payment date of the Outstanding Notes to occur prior to
the issue date of the Exchange Notes or, if no such interest has been paid, from
June 12, 1998. Holders of the Outstanding Notes whose Outstanding Notes are
accepted for exchange will not receive interest on such Outstanding Notes for
any period subsequent to the last interest payment date to occur prior to the
issue date of the Exchange Notes or, if no such interest has been paid, from
June 12, 1998, and will be deemed to have waived the right to receive any
interest payment on the Outstanding Notes accrued from and after such date.
7
<PAGE>
<TABLE>
<S> <C>
ISSUER............................. InSight Health Services Corp.
SECURITIES OFFERED................. $100,000,000 in aggregate principal amount of 9 5/8%
Series B Senior Subordinated Notes due 2008 of the
Company.
MATURITY DATE...................... June 15, 2008
INTEREST PAYMENT DATES............. June 15 and December 15, commencing December 15, 1998
SUBSIDIARY GUARANTEES.............. The Notes are fully and unconditionally guaranteed by
each of the Subsidiary Guarantors. Each of the
Subsidiary Guarantees is a guarantee of payment and
not of collection.
SUBORDINATION...................... The Notes are unsecured senior subordinated
obligations of the Company and are subordinated in
right of payment to all existing and future Senior
Indebtedness of the Company, including borrowings
under the Senior Credit Facilities. The Notes will
rank PARI PASSU with all existing and future senior
subordinated indebtedness of the Company and rank
senior to all other existing and future subordinated
indebtedness of the Company. The Subsidiary Guarantees
are unsecured senior subordinated obligations of the
Subsidiary Guarantors and are subordinated in right of
payment to all existing and future Senior Indebtedness
of the Subsidiary Guarantors, including the guarantees
of indebtedness under the Senior Credit Facilities. As
of March 31, 1998, after giving pro forma effect to
the acquisition of Signal, the borrowing under the
term loan portion of the Senior Credit Facilities, the
issuance of the Outstanding Notes and the application
of net proceeds therefrom, the Company would have had
$53.4 million of Senior Indebtedness outstanding and
$100 million available to be borrowed under the Senior
Credit Facilities, all of which would be Senior
Indebtedness, and the Subsidiary Guarantors would have
had $53.4 million of Senior Indebtedness outstanding,
all of which would have represented guarantees of
indebtedness under the Senior Credit Facilities. See
"Risk Factors--Subordination of Notes and Subsidiary
Guarantees; Asset Encumbrances."
OPTIONAL REDEMPTION................ On or after June 15, 2003, the Company may redeem the
Notes, in whole or in part, at the redemption prices
set forth herein, plus accrued and unpaid interest
thereon, if any, to the Redemption Date.
Notwithstanding the foregoing, at any time on or
before June 15, 2001, the Company may redeem up to 35%
of the sum of (i) the initial aggregate original
principal amount of the Notes and (ii) the initial
aggregate principal amount of any Additional Notes
with the net proceeds of one or more Equity Offerings
at a redemption price equal to 109.625% of the
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date;
provided, that at least 65% of the sum of (x) the
initial aggregate principal amount of the Notes and
(y) the initial aggregate principal amount of any
Additional Notes remains outstanding immediately after
the occurrence of such
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
redemption. See "Description of Notes--Optional
Redemption."
MANDATORY REDEMPTION............... None, except at maturity on June 15, 2008.
CHANGE OF CONTROL.................. Upon a Change of Control, the Company will be required
to make an offer to repurchase all outstanding Notes
at 101% of the unpaid principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the
date of repurchase. See "Description of
Notes--Repurchase at the Option of Holders--Change of
Control."
COVENANTS.......................... The Indenture pursuant to which the Notes are issued
(the "Indenture") restricts among other things, the
ability of the Company and the Subsidiary Guarantors
to incur additional indebtedness and issue preferred
stock, enter into sale and leaseback transactions,
incur liens, pay dividends or make certain other
restricted payments, apply net proceeds from certain
asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other
person, sell stock of subsidiaries, and assign,
transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company. See
"Description of Notes--Certain Covenants."
USE OF PROCEEDS.................... The Company will not receive any proceeds from the
Exchange Offer. See "Use of Proceeds."
</TABLE>
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
9
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Company's summary unaudited pro forma consolidated statement of
operations data for the twelve month period ended March 31, 1998, the nine
months ended March 31, 1998 and the year ended June 30, 1997 are for
informational purposes only and give effect to the issuance of the Outstanding
Notes, the borrowing under the term loan portion of the Senior Credit Facilities
and the application of the net proceeds therefrom, the October 1997 purchase by
Carlyle of $25 million of a new series of the Company's preferred stock and
exchange by GE of its existing preferred stock and certain other rights for a
new series of the Company's preferred stock, currently convertible into
approximately 30% and 33%, respectively, of the Company's common stock on a
fully diluted basis (the "Recapitalization") and the acquisitions of Signal, MIC
and other smaller acquisitions as if they had occurred on July 1, 1996, the
beginning of the Company's most recently completed fiscal year. The following
summary unaudited pro forma consolidated balance sheet data of the Company as of
March 31, 1998 is based upon the Company's historical and unaudited balance
sheet, Signal's historical unaudited balance sheet and after giving pro forma
effect to the issuance of the Outstanding Notes, the borrowing under the term
loan portion of the Senior Credit Facilities and the application of the net
proceeds therefrom. The summary unaudited pro forma consolidated financial data
does not purport to represent what the Company's results of operations or
financial position would have been had such transactions in fact occurred at the
beginning of the periods or on the date indicated. This financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements and notes thereto
of the Company and the unaudited pro forma combined condensed statements of
operations and balance sheet of the Company located elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, JUNE 30,
1998(1) 1998(1) 1997
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $ 135,316 $ 102,397 $ 127,666
Gross profit......................................................... 27,507 20,827 19,078
Operating income..................................................... 16,433 12,412 11,483
Interest expense, net................................................ 12,176 8,782 11,546
Net income (loss).................................................... 3,182 2,639 (63)
OTHER DATA:
EBITDA (2)........................................................... $ 36,304 $ 27,795 $ 30,091
Adjusted EBITDA (3).................................................. 38,078 29,124 31,126
Cash interest expense, net........................................... 11,576 8,332 10,946
Depreciation and amortization........................................ 19,871 15,383 18,608
Capital expenditures (4)............................................. 19,928 15,233 7,102
Ratios:
Adjusted EBITDA to cash interest expense, net...................... 3.3x 3.5x 2.8x
Pro forma ratio of earnings to fixed charges (5)................... 1.2x 1.3x 1.0x
Total net debt to adjusted EBITDA.................................. 3.0x
Margins:
Gross margin....................................................... 20.3% 20.3% 14.9%
Operating margin................................................... 12.1% 12.1% 9.0%
Adjusted EBITDA margin............................................. 28.1% 28.4% 24.4%
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................................ $ 40,792
Working capital...................................................... 42,668
Total assets......................................................... 211,130
Total debt, including current maturities............................. 153,351
Stockholders' equity................................................. 35,844
</TABLE>
- ------------------------------
(1) These amounts do not include the one-time non-cash charge of approximately
$6.3 million for the elimination of the GE supplemental service fee. Such
charge was recorded on October 14, 1997 and was a direct result of the
Recapitalization.
(2) EBITDA is defined as the operating income plus depreciation and
amortization. This measurement has been included herein because management
believes that certain investors will find it to be a useful tool for
measuring the Company's ability to meet debt service, capital expenditure
and working capital requirements. EBITDA should not be considered an
alternative to, or more meaningful than, earnings from operations or other
traditional indicators of operating performance and cash flow from operating
activities.
(3) Adjusted EBITDA represents EBITDA of the Company for the relevant period
plus the calculated EBITDA of the Company for the relevant period with
respect to the Mountain Diagnostics and Redwood City MRI acquisitions.
Calculated EBITDA with respect to Mountain Diagnostics and Redwood City MRI
was computed using annualized unaudited financial information.
(4) Capital expenditures represent historical capital expenditures of the
Company, excluding Signal, for the periods presented.
(5) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before extraordinary items, income taxes and
fixed charges. Fixed charges consist of interest on indebtedness, the
amortization of debt issuance costs and that portion of lease rental expense
representing interest.
10
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The Merger was accounted for using the purchase method of accounting and
treating MHC as the acquiror. Accordingly, the following table presents summary
consolidated historical financial data of the Company for the nine months ended
March 31, 1998 and 1997, the fiscal year ended June 30, 1997 and the summary pro
forma combined financial data of MHC and AHS for the twelve months ended June
30, 1996, adjusted to give effect to the Merger as if it had occurred as of July
1, 1995. The summary historical information presented for each of the nine
months ended March 31, 1998 and 1997 has been derived from unaudited interim
consolidated financial statements of the Company, and, in the opinion of
management of the Company, reflects a fair presentation of the Company's
financial information. The summary historical data presented below under the
caption "Statement of Operations" for the fiscal year ended June 30, 1997 are
derived from the consolidated financial statements of the Company, which
financial statements have been audited by Arthur Andersen LLP, independent
certified public accountants, and are included elsewhere in this Prospectus. The
summary pro forma combined financial data of MHC and AHS for the twelve months
ended June 30, 1996 has been provided for comparison purposes only and has been
derived from (i) available information and certain assumptions that management
believes are reasonable and (ii) the separate unaudited financial information of
each of AHS and MHC for the year ended June 30, 1996. Such financial data is
provided for informational purposes only and does not purport to represent what
the Company's results of operations would actually have been had the Merger in
fact occurred as of July 1, 1995. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto of the
Company included elsewhere in this Prospectus.
The following table also presents summary historical financial data of
Signal for the three months ended March 31, 1998 and 1997 and fiscal years ended
December 31, 1997 and 1996. The summary historical information presented for
each of the three months ended March 31, 1998 and 1997 has been derived from
unaudited interim financial statements of Signal, and, in the opinion of
management of the Company, reflects a fair presentation of Signal's financial
information. The summary historical data presented below under the caption
"Statement of Operations" for the years ended December 31, 1997 and 1996 are
derived from the financial statements of Signal, which financial statements have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
and are included elsewhere in this Prospectus. The following information should
be read in conjunction with the financial statements and notes thereto of Signal
included elsewhere in this Prospectus.
11
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<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
---------------------------- -------------------------
INSIGHT HEALTH SERVICES CORP. 1998 1997 1997 1996
- -------------------------------------------------------- --------------- ----------- ----------- ------------
(UNAUDITED) (PRO FORMA)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 85,673 $ 68,129 $ 93,063 $ 87,720
Gross profit.......................................... 15,982 8,602 12,726 7,130
Operating income (loss)............................... 3,643(1) 3,623 5,763 (973)
OTHER DATA:
EBITDA (2)............................................ $ 14,313 $ 10,826 $ 15,634 $ 9,197
Adjusted EBITDA....................................... 20,622(3) 10,826 15,634 9,197
Depreciation and amortization......................... 10,670 7,203 9,871 10,170
Capital expenditures.................................. 15,233 2,407 7,102 --
Margins:
Gross margin........................................ 18.7% 12.6% 13.7% 8.1%
Operating margin.................................... 4.3% 5.3% 6.2%
EBITDA margin....................................... 16.7% 15.9% 16.8% 10.5%
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................................... $ 13,192
Total assets.......................................... 126,787
Total debt, including current maturities.............. 73,487
Stockholders' equity.................................. 35,844
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------------- --------------------------
SIGNAL MEDICAL SERVICES, INC. 1998 1997 1997 1996
- ------------------------------------------------------- --------------- ----------- ----------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 5,622 $ 5,085 $ 20,704 $ 17,852
Gross profit......................................... 1,811 1,473 5,876 4,920
Operating income..................................... 966 767 3,175 2,663
OTHER DATA:
EBITDA (2)........................................... $ 2,024 $ 1,655 $ 6,851 $ 5,863
Depreciation and amortization........................ 1,058 888 3,676 3,200
Capital expenditures................................. 107 68 3,421 2,918
Margins:
Gross margin....................................... 32.2% 29.0% 28.4% 27.6%
Operating margin................................... 17.2% 15.1% 15.3% 14.9%
EBITDA margin...................................... 36.0% 32.5% 33.1% 32.8%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)............................ $ (24)
Total assets......................................... 18,345
Total debt, including current maturities............. 7,900
Stockholders' equity................................. 3,966
</TABLE>
- ------------------------------
(1) This amounts includes the one-time non-cash charge of approximately $6.3
million for the elimination of the GE supplemental service fee. Such charge
was recorded on October 14, 1997 and was a direct result of the
Recapitalization.
(2) EBITDA is defined as the operating income plus depreciation and
amortization. This measurement has been included herein because management
believes that certain investors will find it to be a useful tool for
measuring the Company's ability to meet debt service, capital expenditure
and working capital requirements. EBITDA should not be considered an
alternative to, or more meaningful than, earnings from operations or other
traditional indicators of operating performance and cash flow from operating
activities.
(3) Adjusted EBITDA is defined as EBITDA and the add-back of the one-time
non-cash charge of approximately $6.3 million discussed above.
12
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE THE FOLLOWING
FACTORS RELATING TO THE COMPANY AND THE ISSUANCE OF THE OUTSTANDING NOTES,
TOGETHER WITH THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS PROSPECTUS, IN EVALUATING, AND BEFORE MAKING AN INVESTMENT IN, THE EXCHANGE
NOTES OFFERED HEREBY.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Outstanding Notes as set forth in the legend
thereon as a consequence of the issuance of the Outstanding Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register
Outstanding Notes under the Securities Act. In addition, the tender of
Outstanding Notes pursuant to the Exchange Offer may have an adverse effect upon
holders of, and may increase the volatility of the market price of, the
Outstanding Notes due to a reduction in liquidity. Based on interpretations by
the staff of the Commission, Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holders' business and such Holders have
no arrangement or understanding with any person to participate in the
distribution of Exchange Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, such Holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer (other than an "affiliate" of the
Company) that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Outstanding Notes as a
result of market-making activities or other trading activities and will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for the Exchange Offer Registration Period, the Company will make this
Prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale; provided, however, that the Company
shall not be required to maintain the effectiveness of the Registration
Statement for more than 60 days following the consummation of the Exchange Offer
unless the Company has been notified in writing on or prior to the 60th day
following the consummation of the Exchange Offer by one or more broker-dealers
that such holder has received Exchange Notes as to which it will be required to
deliver this Prospectus upon resale. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the
Exchange Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. The Company does not currently
intend to register or qualify the sale of the Exchange Notes in any such
jurisdictions. See "Exchange Offer -- Terms of the Exchange Offer" and
"Consequences of Failure to Exchange."
13
<PAGE>
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of such Outstanding Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, holders of
the Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to tenders of Outstanding Notes for exchange. Outstanding Notes that are
not tendered or that are tendered but not accepted by the Company for exchange,
will, following consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof under the Securities Act and,
upon consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate.
SUBSTANTIAL LEVERAGE
The Company has incurred substantial indebtedness to finance its acquisition
strategy and to refinance outstanding indebtedness, and is highly leveraged and
has significant debt service obligations. At March 31, 1998, on a pro forma
basis after giving effect to the acquisition of Signal, the borrowing under the
term loan portion of the Senior Credit Facilities, the issuance of the
Outstanding Notes and the application of the net proceeds therefrom, the Company
would have had $153.4 million of consolidated indebtedness outstanding. See
"Capitalization." Subject to certain limitations, the Indenture and the Senior
Credit Facilities permit the Company and its subsidiaries to incur additional
indebtedness.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for capital expenditures,
acquisitions or general corporate purposes, including working capital, may be
limited; (ii) a substantial portion of the Company's cash flow from operations
will be required for debt service, thereby reducing the funds available to the
Company for its operations, capital expenditures, acquisitions or other
purposes; (iii) the Company's borrowings under the Senior Credit Facilities will
bear interest at variable rates, which could result in higher interest expense
if interest rates rise; (iv) the Company's level of indebtedness could limit its
flexibility in planning for and reacting to, and make it more vulnerable to,
competitive pressures and changes in industry and economic conditions generally;
and (v) indebtedness incurred under the Senior Credit Facilities is scheduled to
become due prior to the time any principal payments are required on the Notes
and, therefore, the Company may need to refinance such indebtedness. The
Company's ability to refinance the Senior Credit Facilities, if necessary, will
depend on, among other things, its financial condition at the time, the
restrictions in the instruments governing its then outstanding indebtedness and
other factors, including general economic and market conditions, that are beyond
the control of the Company. In addition, the Company's operating flexibility
with respect to certain business matters will be limited by financial and
restrictive covenants contained in the Indenture and the Senior Credit
Facilities and the failure to comply with those covenants could have a material
adverse effect on the Company. There can be no assurance that those covenants
will not adversely affect the Company's ability to finance its future operations
or capital needs or to engage in business activities that may be in its
interest. See "Description of Senior Credit Facilities" and "Description of
Notes."
The ability of the Company to service its indebtedness, and to comply with
the financial and restrictive covenants contained in the Indenture and the
Senior Credit Facilities, will depend upon the Company's future performance and
ability to generate cash, which are subject to financial, economic, competitive
and other factors, many of which are beyond the Company's control. Based on the
Company's current expectations with respect to its existing business, the
Company does not expect to generate cash sufficient to repay the Notes at
maturity and, accordingly, will have to refinance the Notes at their maturity.
In addition, there can be no assurance that the Company will be able to generate
sufficient cash to meet its other debt service obligations. If the Company is
unable to generate sufficient funds to meet its debt service obligations, it may
be required to refinance some of its indebtedness, to sell assets or to raise
additional equity. No assurance can be given that such refinancings, asset sales
or equity sales could be
14
<PAGE>
accomplished or, if accomplished, would raise sufficient funds to meet the
Company's debt service obligations. The Company's high degree of leverage and
related financial covenants could have a material adverse effect on its ability
to withstand competitive pressures or adverse economic conditions, to make
acquisitions, to obtain future financing or to take advantage of business
opportunities that may arise.
SUBORDINATION OF NOTES AND SUBSIDIARY GUARANTEES; ASSET ENCUMBRANCES
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all of the Company's existing and future Senior
Indebtedness, including borrowings under the Senior Credit Facilities. In
addition, each Subsidiary Guarantee is a general unsecured obligation of the
relevant Subsidiary Guarantor, and similarly subordinated in right of payment to
all existing and future Senior Indebtedness of that Subsidiary Guarantor,
including guarantees of indebtedness under the Senior Credit Facilities. At
March 31, 1998, on a pro forma basis after giving effect to the acquisition of
Signal, the borrowing under the term loan portion of the Senior Credit
Facilities, the issuance of the Outstanding Notes and the application of the net
proceeds therefrom, the aggregate amount of Senior Indebtedness of the Company
would have been approximately $53.4 million, and the aggregate amount of Senior
Indebtedness of the Subsidiary Guarantors would have been $53.4 million, all of
which would have represented guarantees of indebtedness under the Senior Credit
Facilities. In addition, the Company would have had additional availability of
$100 million for borrowings under the Senior Credit Facilities, all of which
would be Senior Indebtedness, if borrowed. Additional Senior Indebtedness may be
incurred by the Company and the Subsidiary Guarantors from time to time, subject
to certain restrictions. See "Description of Senior Credit Facilities."
In the event of the bankruptcy, liquidation or reorganization of the Company
or any Subsidiary Guarantor, the assets of the Company and the Subsidiary
Guarantors will be available to pay obligations on the Notes only after all
Senior Indebtedness of those entities has been paid in full, following which
there may not be sufficient assets remaining to pay amounts due in respect of
the Notes then outstanding. In addition, under certain circumstances the Company
will not be permitted to pay its obligations under the Notes in the event of a
default under certain Senior Indebtedness. See "Description of Notes--
Subordination" and "--Subsidiary Guarantees."
In addition, the Notes and each Subsidiary Guarantee are effectively
subordinated to all secured obligations of the Company and such Subsidiary
Guarantor, respectively, to the extent of the assets securing those obligations.
The Senior Credit Facilities are secured by all of the capital stock of the
Company's subsidiaries and substantially all of the assets of the Company and
its subsidiaries. The Notes would be effectively subordinated to all existing
and future indebtedness of the Subsidiary Guarantors if the Subsidiary
Guarantees were avoided or subordinated in favor of the Subsidiary Guarantors'
other creditors. See "--Fraudulent Conveyance Statutes."
BUSINESS STRATEGY; ACQUISITIONS
The ongoing acquisition of diagnostic imaging services providers is a
principal component of the Company's business strategy. Accordingly, the Company
is continually investigating and evaluating potential acquisition candidates.
Although at present the Company has no agreements or understandings relating to
any such acquisitions, it may enter into such agreements or understandings in
the future, including with respect to acquisitions that may be substantial in
size. In addition, the Company's expansion and acquisition strategy may require
substantial capital, and no assurance can be given that the Company will be able
to raise any necessary additional funds through bank financing or through the
issuance of equity or debt securities on terms acceptable to the Company, if at
all. Acquisitions also involve the integration of acquired operations with those
of the Company. Although the Company believes it has successfully integrated
such acquisitions in the past, there can be no assurance that the Company will
be able to successfully integrate the operations of any future acquisitions. See
"Management's Discussion and
15
<PAGE>
Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy--Growth Through Regional Network Expansion."
GOVERNMENT REGULATION
The health care industry is highly regulated and changes in laws and
regulations can be significant. Changes in the law or new interpretations of
existing laws can have a material effect on permissible activities of the
Company, the relative costs associated with doing business and the amount of
reimbursement by government and other third party payors. The federal government
and all states in which the Company currently operates regulate various aspects
of the Company's business. Failure to comply with these laws could adversely
affect the Company's ability to receive reimbursement for its services and
subject the Company and its officers to penalties. See "Business--Government
Regulation" for a more complete description of the following regulations and
other regulations to which the Company may be subject.
HEALTH CARE FRAUD AND ABUSE REGULATIONS
The fraud and abuse provisions of the Social Security Act prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remunerations in return for, or the inducement of, the referral of patients,
items or services that are paid for, in whole or in part, by Medicare, Medicaid
or any other federally funded health care program. These laws also impose
significant penalties for false or improper billings for health care services.
Violations of the fraud and abuse laws may result in substantial civil or
criminal penalties, including large civil monetary penalties and exclusion from
participation in Medicare, Medicaid or other federally funded health care
programs. See "Business--Government Regulation--Anti-Kickback Statutes."
Under another provision of the Social Security Act, known as "Stark II,"
physicians who refer Medicare and Medicaid patients to the Company for certain
designated health care services are not permitted to have an investment interest
in or a compensation arrangement with the Company, subject to specified
exceptions, and the Company may not accept referrals from such physicians.
Violations of Stark II may be the basis for substantial civil fines and
exclusion from Medicare, Medicaid or other federally funded health care
programs. See "Business--Government Regulation--Stark II; State Physician
Self-Referral Laws."
Many states also have enacted "anti-kickback" and "anti-referral" laws
similar to those contained in the Social Security Act, as well as certain
licensing requirements for the radiologists with whom the Company contracts for
interpretive services. Some of these state laws are broader than their federal
counterparts. For example, they may apply to the provision of health care items
and services generally, not just to those covered by government-funded programs.
Violations of state fraud and abuse and anti-referral laws or licensing
requirements may result in civil or criminal penalties for individuals or
entities, including the Company. See "Business--Government
Regulation--Anti-Kickback Statutes," "--Stark II: State Physician Self-Referral
Laws" and "--Radiologist Licensing."
Although the Company believes that its operations materially comply with
these federal and state laws, there can be no assurance that such federal and
state laws will not be interpreted or changed in a manner that would have a
material adverse effect on the Company's business, financial condition or
results of operations.
OTHER STATE HEALTH CARE REGULATIONS
The laws of many states prohibit business corporations, such as the Company,
from exercising control over the medical judgments or decisions of physicians
and from engaging in certain financial arrangements, such as fee-splitting, with
physicians. These laws and their interpretations vary from state to state and
are typically enforced by the courts and regulatory authorities, each with broad
discretion. The Company
16
<PAGE>
provides the management, administrative and technical services associated with
diagnostic imaging and the Company's position is that it does not engage in the
practice of medicine. The laws of many states also require licensure or
certification of diagnostic imaging equipment, and the laws of some states
require the licensure or certification of diagnostic imaging centers, or define
narrow exemptions from licensure requirements for diagnostic imaging centers.
Although the Company believes its operations are conducted in material
compliance with existing laws, there can be no assurance that such laws will not
be interpreted or changed in a manner that would have a material adverse effect
on the Company's business, financial condition or results of operations. See
"Business--Government Regulation--Anti-Kickback Statutes."
In addition, some states require hospitals and certain other health care
facilities to obtain a Certificate of Need ("CON") or similar regulatory
approval prior to the commencement of certain health care operations or services
and/or the acquisition of major medical equipment, including MRI and Gamma Knife
systems. CON regulations may limit or preclude the Company from providing
diagnostic imaging services or systems in certain states. The Company believes
that it will not be required to obtain CONs in most of the states in which it
intends to operate and, in those states where a CON is required, the Company
believes it has complied or will comply with such requirements. Nevertheless, a
significant increase in the number of states regulating the Company's business
within the CON or state licensure framework could adversely affect the Company's
business, financial condition and results of operation. Conversely, repeal of
existing CON regulations in jurisdictions where the Company has obtained or
operates under a CON could also adversely affect the Company's business,
financial condition and results of operation as barriers to entry are reduced or
removed. This is an area of continuing legislative activity, and there can be no
assurance that the Company will not be subject to CON and licensing statutes in
other states in which it operates or may operate in the future. See
"Business--Government Regulation-- Certificates of Need."
REIMBURSEMENT OF HEALTH CARE COSTS
The Medicare program provides reimbursement for hospitalization, physician,
diagnostic and certain other services to eligible persons 65 years of age and
over and certain others. Providers of service are paid by the federal government
in accordance with regulations promulgated by the United States Department of
Health and Human Services ("HHS") and generally accept said payment, with
nominal co-insurance amounts required to be paid by the service recipient, as
payment in full. The Medicaid program is a combined federal and state program
providing coverage for low income persons. The specific services offered and
reimbursement methods vary from state to state. In many states, Medicaid
reimbursement is patterned after the Medicare program. In recent years, there
have been numerous initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services,
including services provided by the Company. The Company believes that such
initiatives may continue in the future. Among other things, in late 1997, the
Clinton Administration and Congress approved the Balanced Budget Act of 1997
(the "Balanced Budget Act"), which seeks to achieve a balanced federal budget
by, among other things, reducing federal spending on the Medicare and Medicaid
programs and limiting reimbursement payments made to providers of diagnostic
services in future years. The Company believes that such limitations on
reimbursement amounts and other cost containment pressures have resulted in
decreasing revenues per scan. Although scan prices appear to have stabilized,
the Company expects continuing downward pressure on pricing levels. In addition,
it is not clear at this time what proposals, if any, will be adopted in addition
to the Balanced Budget Act or pursuant to any recommendations made to Congress
by the recently formed National Bipartisan Commission on the Future of Medicare
or, if any such proposals are adopted, what effect such proposals will have on
the Company's business, financial condition and results of operations. There can
be no assurance that changes in Medicare or Medicaid program reimbursement would
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Reimbursement of Health Care
Costs--Medicare" and "--Medicaid."
17
<PAGE>
Health Maintenance Organizations ("HMOs") and Preferred Provider
Organizations ("PPOs") attempt to control the cost of health care services.
Managed care contracting has become very competitive and reimbursement schedules
are at or below Medicare reimbursement levels. The development and expansion of
HMOs, PPOs and other managed care organizations within the Company's regional
networks could have a negative impact on utilization of the Company's services
in certain markets and/or affect the revenue per procedure which the Company can
collect. See "Business--Reimbursement of Health Care Costs--Managed Care" and
"Business--Operations--Customers and Fees." In addition, the Company believes
that private health insurance programs will also reduce reimbursement levels in
response to reductions in government reimbursement, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Reimbursement of Health Care Costs--Private Insurance
Reimbursement."
DEPENDENCE ON REFERRALS FOR FIXED FACILITIES
The Company's Fixed Facility operations are principally dependent on the
Company's ability (either directly or indirectly through its hospital customers)
to attract referrals from physicians and other health care providers
representing a variety of specialties. The Company's eligibility to provide
service in response to a referral is often dependent on the existence of a
contractual arrangement with the referred patient's insurance carrier (primarily
if the insurance is provided by a managed care organization). The Company
currently has in excess of 400 contracts with managed care organizations for
diagnostic imaging services provided at the Company's Fixed Facilities,
primarily on a discounted fee-for-service basis. A significant decline in
referrals would have a material adverse effect on the Company's business,
financial condition and results of operations. See
"Business--Operations--Customers and Fees."
CONTRACT RENEWALS
Contract services revenues, which are primarily earned by Mobile Facilities
and certain Fixed Facilities, represented approximately 46% of the Company's
total revenues for the nine months ended March 31, 1998. Each year approximately
one-quarter to one-third of the Company's contract services agreements for
Mobile Facilities are subject to renewal. It is expected that some high volume
customer accounts will elect not to renew their agreements and instead will
purchase or lease their own diagnostic imaging equipment and some customers may
choose an alternative services provider. In the past, when such agreements have
not been renewed, the Company has generally been able to obtain replacement
contracts. While some replacement accounts have initially been smaller than the
lost accounts, such replacement accounts' revenues have generally increased over
the term of the agreement. There can be no assurance, however, that new and
renewal contracts will offset revenues lost from customers electing not to renew
their contracts with the Company. Although the non-renewal of a single customer
agreement would not have a material adverse effect on the Company's contract
services revenues, non-renewal of several agreements could have a material
adverse effect on contract services revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Operations-- Customers and Fees."
In addition, the Company's contract services revenues with regard to its
Mobile Facilities in certain markets depend in part on some hospital accounts
with high volume. If the future reimbursement levels of such customers were to
decline or cease or if such customers were to become financially insolvent and
if such agreements were not replaced with new accounts or with the expansion of
services on existing accounts, the Company's contract services revenues would be
adversely affected. No single source accounts for more than 10% of the Company's
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Operations--Customers and Fees."
18
<PAGE>
ADVERSE UTILIZATION TRENDS FOR CERTAIN DIAGNOSTIC IMAGING PROCEDURES
During the early 1990's, decreased utilization of outpatient services
contributed to a downturn in the diagnostic imaging industry. See "The
Diagnostic Imaging Industry--MRI Industry Trends." Currently, the supply of
diagnostic imaging equipment exceeds the demand for such equipment in the
market. Such demand may be further decreased by payor perceptions that
diagnostic imaging services such as those provided by the Company are sometimes
requested when not medically justified. In addition, the relatively low cost of
Open MRI systems compared to conventional MRI systems has led to an influx of
Open MRI systems in the industry and has aggravated excess capacity levels. The
current excess capacity for diagnostic imaging equipment could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, hospitals comprise a large portion of the Company's
customers. Continued consolidation in the hospital industry will cause certain
hospitals to close and, as a result, could decrease utilization of the Company's
services. Such continued trends could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS INHERENT IN THE PROVISION OF DIAGNOSTIC IMAGING SERVICES
The hospitals and physicians who use the Company's diagnostic imaging
services and imaging systems are involved in the delivery of health care
services to the public and, therefore, are exposed to the risk of liability
claims. The Company's position is that it does not engage in the practice of
medicine. The Company provides only the equipment and technical components of
diagnostic imaging, including certain limited nursing services, and has not
experienced any material losses due to claims for malpractice. Nevertheless,
claims for malpractice have been asserted against the Company in the past and
any future claims, if successful, could result in substantial damage awards to
the claimants, which may exceed the limits of any applicable insurance coverage.
While the Company maintains professional liability insurance, there can be no
assurance that any such claims against the Company will not exceed the amount of
insurance maintained. Successful malpractice claims asserted against the
Company, to the extent not covered by the Company's liability insurance, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Liability Insurance."
TECHNOLOGICAL CHANGES
The Company's services require the use of state-of-the-art diagnostic
imaging equipment that has been characterized by constant technological
advances. Although the Company believes that substantially all of the MRI and
other diagnostic imaging systems it provides can be upgraded to maintain their
state-of-the-art character, the development of new technologies or refinements
of existing ones might make the Company's existing systems technologically or
economically obsolete, or cause a reduction in the value of, or reduce the need
for, the Company's systems. MRI and other diagnostic imaging systems are
currently manufactured by numerous companies. Competition among manufacturers
for a greater share of the MRI and other diagnostic imaging systems market may
result in technological advances in the capacity of these new systems.
Consequently, the obsolescence of the Company's systems may be accelerated.
Although the Company is aware of no imminent substantial technological changes,
should such changes occur, there can be no assurance that the Company would be
able to acquire the new or improved systems that may be required to service its
customers.
COMPETITION
The health care industry in general, and the market for diagnostic imaging
services in particular, is highly competitive. The Company competes principally
on the basis of its reputation for productive and cost-effective quality
services. The Company's operations must compete with groups of radiologists,
established hospitals and certain other independent organizations, including
equipment manufacturers and leasing companies, that own and operate imaging
equipment. The Company will continue to encounter substantial competition from
hospitals and independent organizations, including, with respect to the
19
<PAGE>
Company's Mobile Facilities, Alliance Imaging, Inc. and its affiliates. Some of
the Company's direct competitors that provide contract diagnostic imaging
services may have access to greater financial resources than the Company.
Certain hospitals, particularly the larger hospitals, may be expected to
directly acquire and operate imaging and treatment equipment on-site as part of
their overall inpatient servicing capability, subject only to their decision to
acquire a high-cost diagnostic imaging system, assume the associated financial
risk, employ the necessary technologists and satisfy applicable licensure and
CON requirements, if any. Historically, smaller hospitals have been reluctant to
purchase imaging and treatment equipment. This reluctance, however, has
encouraged the entry of start-up ventures and more established business
operations into the diagnostic and treatment services business. As a result,
there is significant excess capacity in the diagnostic imaging business in the
United States, which negatively affects utilization and reimbursement.
POTENTIAL CONTROL BY GE AND CARLYLE
GE and Carlyle own all of the Company's Series C Preferred Stock and Series
B Preferred Stock, respectively. Currently, GE has the right to elect one member
to the Board and Carlyle has the right to elect two members to the Board. In
addition, GE and Carlyle are each entitled to vote their Preferred Stock (as
defined herein) on an as-converted basis with the holders of the Company's
common stock on all matters submitted to a stockholder vote other than the
election of directors, provided that the aggregate number of votes cast by GE
and Carlyle does not exceed 37% of the number of votes entitled to be cast. Each
of GE and Carlyle also has certain approval rights with respect to certain
significant transactions by the Company. In addition, if GE and Carlyle both
convert their Preferred Stock pursuant to the terms thereof into shares of the
Company's common stock or Series D Preferred Stock (as defined herein), which
votes on an as-converted basis with the Company's common stock, GE and Carlyle
acting together would hold approximately 70% of the common stock's voting power.
If either GE or Carlyle, but not both, were to convert its shares of Preferred
Stock to the Company's common stock and exercise all warrants held by it
pursuant to the terms thereof, GE or Carlyle, as appropriate, would beneficially
own, pursuant to the provisions of Rule 13d-3 under the Exchange Act, over 50%
of the Company's issued and outstanding common stock. Accordingly, either GE or
Carlyle, or GE and Carlyle acting together, could under certain circumstances
control the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition, Liquidity and Capital
Resources," "Security Ownership of Certain Beneficial Owners and
Management--Possible Future Board Changes" and "Description of Preferred Stock."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services and management experience of its
executive officers. The loss of the service of one or more of its executive
officers or other key management personnel could adversely affect the Company.
Furthermore, the success of the Company's Fixed Facilities depends on the
Company's ability to retain and attract competent managers for each location.
There can be no assurance that the Company will be successful in attracting or
retaining key personnel. The inability to attract and retain key personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to purchase any or all of the Notes held by such
holder at 101% of the unpaid principal amount thereof, plus accrued and unpaid
interest to the date of purchase. However, the Company's ability to purchase
Notes upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company. In addition, the Company may not have
adequate financial resources to effect
20
<PAGE>
such a purchase, and there can be no assurance that the Company would be able to
obtain such resources through a refinancing of the Notes to be purchased or
otherwise. The Company's failure to purchase all of the Notes tendered for
purchase upon the occurrence of a Change of Control would constitute an Event of
Default under the Indenture.
The Change of Control provision may not necessarily afford the holders of
Notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not otherwise fall within the definition of a Change of Control under the
Indenture.
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Subsidiary Guarantor, at the time it incurred the indebtedness evidenced
by the Notes or executed its Subsidiary Guarantee, (i) (a) was or is insolvent
or rendered insolvent by reason of such occurrence, (b) was or is engaged in a
business or transaction for which the assets remaining with the Company or such
Subsidiary Guarantor constituted unreasonably small capital or (c) intended or
intends to incur, or believed or believes that it would incur, debts beyond its
ability to pay those debts as they mature, and (ii) the Company or such
Subsidiary Guarantor received or receives less than reasonably equivalent value
or fair consideration for the incurrence of that indebtedness, the Notes and the
Subsidiary Guarantees could be voided, or claims in respect of the Notes or the
Subsidiary Guarantees could be subordinated to other debts of the Company or
such Subsidiary Guarantor in addition to Senior Indebtedness. For similar
reasons, other indebtedness of the Company or any Subsidiary Guarantor,
including indebtedness under the Senior Credit Facilities and any pledge or
other security interest securing that indebtedness, could be voided or
subordinated. The voiding or subordination of any such pledges or other security
interests or of any such other indebtedness, could result in an event of default
with respect to that indebtedness, which could result in acceleration thereof.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the fair saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
On the basis of their historical financial information and recent operating
history as discussed elsewhere herein under the headings "Selected Historical
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as other
factors, the Company and each Subsidiary Guarantor believe that, after giving
effect to the acquisition of Signal, the borrowing under the term loan portion
of the Senior Credit Facilities, the issuance of the Outstanding Notes and the
application of the net proceeds therefrom, they (i) will not be insolvent, will
not have unreasonably small capital for the business in which they are engaged
and will not incur debts beyond their ability to pay such debts as they mature
and (ii) will have sufficient assets to satisfy any probable money judgment
against them in any pending action. There can be no assurance, however, as to
what standard a court would apply in making such determinations.
ABSENCE OF PUBLIC MARKET
The Exchange Notes are new securities for which there currently is no market
and there can be no assurance as to the liquidity of any markets that may
develop for the Exchange Notes, the ability of holders of the Exchange Notes to
sell their Exchange Notes, or the prices at which holders would be able to sell
21
<PAGE>
their Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes; however, the Initial Purchasers are not obligated to do
so and any market making may be discontinued at any time without notice. The
Company does not intend to apply for listing of the Exchange Notes offered
hereby on any securities exchange or for quotation through the facilities of The
Nasdaq Stock Market.
USE OF PROCEEDS
The net proceeds from the issuance of the Outstanding Notes, together with
the net proceeds borrowed under the term loan portion of the Senior Credit
Facilities, were approximately $144 million. The Company used a portion of the
net proceeds to repay existing indebtedness under the Senior Credit Facilities,
including indebtedness recently incurred in connection with the acquisition of
Signal. See "Summary--Recent Developments." The remaining proceeds were or will
be used for general corporate purposes, including future acquisitions of
diagnostic imaging facilities and providers. Immediately following application
of the net proceeds from the issuance of the Outstanding Notes and the term loan
portion of the Senior Credit Facilities, the Company had no outstanding
indebtedness under the revolving credit facility or the acquisition facility
portions of the Senior Credit Facilities and each such facility was available to
the Company in full for future borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Senior Credit Facilities."
The following table sets forth the sources and uses of funds in connection
with the issuance of the Outstanding Notes, the borrowing under the term loan
portion of the Senior Credit Facilities and the application of the net proceeds
therefrom:
SOURCES AND USES OF FUNDS
(dollars in thousands)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
<S> <C>
Senior Credit Facilities (1)....................................... $ 50,000
9% Senior Subordinated Notes due 2008.............................. 100,000
---------
Total Sources of Funds........................................... $ 150,000
---------
---------
USES OF FUNDS
Refinancing of Existing Debt....................................... $ 114,500
Transaction Costs (2).............................................. 6,000
Cash at Closing.................................................... 29,500
---------
Total Uses of Funds.............................................. $ 150,000
---------
---------
</TABLE>
- ------------------------------
(1) Upon application of the net proceeds of the issuance of the Outstanding
Notes and borrowing under the $50 million term loan portion of the $150
million Senior Credit Facilities, the Company had thereunder a $75 million
acquisition facility and a $25 million revolving credit facility, all of
which were available to the Company in full for future borrowings.
(2) Includes discounts and commissions and estimated expenses to be incurred in
connection with the issuance of the Outstanding Notes and amendment of the
Senior Credit Facilities. See "Description of Senior Credit Facilities."
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby, the terms of which are identical in all material
respects to those of the Outstanding Notes. The Outstanding Notes surrendered in
exchange for the Exchange Notes will be canceled and cannot be reissued. The
issuance of the Exchange Notes will not result in any change in the aggregate
indebtedness of the Company.
22
<PAGE>
EXCHANGE OFFER
The Outstanding Notes were not registered under the Securities Act or any
state securities laws. The Outstanding Notes were offered and sold (i) to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) in compliance with Rule 144A, (ii) to a limited number of institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and (iii) pursuant to offers and sales that occurred outside the
United States in accordance with Regulation S under the Securities Act. The
Outstanding Notes sold to "qualified institutional buyers" are eligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market.
TERMS OF THE EXCHANGE OFFER
Promptly after the Registration Statement of which this Prospectus
constitutes a part has been declared effective, the Company will offer the
Exchange Notes in exchange for surrender of the Outstanding Notes. The Company
will keep the Exchange Offer open for not less than 30 days and not more than 45
days (or longer if required by applicable law) after the date on which notice of
the Exchange Offer is mailed to the holders of the Outstanding Notes. For each
Outstanding Note validly tendered to the Company pursuant to the Exchange Offer
and not withdrawn by the holder thereof, the holder of such Outstanding Note
will receive an Exchange Note having a principal amount equal to the principal
amount of such surrendered Outstanding Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the
Outstanding Note surrendered in exchange therefor or, if no interest has been
paid on such Outstanding Note, from the date of the original issue of the
Outstanding Notes. The Exchange Notes evidence the same debt as the Outstanding
Notes and are issued under and are entitled to the same benefits under the
Indenture as the Outstanding Notes. In addition, the Exchange Notes and the
Outstanding Notes are treated as one series of securities under the Indenture.
If the Exchange Offer has not been consummated on or prior to December 9,
1998 or a shelf registration statement is not declared effective when required,
then the Company will pay liquidated damages to each Holder of Outstanding Notes
for the first 90 days following such date in an amount equal to $.05 per week
per $1,000 principal amount of Outstanding Notes held by such Holder. The amount
of liquidated damages will increase by an additional $.05 per week per $1,000
principal amount of Outstanding Notes at the beginning of each subsequent 90-day
period until the Exchange Offer is consummated or the shelf registration is
declared effective, up to a maximum amount of liquidated damages of $.30 per
week per $1,000 principal amount of Outstanding Notes. Upon the consummation of
the Exchange Offer or the effectiveness of a shelf registration statement, as
the case may be, the interest rate borne by the Notes from the date of such
consummation or effectiveness, as the case may be, will be reduced to the
original interest rate of 9 5/8% per annum; provided, however, that, if after
such reduction in interest rate, a different event specified above occurs, the
interest rate may again be increased pursuant to the foregoing provisions.
PERIOD FOR TENDERING OUTSTANDING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Outstanding Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; provided, however, that if the period of
time for which the Exchange Offer is open is extended, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all Holders
of Outstanding Notes known to the Company. The Company's obligation to accept
23
<PAGE>
Outstanding Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions set forth under "--Certain Conditions to the Exchange Offer"
below.
Outstanding Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Outstanding Notes
as promptly as practicable, such notice in the case of any extension to be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender to the Company of Outstanding Notes by a Holder thereof as set
forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender
Outstanding Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to, or an Agent's Message (as
defined herein) in connection with a book-entry transfer must be completed and
received by, State Street Bank and Trust Company, N.A. (the "Exchange Agent") at
one of the addresses set forth below under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Outstanding Notes
must be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Outstanding Notes, if such procedure is available, into
the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OUTSTANDING
NOTES SHOULD BE SENT TO THE COMPANY.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent, forming a part of a
confirmation of a book-entry transfer, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Outstanding Notes that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Issuers may enforce such agreement against such
participant.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Outstanding
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantees must be made by a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or by a commercial bank or trust company having an
office or correspondent in the United States (collectively, "Eligible
Institutions").
24
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Outstanding Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Outstanding Notes not properly tendered or not to
accept any particular Outstanding Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Outstanding Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Outstanding Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular
Outstanding Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Outstanding Notes for exchange must be cured
within such reasonable period of time as the Company shall determine. Neither
the Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Outstanding Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If Outstanding Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Outstanding Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Outstanding Notes
or a timely Book-Entry Confirmation of such Outstanding Notes in the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Outstanding Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if Outstanding Notes are submitted
for a greater principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Outstanding Notes will be returned without expense
to the tendering Holder thereof (or, in the case of Outstanding Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Outstanding Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Outstanding Notes by causing DTC
to transfer such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with DTC's procedures for transfer.
However, although delivery of Outstanding Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and any
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at one of the addresses set forth below under
25
<PAGE>
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of Outstanding Notes desires to tender such
Outstanding Notes and such Outstanding Notes are not immediately available, or
time will not permit such Holder's Outstanding Notes or other required documents
to reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, or mail or
hand delivery), setting forth the name and address of the Holder of Outstanding
Notes and the amount of Outstanding Notes tendered, stating that the tender is
being made thereby and guaranteeing that within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Outstanding Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Outstanding Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five New
York Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Outstanding Notes to be withdrawn, identify the
Outstanding Notes to be withdrawn (including the principal amount of such
Outstanding Notes), and (where certificates for Outstanding Notes have been
transmitted) specify the name in which such Outstanding Notes are registered, if
different from that of the withdrawing Holder. If certificates for Outstanding
Notes have been delivered or otherwise identified to the Exchange Agent, then,
prior to the release of such certificates, the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Outstanding Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn
Outstanding Notes and otherwise comply with the procedures of such facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Outstanding Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Outstanding Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the Holder thereof
without cost to such Holder (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Outstanding Notes will be credited to an account maintained with such Book-Entry
Transfer Facility for the Outstanding Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Outstanding Notes may be retendered by following one of the procedures
described under "--Procedures for Tendering Outstanding Notes" above at any time
on or prior to the Expiration Date.
26
<PAGE>
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Outstanding Notes and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Outstanding Notes for exchange or the
exchange of the Exchange Notes for such Outstanding Notes, any of the following
events shall occur:
(a) the Exchange Offer violates applicable law or any applicable
interpretation of the staff of the Commission;
(b) an action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of the Company to proceed with the Exchange Offer, or a material
adverse development shall have occurred in any existing action or proceeding
with respect to the Company; or
(c) all governmental approvals shall not have been obtained, which
approvals the Company deems necessary for the consummation of the Exchange
Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
EXCHANGE AGENT
State Street Bank and Trust Company, N.A. has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of the
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust State Street Bank and Trust
Company Company
Corporate Trust Dept. Two International Place
PO Box 778 Corporate Trust Window, 4th Floor
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attn: Kellie Mullen Attn: Kellie Mullen
BY FACSIMILE:
(for Eligible Institutions Only)
State Street Bank and Trust Company
CONFIRM BY FAX
Attn: Corporate Trust Operations
(617) 664-5290
CONFIRM BY TELEPHONE:
(617) 664-5587
</TABLE>
27
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The Company will pay certain other expenses to be incurred in connection
with the Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Exchange Notes in the name of, or request
that Outstanding Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Outstanding Notes as set forth in the legend
thereon as a consequence of the issuance of the Outstanding Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register
Outstanding Notes under the Securities Act. To the extent that Outstanding Notes
are tendered and accepted in connection with the Exchange Offer, any trading
market for Outstanding Notes not tendered in connection with the Exchange Offer
could be adversely affected. The tender of Outstanding Notes pursuant to the
Exchange Offer may have an adverse effect upon, and increase the volatility of,
the market price of the Outstanding Notes due to a reduction in liquidity.
28
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the pro forma
combined cash and cash equivalents and capitalization of the Company giving
effect to the acquisition of Signal and (ii) the cash and cash equivalents and
capitalization of the Company as adjusted to give effect to the acquisition of
Signal, the borrowing under the term loan portion of the Senior Credit
Facilities, the issuance of the Outstanding Notes and the application of the net
proceeds therefrom as if they occurred on March 31, 1998. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
PRO FORMA AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................ $ 11,292 $ 40,792
---------- -----------
---------- -----------
Current maturities of long-term debt..................................................... $ 9,008 $ 9,008
---------- -----------
---------- -----------
Long-term debt, net of current maturities:
Senior Credit Facilities............................................................... $ 106,981 $ 42,481
Equipment and other notes.............................................................. 1,862 1,862
9 5/8% Senior Subordinated Notes due 2008.............................................. -- 100,000
---------- -----------
Total long-term debt................................................................. 108,843 144,343
---------- -----------
Minority interest........................................................................ 1,871 1,871
---------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, 3,500,000 shares authorized:
Convertible Series B preferred stock, 25,000 shares outstanding at
March 31, 1998..................................................................... 23,923 23,923
Convertible Series C preferred stock, 27,953 shares outstanding at
March 31, 1998..................................................................... 13,173 13,173
Common stock, $.001 par value, 25,000,000 shares authorized: 2,805,660 shares
outstanding at March 31, 1998........................................................ 3 3
Additional paid-in capital............................................................. 23,366 23,366
Accumulated deficit.................................................................... (24,621) (24,621)
---------- -----------
Total stockholders' equity........................................................... 35,844 35,844
---------- -----------
Total capitalization............................................................... $ 146,558 $ 182,058
---------- -----------
---------- -----------
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
REFERENCES TO THE "OFFERING" IN THESE UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS INCLUDE THE SALE OF THE OUTSTANDING NOTES, THE BORROWING
UNDER THE TERM LOAN PORTION OF THE SENIOR CREDIT FACILITIES AND THE APPLICATION
OF THE NET PROCEEDS THEREFROM.
The accompanying unaudited pro forma combined condensed financial statements
reflect (i) the acquisition by the Company of all the issued and outstanding
common stock of Signal, all the assets of MIC and other smaller acquisitions
made by the Company since July 1, 1996 (excluding Mountain Diagnostics, see
below) (the "Acquisitions"), (ii) the Recapitalization consummated on October
14, 1997 and (iii) the Offering. The Acquisitions have been or will be accounted
for by the Company using the purchase method of accounting.
The accompanying unaudited pro forma combined condensed balance sheet is
based upon the Company's historical unaudited condensed consolidated balance
sheet as of March 31, 1998, Signal's historical unaudited balance sheet as of
March 31, 1998 and the pro forma effect of the Offering and is presented as if
the acquisition of Signal and the Offering had been consummated on March 31,
1998.
The accompanying unaudited pro forma combined condensed statements of
operations for the year ended June 30, 1997 and the nine months ended March 31,
1998 give the effect to the Acquisitions, the Recapitalization and the Offering
as if they had occurred on July 1, 1996, the beginning of the Company's most
recently completed fiscal year. The unaudited pro forma combined condensed
statement of operations for the year ending June 30, 1997 combines the audited
historical consolidated results of the Company for such year with the (i)
unaudited results of Signal for the twelve month period ended June 30, 1997,
(ii) unaudited results of MIC for an eleven month period ended May 31, 1997 (the
date of acquisition by the Company), (iii) the unaudited results of the other
smaller acquisitions for the twelve month periods ended June 30, 1997, (iv) the
unaudited pro forma effects of the Recapitalization, and (v) the unaudited pro
forma effects of the Offering. The unaudited pro forma combined condensed
statement of operations for the nine months ended March 31, 1998 combines the
unaudited historical consolidated results for the Company for such period with
(i) the unaudited results of Signal for the nine month period ended March 31,
1998, (ii) the unaudited results of the other smaller acquisitions for the nine
month period ended March 31, 1998 to the extent not already included in the
Company's historical financial results, (iii) the unaudited pro forma effects of
the Recapitalization and (iv) the unaudited pro forma effects of the Offering.
The pro forma financial statements referred to above exclude any adjustments
for the Company's acquisition of Mountain Diagnostics in Las Vegas, Nevada
because the Company purchased Mountain Diagnostics from the trustee in
bankruptcy and limited financial data was available for the periods preceding
such acquisition.
The pro forma adjustments are based upon available information and upon
certain assumptions that the management of the Company believes are reasonable.
However, the unaudited pro forma combined condensed financial statements do not
purport to be indicative of the results that would have been achieved if the
transactions had been completed on the respective dates above or the results
that may be achieved in the future.
30
<PAGE>
INSIGHT HEALTH SERVICES CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
SIGNAL PRO FORMA
HISTORICAL HISTORICAL ACQUISITION FORMA OFFERING AFTER
INSIGHT SIGNAL ADJUSTMENTS COMBINED ADJUSTMENTS OFFERING
---------- ---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 9,650 $ 1,642 $-- $ 11,292 $29,500(3) $ 40,792
Trade accounts receivable, net.................. 21,674 3,397 -- 25,071 -- 25,071
Other receivable, net........................... 330 239 -- 569 -- 569
Other current assets............................ 2,149 121 -- 2,270 -- 2,270
---------- ---------- ----------- -------- ----------- --------
Total current assets............................ 33,803 5,399 -- 39,202 29,500 68,702
Property and equipment, net..................... 46,745 12,286 4,309(2) 63,340 -- 63,340
Investment in partnerships...................... 495 -- -- 495 -- 495
Other assets, net............................... 2,471 660 -- 3,131 6,000(3) 9,131
Intangible assets, net.......................... 43,273 -- 26,189(1) 69,462 -- 69,462
---------- ---------- ----------- -------- ----------- --------
Total assets.................................... $ 126,787 $18,345 $30,498 $175,630 $35,500 $211,130
---------- ---------- ----------- -------- ----------- --------
---------- ---------- ----------- -------- ----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of equipment and other notes.... $ 5,706 $ 3,302 $-- $ 9,008 $-- $ 9,008
Accounts payable and accrued expenses........... 14,905 2,121 -- 17,026 -- 17,026
---------- ---------- ----------- -------- ----------- --------
Total current liabilities....................... 20,611 5,423 -- 26,034 -- 26,034
Long-term portion of equipment and other notes.. 67,781 4,598 32,155(1)
4,309(2) 108,843 (64,500)(3) 44,343
9 5/8% Senior Subordinated Notes................ -- -- -- -- 100,000(3) 100,000
Other........................................... 680 2,358 -- 3,038 -- 3,038
---------- ---------- ----------- -------- ----------- --------
Total liabilities............................... 89,072 12,379 36,464 137,915 35,500 173,415
---------- ---------- ----------- -------- ----------- --------
Minority interest............................... 1,871 -- -- 1,871 -- 1,871
---------- ---------- ----------- -------- ----------- --------
Redeemable convertible cumulative preferred
stock......................................... -- 2,000 (2,000)(1) -- -- --
---------- ---------- ----------- -------- ----------- --------
Stockholders' equity
Convertible Series B preferred stock.......... 23,923 -- -- 23,923 -- 23,923
Convertible Series C preferred stock.......... 13,173 -- -- 13,173 -- 13,173
Common stock.................................. 3 -- -- 3 -- 3
Additional paid-in capital.................... 23,366 156 (156)(1) 23,366 -- 23,366
(Accumulated deficit) retained earnings....... (24,621) 4,310 (4,310)(1) (24,621) -- (24,621)
Treasury stock................................ -- (500) 500(1) -- -- --
---------- ---------- ----------- -------- ----------- --------
Total stockholders' equity.................... 35,844 3,966 (3,966) 35,844 -- 35,844
---------- ---------- ----------- -------- ----------- --------
Total liabilities and stockholders' equity.... $ 126,787 $18,345 $30,498 $175,630 $35,500 $211,130
---------- ---------- ----------- -------- ----------- --------
---------- ---------- ----------- -------- ----------- --------
</TABLE>
31
<PAGE>
The pro forma combined condensed balance sheet as of March 31, 1998 reflects the
following pro forma adjustments:
(1) To record the acquisition of the common stock of Signal for $32,155 in
borrowed funds and the resulting goodwill of $26,189.
(2) To record the acquisition of equipment for debt on equipment that is
currently under operating leases.
The above reflects the acquisition of Signal by the Company using the purchase
method of accounting. Under purchase accounting, the assets and liabilities of
Signal are stated at fair market value (FMV). For purposes of these pro forma
financial statements, the book value of Signal's assets and liabilities are
assumed to approximate FMV. The excess purchase price is allocated to goodwill.
<TABLE>
<CAPTION>
Goodwill calculation for Signal acquisition
- ---------------------------------------------------------------
<S> <C>
Cash purchase price............................................ $ 32,155
Estimated FMV of net assets acquired........................... 5,966
----------
Purchase price in excess of FMV................................ $ 26,189
----------
----------
</TABLE>
(3) To record the proceeds of the issuance of the Outstanding Notes of $100,000,
the proceeds from the term loan portion of the Senior Credit Facilities of
$50,000, transaction costs of $6,000, repayment of existing indebtedness of
$114,500 and net cash proceeds of $29,500.
32
<PAGE>
INSIGHT HEALTH SERVICES CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
11 MONTHS ADJUSTMENTS FOR
HISTORICAL OF MIC ADJUSTMENTS HISTORICAL OTHER OTHER ADJUSTMENTS FOR
INSIGHT (B) FOR MIC (B) ACQUISITIONS (A) ACQUISITIONS (A) RECAPITALIZATION
---------- --------- ----------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $93,063 $6,675 $-- $8,597 $-- -$-
---------- --------- ----------- ------ ------- ------
Costs of operations:
Costs of services...... 52,070 3,581 -- 4,572 -- (278)(4)
Equipment leases....... 18,396 -- -- 116 -- --
Depreciation and
amortization......... 9,871 1,112 247(1) 989 864(1) --
---------- --------- ----------- ------ ------- ------
Total costs of
operations............. 80,337 4,693 247 5,677 864 (278)
---------- --------- ----------- ------ ------- ------
Gross profit (loss)...... 12,726 1,982 (247) 2,920 (864) 278
Corporate operating
expenses............... 7,431 -- -- 632 -- --
---------- --------- ----------- ------ ------- ------
Income (loss) from
company operations..... 5,295 1,982 (247) 2,288 (864) 278
Equity in earnings....... 468 -- -- -- -- --
---------- --------- ----------- ------ ------- ------
Operating income
(loss)................. 5,763 1,982 (247) 2,288 (864) 278
Interest (income)
expense................ 4,055 129 615(3) 118 1,730(3) (1,481)(5)
---------- --------- ----------- ------ ------- ------
Income (loss) before
provision for taxes.... 1,708 1,853 (862) 2,170 (2,594) 1,759
Provision (benefit) for
income taxes........... 427 35 213(8) 15 (121)(8) 440(8)
---------- --------- ----------- ------ ------- ------
Net income (loss)........ $ 1,281 $1,818 $(1,075) $2,155 $(2,473) $1,319
---------- --------- ----------- ------ ------- ------
---------- --------- ----------- ------ ------- ------
Net income (loss) per
common and preferred
share
Basic................ $ 0.25
Diluted.............. $ 0.24
Weighted average common
and preferred shares
outstanding:
Basic................ 5,215
Diluted.............. 5,440
<CAPTION>
SIGNAL PRO FORMA
HISTORICAL ACQUISITION PRO FORMA OFFERING AFTER
SIGNAL ADJUSTMENTS COMBINED ADJUSTMENTS OFFERING
---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................. $19,331 $ -- $127,666 $-- $127,666
---------- ----------- ---------- ----------- ---------
Costs of operations:
Costs of services...... 9,390 -- 69,335 -- 69,335
Equipment leases....... 3,651 (1,518)(6) 20,645 20,645
Depreciation and
amortization......... 3,354 1,309(1) 18,608 18,608
862(2)
---------- ----------- ---------- ----------- ---------
Total costs of
operations............. 16,395 653 108,588 -- 108,588
---------- ----------- ---------- ----------- ---------
Gross profit (loss)...... 2,936 (653) 19,078 -- 19,078
Corporate operating
expenses............... -- -- 8,063 8,063
---------- ----------- ---------- ----------- ---------
Income (loss) from
company operations..... 2,936 (653) 11,015 -- 11,015
Equity in earnings....... -- -- 468 -- 468
---------- ----------- ---------- ----------- ---------
Operating income
(loss)................. 2,936 (653) 11,483 -- 11,483
Interest (income)
expense................ 720 2,894(3) 8,780 2,766(7) 11,546
---------- ----------- ---------- ----------- ---------
Income (loss) before
provision for taxes.... 2,216 (3,547) 2,703 (2,766) (63)
Provision (benefit) for
income taxes........... 887 (1,220)(8) 676 (676)(8) --
---------- ----------- ---------- ----------- ---------
Net income (loss)........ $ 1,329 $ (2,327) $ 2,027 $(2,090) $ (63)
---------- ----------- ---------- ----------- ---------
---------- ----------- ---------- ----------- ---------
Net income (loss) per
common and preferred
share
Basic................ $ 0.22 $ (0.01)
Diluted.............. $ 0.22 $ (0.01)
Weighted average common
and preferred shares
outstanding:
Basic................ 9,035 9,035
Diluted.............. 9,261 9,035
</TABLE>
33
<PAGE>
The pro forma combined condensed statement of operations for the year ended June
30, 1997 reflects the following Recapitalization and acquisition adjustments:
(1) To record the amortization of goodwill over 20 years.
(2) To record depreciation expense on operating leases purchased.
(3) To record interest expense for acquisition financing.
(4) To record the reversal of maintenance expense related to the GE supplemental
service fee through June 30, 1997.
(5) To record net interest savings from the October 14, 1997 Recapitalization.
(6) To record the reversal of lease expense on operating leases purchased.
(7) To record additional interest expense of $4,389 as a result of the Offering
offset by interest income of $1,623 on the net cash to be received.
(8) To record the tax effect on the above entries at estimated effective rates.
(A) These amounts include the Company's other smaller acquisitions that have
been completed since the fiscal year ended June 30, 1997. The acquisitions
included in these amounts are Chattanooga, Columbus and Murfreesboro.
Excluded from these amounts is Mountain Diagnostics, which was acquired by
the Company out of bankruptcy and for which there is limited financial data
available.
The other smaller acquisitions were made for an aggregate cash purchase
price of $16,800 and resulted in goodwill of $17,289. Acquisition financing
was $16,700 at a weighted average interest rate of 10.4 percent.
(B) The acquisition of MIC was made in May 1997 for a cash purchase price of
$6,800, all borrowed at a rate of 9 percent, and resulted in goodwill of
$4,940.
34
<PAGE>
INSIGHT HEALTH SERVICES CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR SIGNAL
HISTORICAL ADJUSTMENTS FOR HISTORICAL OTHER OTHER HISTORICAL ACQUISITION
INSIGHT (A) RECAPITALIZATION ACQUISITIONS (A) ACQUISITIONS (A) SIGNAL ADJUSTMENTS
----------- ----------------- ----------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 85,673 $ -- $ 629 $ -- $ 16,095 $ --
----------- ------ ------ ----- ----------- -------------
Costs of operations:
Costs of services....... 46,038 (413)(1) 272 -- 5,993 --
Equipment leases........ 12,983 -- 40 -- 2,412 (1,138)(5)
Depreciation and
amortization.......... 10,670 -- 4 92(3) 2,989 982(3)
646(6)
----------- ------ ------ ----- ----------- -------------
Total costs of
operations.............. 69,691 (413) 316 92 11,394 490
----------- ------ ------ ----- ----------- -------------
Gross profit.............. 15,982 413 313 (92) 4,701 (490)
Provision for supplemental
service fee
termination............. 6,309 (6,309)(8) -- -- -- --
Corporate operating
expenses................ 6,510 -- 220 -- 2,165 --
----------- ------ ------ ----- ----------- -------------
Income (loss) from company
operations.............. 3,163 6,722 93 (92) 2,536 (490)
Equity in earnings........ 480 -- -- -- -- --
----------- ------ ------ ----- ----------- -------------
Operating income (loss)... 3,643 6,722 93 (92) 2,536 (490)
Interest (income)
expense................. 4,665 (679)(2) (1) 60(4) 492 2,170(4)
----------- ------ ------ ----- ----------- -------------
Income (loss) before
provision for taxes..... (1,022) 7,401 94 (152) 2,044 (2,660)
Provision (benefit) for
income taxes............ 431 1,311(9) (2) (15)(9) 829 (997)(9)
----------- ------ ------ ----- ----------- -------------
Net income (loss)......... $ (1,453) $ 6,090 $ 96 $ (137) $ 1,215 $ (1,663)
----------- ------ ------ ----- ----------- -------------
----------- ------ ------ ----- ----------- -------------
Net income (loss) per
common and preferred
share
Basic................. $ (0.19)
Diluted............... $ (0.19)
Weighted average common
and preferred shares
outstanding:
Basic................. 7,590
Diluted............... 7,590
<CAPTION>
PRO FORMA
PRO FORMA OFFERING AFTER
COMBINED ADJUSTMENTS OFFERING
----------- ------------- -----------
<S> <C> <C> <C>
Revenues.................. $ 102,397 $ -- $ 102,397
----------- ------------- -----------
Costs of operations:
Costs of services....... 51,890 -- 51,890
Equipment leases........ 14,297 14,297
Depreciation and
amortization.......... 15,383 15,383
----------- ------------- -----------
Total costs of
operations.............. 81,570 -- 81,570
----------- ------------- -----------
Gross profit.............. 20,827 -- 20,827
Provision for supplemental
service fee
termination............. -- -- --
Corporate operating
expenses................ 8,895 -- 8,895
----------- ------------- -----------
Income (loss) from company
operations.............. 11,932 -- 11,932
Equity in earnings........ 480 480
----------- ------------- -----------
Operating income (loss)... 12,412 -- 12,412
Interest (income)
expense................. 6,707 2,075(7) 8,782
----------- ------------- -----------
Income (loss) before
provision for taxes..... 5,705 (2,075) 3,630
Provision (benefit) for
income taxes............ 1,557 (566)(9) 991
----------- ------------- -----------
Net income (loss)......... $ 4,148 $ (1,509) $ 2,639
----------- ------------- -----------
----------- ------------- -----------
Net income (loss) per
common and preferred
share
Basic................. $ 0.46 $ 0.29
Diluted............... $ 0.44 $ 0.28
Weighted average common
and preferred shares
outstanding:
Basic................. 9,054 9,054
Diluted............... 9,331 9,331
</TABLE>
35
<PAGE>
The pro forma combined condensed statement of operations for the nine months
ended March 31, 1998 reflect the following Recapitalization and acquisition
adjustments:
(1) To record the reversal of maintenance expense related to the GE supplemental
service fee agreement through December 31, 1997.
(2) To record net interest savings from the October 14, 1997 Recapitalization.
(3) To record the amortization of goodwill over 20 years.
(4) To record interest expense for acquisition financing.
(5) To record the reversal of lease expense on operating leases purchased.
(6) To record depreciation expense on operating leases purchased.
(7) To record additional interest expense of $3,292 as a result of the Offering
offset by interest income on of $1,217 the net cash to be received.
(8) To record the reversal of the one-time charge of approximately $6.3 million
for the elimination of the GE supplemental service fee. Such charge was
recorded on October 14, 1997 and was a direct result of the
Recapitalization.
(9) To record the tax effect on the above entries at estimated effective rates.
(A) These amounts include the Company's insignificant acquisition of
Murfreesboro. Excluded from these amounts is Mountain Diagnostics, which was
acquired by the Company out of bankruptcy and for which limited financial
data is available. Murfreesboro was acquired in November 1997 for a cash
purchase price of $2,300, which was borrowed at a rate of 7.9 percent.
36
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The Merger was accounted for using the purchase method of accounting and
treating MHC as the acquiror. Accordingly, the following table presents summary
consolidated historical financial data of the Company for the fiscal year ended
June 30, 1997 and each of the nine months ended March 31, 1998 and March 31,
1997, the summary pro forma combined financial data of MHC and AHS for the
twelve months ended June 30, 1996, adjusted to give effect to the Merger as if
it had occurred on July 1, 1995, and the summary consolidated historical
financial data of MHC for the six months ended June 30, 1996 and 1995 and each
of the fiscal years in the four year period ended December 31, 1995. The
selected historical data presented below under the caption "Statement of
Operations" for each of the fiscal periods ended June 30, 1997 and 1996 and
December 31, 1995, 1994, 1993 and 1992 are derived from the consolidated
financial statements of the Company or MHC, as appropriate, which financial
statements have been audited by Arthur Andersen LLP, independent certified
public accountants (for the Company) or Deloitte & Touche LLP, independent
auditors (for MHC) as of December 31, 1995 and prior, and are included elsewhere
in this Prospectus. The historical information presented for each of the nine
month periods ended March 31, 1998 and 1997 and the six month period ended June
30, 1995 has been derived from unaudited interim consolidated financial
statements of the Company or MHC, as appropriate, and, in the opinion of
management of the Company, reflects a fair presentation of the Company's and
MHC's financial information. The summary pro forma combined financial data of
MHC and AHS for the twelve months ended June 30, 1996 has been provided for
comparison purposes only and has been derived from (i) available information and
certain assumptions that management believes are reasonable and (ii) the
separate unaudited financial information of each AHS and MHC for the year ended
June 30, 1996. Such financial data is provided for informational purposes only
and does not purport to represent what the Company's results of operations would
actually have been had the Merger in fact occurred as of July 1, 1995. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto of the Company included elsewhere in
this Prospectus.
37
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED PRO FORMA SIX MONTHS ENDED
----------------------- YEAR ENDED YEAR ENDED ---------------------
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS) 1998(4) 1997(4) 1997 1996(4) 1996(1) 1995(1)(4)
- ---------------------------------------- --------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $85,673 $68,129 $ 93,063 87,720 $ 26,460 $ 24,434
Costs of operations (2)................. 69,691 59,527 80,337 80,590 27,420 22,986
--------- --------- ---------- ---------- --------- ----------
Gross profit (loss)..................... 15,982 8,602 12,726 7,130 (960) 1,448
Corporate operating expenses............ 12,819(5) 5,343 7,431 8,453 2,127 1,915
--------- --------- ---------- ---------- --------- ----------
Income (loss) from company operations... 3,163 3,259 5,295 (1,323) (3,087) (467)
Equity in earnings of unconsolidated
partnerships.......................... 480 364 468 350 138 136
--------- --------- ---------- ---------- --------- ----------
Operating income (loss)................. 3,643 3,623 5,763 (973) (2,949) (331)
Interest expense, net................... (4,665) (2,741) (4,055) (3,813) (1,144) (648)
Provision for securities litigation
settlement............................ -- -- -- (1,500) -- --
Gain on sale of partnership interests... -- -- -- -- -- --
Provision for income taxes.............. (431) (134) (427) (281) (65) --
--------- --------- ---------- ---------- --------- ----------
Income (loss) before extraordinary
item.................................. (1,453) 748 1,281 (6,567) (4,158) (979)
Extraordinary item...................... -- -- -- 3,179 3,179 --
--------- --------- ---------- ---------- --------- ----------
Net income (loss)....................... $(1,453) $ 748 $ 1,281 (3,388) $ (979) $ (979)
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item
per common and preferred share (3)
Basic................................. $ (0.19) $ 0.14 $ 0.25 $ (2.43) $ (2.99) $ (0.73)
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Diluted............................... $ (0.19) $ 0.14 $ 0.24 $ (2.43) $ (2.99) $ (0.73)
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Income (loss) per common and preferred
share:
Basic................................. $ (0.19) $ 0.14 $ 0.25 $ (1.25) $ (0.70) $ (0.73)
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Diluted............................... $ (0.19) $ 0.14 $ 0.24 $ (1.25) $ (0.70) $ (0.73)
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Weighted average number of common and
preferred shares outstanding
Basic................................. 7,590 5,214 5,215 2,706 1,389 1,333
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Diluted............................... 7,590 5,444 5,440 2,706 1,389 1,333
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
Ratio of earnings to fixed charges...... 1.3x 1.2x 1.0x --
Fixed charge coverage deficiency........ -- -- -- $ 4,093
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
(DOLLARS IN THOUSANDS) 1995(1) 1994(1) 1993(1) 1992(1)
- ---------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 50,609 $ 45,868 $ 45,075 $ 45,135
Costs of operations (2)................. 48,778 45,439 47,456 45,329
--------- --------- --------- ---------
Gross profit (loss)..................... 1,831 429 (2,381) (194)
Corporate operating expenses............ 3,372 4,040 4,344 6,747
--------- --------- --------- ---------
Income (loss) from company operations... (1,541) (3,611) (6,725) (6,941)
Equity in earnings of unconsolidated
partnerships.......................... 348 834 685 1,020
--------- --------- --------- ---------
Operating income (loss)................. (1,193) (2,777) (6,040) (5,921)
Interest expense, net................... (1,626) (1,206) (1,773) (2,391)
Provision for securities litigation
settlement............................ (1,500) -- -- --
Gain on sale of partnership interests... -- 4,957 -- --
Provision for income taxes.............. -- (160) -- --
--------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (4,319) 814 (7,813) (8,312)
Extraordinary item...................... -- 3,342 1,036 --
--------- --------- --------- ---------
Net income (loss)....................... $ (4,319) $ 4,156 $ (6,777) $ (8,312)
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item
per common and preferred share (3)
Basic................................. $ (3.21) $ 0.60 $ (4.49) $ (4.89)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted............................... $ (3.21) $ 0.58 $ (4.49) $ (4.89)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per common and preferred
share:
Basic................................. $ (3.21) $ 3.04 $ (3.89) $ (4.89)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted............................... $ (3.21) $ 2.96 $ (3.89) $ (4.89)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common and
preferred shares outstanding
Basic................................. 1,345 1,367 1,742 1,699
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted............................... 1,345 1,402 1,742 1,699
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio of earnings to fixed charges...... -- 1.2x -- --
Fixed charge coverage deficiency........ $ 4,319 -- $ 7,813 $ 8,312
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, AT JUNE 30, AT DECEMBER 31,
------------ -------------------- ------------------------------------------
1998(4) 1997 1996 1995(1) 1994(1) 1993(1) 1992(1)
------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... 13,192 $ (5,740) $ (1,167) $ (2,228) $ 1,587 $ (8,594) $ (14,607)
Property and equipment, net............. 46,745 34,488 29,852 12,386 5,272 9,791 18,772
Intangible assets....................... 43,273 33,272 16,965 4,047 1,194 1,263 2,513
Total assets............................ 126,787 98,322 70,386 28,306 22,592 23,566 38,043
Total long-term liabilities............. 68,461 59,205 39,839 19,723 9,575 7,967 8,368
Stockholders' equity (deficit).......... 35,844 6,685 5,404 (4,005) 300 (3,857) 2,502
</TABLE>
- ----------------------------------
(1) The selected consolidated financial data represents historical data of MHC
only.
(2) Includes a (net credit) provision for prior restructuring costs of $(0.5)
million and $7.5 million in 1993 and 1992, respectively.
(3) Amounts are computed on a pro forma basis as if the reset of par value of
MHC common stock and related conversion into InSight common stock had
occurred on January 1, 1992.
(4) Unaudited.
(5) Amount includes a charge of $6,309 for provision for GE supplemental service
fee termination.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
UNLESS THE CONTEXT OTHERWISE REQUIRES, HISTORICAL REFERENCES IN THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS TO THE "COMPANY" OR "INSIGHT" REFER TO INSIGHT HEALTH SERVICES CORP.,
ITS CONSOLIDATED SUBSIDIARIES, PARTNERSHIPS AND LIMITED LIABILITY COMPANIES,
EXCLUDING SIGNAL.
OVERVIEW
The Company is a leading nationwide provider of diagnostic imaging and
related information services. While the Company generated approximately 77% of
its revenues from MRI services during the twelve months ended March 31, 1998, it
provides a comprehensive offering of diagnostic imaging and treatment services,
including CT, mammography, diagnostic ultrasound, lithotripsy and x-ray, to
leading health care organizations, including hospitals, managed care
organizations and insurance companies. The Company has developed, and continues
to develop, strong regional networks of diagnostic imaging services, enabling
the Company to increase its overall utilization and to benefit from enhanced
economies of scale. The Company has a substantial presence in California, Texas,
New England, the Carolinas and the Midwest (Illinois, Indiana and Ohio), and
provides its services through 50 Fixed Facilities, including 16 Multi-Modality
Centers, and 51 Mobile Facilities.
The Company's revenues are primarily generated from contract services and
patient services. Contract services revenues are generally earned from services
billed to a hospital or other health care provider which include: (i)
fee-for-service arrangements in which revenues are based upon a contractual rate
per procedure, (ii) equipment rental in which revenues are generally based upon
a fixed monthly rental and (iii) management fees. Contract services revenues are
primarily earned through Mobile Facilities and certain Fixed Facilities. Patient
services revenues are earned from services billed directly to patients or third
party payors (generally managed care organizations, Medicare, Medicaid, private
insurers and workers compensation funds), and are primarily earned through Fixed
Facilities. Contract and patient services revenues represented approximately 46%
and 51%, respectively, of the Company's total revenues for the nine months ended
March 31, 1998.
During the nine months ended March 31, 1998 compared to the same period
during the prior year, the Company increased scan volumes at its existing
facilities by 35%. During the same period, the average fee-per-scan performed at
Mobile Facilities increased by 1% and at Fixed Facilities decreased by 4%.
Management believes the decrease in the average fee-per-scan at Fixed Facilities
is the result of continuing competitive pressure in the MRI service industry,
cost containment efforts by third party payors and an increase in the Company's
managed care contracts with lower discounted fee-per-scan rates. Overall, the
Company's average fee-per-scan is lower at its Fixed Facilities than at its
Mobile Facilities due to the range of procedures, many of which have a lower
fee-per-scan than MRI, provided at the Company's Multi-Modality Centers.
The Company maintains a high fixed cost structure, with fixed costs and
variable costs representing 85% and 15% of total operating expenses,
respectively, for the nine months ended March 31, 1998. Four categories of fixed
expenses account for approximately 72% of the Company's total operating
expenses: (i) salaries and benefits expenses; (ii) equipment lease expenses;
(iii) contractual maintenance expenses; and (iv) depreciation and amortization,
comprising 30%, 19%, 8% and 15%, respectively, of the Company's total operating
expenses for the nine months ended March 31, 1998. Due to this high degree of
operating leverage with respect to the Company's equipment, any increase in
existing facility scan volumes disproportionately increases the Company's
operating cash flow. Service supplies, consisting mainly of film and contrast
media used in the Company's diagnostic imaging services, comprised 5% of the
Company's total operating expenses for the nine months ended March 31, 1998 and
were the Company's largest variable operating expense during such period.
39
<PAGE>
The Company believes that the expansion of its business through acquisitions
is a key factor in achieving and maintaining profitability. Generally,
acquisition opportunities are aimed at increasing revenues and profits and
maximizing utilization of existing capacity. Incremental operating profit
resulting from future acquisitions will vary depending on geographic location,
whether facilities are Mobile or Fixed, the range of services provided and the
Company's ability to integrate the acquired businesses into its existing
infrastructure. The following chart sets forth the Company's eight completed
acquisitions since the Merger:
<TABLE>
<CAPTION>
PURCHASE PRICE
(INCLUDING
NAME OF TYPE OF ASSUMED DEBT)
DATE LOCATION FACILITY FACILITY (IN MILLIONS)
- ------------------ ------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
September 1996 Hayward, Open MRI of Fixed Facility $ 2.8
California Hayward
May 1997 Maine and New MIC Mobile Facilities 8.7
Hampshire
June 1997 Chattanooga, Chattanooga Fixed Facility(1) 10.9
Tennessee Outpatient
Center
July 1997 Columbus, Ohio Broad Street Fixed Facility(1) 5.5
Imaging Center
November 1997 Murfreesboro, Imaging Center Fixed Facility(1) 2.3
Tennessee at Murfreesboro
November 1997 Redwood City, Redwood City Fixed Facility 0.3
California MRI
November 1997 Las Vegas, Mountain Fixed Facility(1) 10.3
Nevada Diagnostics
May 1998 Farmington, Signal Mobile and 45.7
Connecticut Fixed Facilities
(HQ) and other
services(2)
</TABLE>
- ------------------------
(1) Multi-Modality Center.
(2) Acquisition consisted of the purchase by merger of all of the outstanding
common stock of Signal, a provider of mobile and fixed MRI, mobile
lithotripsy and other diagnostic services in eleven states, primarily in New
England and the Southeast. See "Offering Memorandum Summary--Recent
Developments."
RESULTS OF OPERATIONS
InSight, which has a fiscal year ending on June 30, commenced operations on
June 26, 1996, following the merger of two public companies, AHS and MHC, each
of which had fiscal years ending on December 31. Because MHC was treated as the
acquiror for accounting purposes, the Company's operating results relating to
the periods prior to July 1, 1996 represent the historical results of MHC only,
while the Company's operating results relating to the periods on and after July
1, 1996 represent the operating results of InSight on a consolidated basis,
including the results of AHS and MHC as operating subsidiaries. Due to such
accounting treatment and different fiscal years, the operating results of the
Company required to be presented herein include (i) the nine months ended March
31, 1998 compared to the nine months ended March 31, 1997 (in each case
representing InSight's results); (ii) the year ended June 30, 1997 (representing
InSight's results) compared to the six months ended June 30, 1996 (representing
MHC's results only); (iii) the six months ended June 30, 1996 compared to the
six months ended
40
<PAGE>
June 30, 1995 (in each case representing MHC's results only); and (iv) the year
ended December 31, 1995 compared to the year ended December 31, 1994 (in each
case representing MHC's results only).
In order to provide an additional basis for comparison with respect to the
Company's operating results for the twelve months ended June 30, 1997, the
Company has included elsewhere in this Offering Memorandum, and discussed below,
unaudited pro forma financial information for the twelve months ended June 30,
1996, adjusted to give effect to the Merger as if it had occurred as of July 1,
1995. Such pro forma adjustments are based upon (i) available information and
certain assumptions that management believes are reasonable and (ii) the
separate financial information of each of AHS and MHC for the year ended June
30, 1996. Such presentation is provided for informational purposes only and does
not purport to represent what the Company's results of operations would actually
have been had the Merger in fact occurred as of July 1, 1995.
The following table sets forth items of income and expense as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
INSIGHT HEALTH SERVICES CORP.
---------------------------------------------
PRO
NINE NINE FORMA
MONTHS MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1998 1997 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues.......................................... 100.0% 100.0% 100.0% 100.0%
--------- --------- -------- --------
Costs of operations
Costs of services............................... 52.0 54.9 54.3 55.6
Provision for doubtful accounts................. 1.8 1.6 1.6 3.7
Equipment leases................................ 15.2 20.3 19.8 21.1
Depreciation and amortization................... 12.5 10.6 10.6 11.6
--------- --------- -------- --------
Total operating expenses...................... 81.5 87.4 86.3 92.0
--------- --------- -------- --------
Gross profit.................................... 18.5 12.6 13.7 8.0
Corporate operating expenses.................... 15.0 7.8 8.0 9.6
--------- --------- -------- --------
Income (loss) from operations..................... 3.5 4.8 5.7 (1.6)
Equity in earnings of unconsolidated
partnerships..................................... 0.6 0.5 0.5 0.4
--------- --------- -------- --------
Operating income (loss)........................... 4.1 5.3 6.2 (1.2)
Other income (expense)
Interest expense, net........................... (5.4) (4.0) (4.4) (4.3)
Provision for securities litigation
settlement.................................... 0.0 0.0 0.0 (1.7)
Gain on sale of partnership interests........... 0.0 0.0 0.0 0.0
--------- --------- -------- --------
Total other income (expense).................. (5.4) (4.0) (4.4) (6.0)
--------- --------- -------- --------
Income (loss) before income taxes................. (1.3) 1.3 1.8 (7.2)
Provision for income taxes........................ 0.5 0.2 0.5 0.3
--------- --------- -------- --------
Income (loss) before extraordinary item........... (1.8) 1.1 1.3 (7.5)
Extraordinary item, net gain on debt
extinguishment................................... 0.0 0.0 0.0 3.6
--------- --------- -------- --------
Net income (loss)................................. (1.8%) 1.1% 1.3% (3.9%)
--------- --------- -------- --------
--------- --------- -------- --------
<CAPTION>
MAXUM HEALTH CORP.
-------------------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues.......................................... 100.0% 100.0% 100.0% 100.0%
-------- -------- ------------ ------------
Costs of operations
Costs of services............................... 60.1 57.8 56.9 56.8
Provision for doubtful accounts................. 2.3 2.0 3.3 2.5
Equipment leases................................ 26.3 28.6 28.6 31.8
Depreciation and amortization................... 14.9 6.5 7.7 8.0
-------- -------- ------------ ------------
Total operating expenses...................... 103.6 94.9 96.5 99.1
-------- -------- ------------ ------------
Gross profit.................................... (3.6) 5.1 3.5 0.9
Corporate operating expenses.................... 8.0 7.0 6.7 8.8
-------- -------- ------------ ------------
Income (loss) from operations..................... (11.6) (1.9) (3.2) (7.9)
Equity in earnings of unconsolidated
partnerships..................................... 0.5 0.6 0.7 1.8
-------- -------- ------------ ------------
Operating income (loss)........................... (11.1) (1.3) (2.5) (6.1)
Other income (expense)
Interest expense, net........................... (4.3) (2.7) (3.2) (2.6)
Provision for securities litigation
settlement.................................... 0.0 0.0 (3.0) 0.0
Gain on sale of partnership interests........... 0.0 0.0 0.0 10.8
-------- -------- ------------ ------------
Total other income (expense).................. (4.3) (2.7) (6.2) 8.2
-------- -------- ------------ ------------
Income (loss) before income taxes................. (15.4) (4.0) (8.7) 2.1
Provision for income taxes........................ 0.2 0.0 0.0 0.3
-------- -------- ------------ ------------
Income (loss) before extraordinary item........... (15.6) (4.0) (8.7) 1.8
Extraordinary item, net gain on debt
extinguishment................................... 12.0 0.0 0.0 7.3
-------- -------- ------------ ------------
Net income (loss)................................. (3.6%) (4.0%) (8.7%) 9.1%
-------- -------- ------------ ------------
-------- -------- ------------ ------------
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) COMPARED TO NINE MONTHS ENDED MARCH
31, 1997 (UNAUDITED)
REVENUES. Revenues increased approximately 25.8% from approximately $68.1
million for the nine months ended March 31, 1997, to approximately $85.7 million
for the nine months ended March 31, 1998. This increase was due primarily to the
acquisitions discussed above (approximately $13 million) and an
41
<PAGE>
increase in contract services, patient services and other revenues
(approximately $4.6 million) at existing facilities.
Contract services revenues increased approximately 11.4% from approximately
$35.2 million for the nine months ended March 31, 1997, to approximately $39.2
million for the nine months ended March 31, 1998. This increase was due
primarily to the acquisitions discussed above (approximately $1.4 million) and
an increase at existing facilities (approximately $2.6 million). The increase at
existing facilities was due to higher utilization (approximately 6%) and by
nominal increases in reimbursement from customers, primarily hospitals.
Patient services revenues increased approximately 40.8% from approximately
$31.2 million for the nine months ended March 31, 1997, to approximately $43.9
million for the nine months ended March 31, 1998. This increase was due
primarily to the acquisitions discussed above (approximately $11.5 million) and
an increase in revenues at existing facilities (approximately $1.8 million). The
increase at existing facilities was due to higher utilization (approximately
12%), partially offset by nominal declines in reimbursement from third party
payors and reduced revenues from the termination of a Fixed Facility and a Gamma
Knife center in fiscal 1998 (approximately $0.6 million).
COSTS OF OPERATIONS. Costs of operations increased approximately 17.1% from
approximately $59.5 million for the nine months ended March 31, 1997, to
approximately $69.7 million for the nine months ended March 31, 1998. This
increase was due primarily to an increase in costs due to the acquisitions
discussed above (approximately $8.9 million) and an increase in costs at
existing facilities (approximately $2.7 million), offset by the elimination of
costs at the two terminated facilities discussed above (approximately $1.4
million). The increase at existing facilities was due primarily to increases in
costs of services and depreciation and amortization.
Costs of services, including the provision for doubtful accounts, increased
approximately 19.6% from approximately $38.5 million for the nine months ended
March 31, 1997, to approximately $46 million for the nine months ended March 31,
1998. This increase was due primarily to the acquisitions discussed above
(approximately $6.7 million) and an increase in costs at existing facilities
(approximately $1.8 million), offset by the elimination of costs at the two
terminated facilities discussed above (approximately $1 million). The increase
in costs at existing facilities was due primarily to (i) salaries and benefits,
(ii) occupancy and (iii) marketing costs, offset by reduced costs in service
supplies and equipment maintenance.
Equipment leases and depreciation and amortization increased approximately
12.5% from approximately $21 million for the nine months ended March 31, 1997,
to approximately $23.7 million for the nine months ended March 31, 1998. This
increase was due primarily to the acquisitions discussed above (approximately
$2.2 million) and an increase in costs at existing facilities (approximately
$0.8 million), offset by the elimination of costs at the two terminated
facilities discussed above (approximately $0.3 million). The increase at
existing facilities was due primarily to the Company upgrading its existing
diagnostic imaging equipment.
GROSS PROFIT. Gross profit increased approximately 85.8% from approximately
$8.6 million for the nine months ended March 31, 1997, to approximately $16
million for the nine months ended March 31, 1998. This increase was due to the
acquisitions discussed above (approximately $4.1 million), an increase at
existing facilities (approximately $2.5 million) and the elimination of losses
at the two terminated facilities discussed above (approximately $0.8 million).
CORPORATE OPERATING EXPENSES. Corporate operating expenses increased
approximately 21.8%, from approximately $5.3 million for the nine months ended
March 31, 1997, to approximately $6.5 million for the nine months ended March
31, 1998. This increase was due primarily to additional consulting, legal and
travel costs associated with the Company's acquisition activities.
42
<PAGE>
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION. As part of the
Recapitalization and the Senior Credit Facilities, the Company issued to GE
7,000 shares of Series C Preferred Stock to terminate GE's right to receive
supplemental service fee payments equal to 14% of the Company's pretax income.
The Series C Preferred Stock was valued at $7 million and the Company recorded a
one-time non-cash provision of approximately $6.3 million, net of amounts
previously accrued, to account for the preferred stock issuance.
INTEREST EXPENSE, NET. Interest expense, net increased approximately 70.2%
from approximately $2.7 million for the nine months ended March 31, 1997, to
approximately $4.7 million for the nine months ended March 31, 1998. This
increase was due primarily to additional debt related to the acquisitions
discussed above (approximately $2.4 million) and additional debt related to the
Company upgrading its existing diagnostic imaging equipment, offset by reduced
interest as a result of (i) the reduction in interest rate and the
extinguishment of approximately $23 million in long-term debt relating to the
Recapitalization and the Senior Credit Facilities (approximately $1.2 million)
and (ii) amortization of long-term debt.
PROVISION FOR INCOME TAXES. For the nine months ended March 31, 1998, the
Company recorded a provision for income taxes of approximately $0.4 million. The
provision was due primarily to increased income from the Company's operations
and reflects the anticipated tax rate for the full fiscal year.
INCOME (LOSS) PER COMMON SHARE. On a diluted basis, net loss per common
share was ($0.19) for the nine months ended March 31, 1998, compared to net
income per common share of $0.14 for the same period in 1997. Excluding the
one-time provision for supplemental service fee termination, net income per
common share on a diluted basis would have been $0.62. The improvement in net
income per common share before provision for supplemental service fee
termination is the result of (i) increased gross profit and (ii) an increase in
earnings from unconsolidated partnerships, offset by (i) increased corporate
operating expenses, (ii) increased interest expense and (iii) the provision for
income taxes.
YEAR ENDED JUNE 30, 1997 COMPARED TO PRO FORMA YEAR ENDED JUNE 30, 1996
(UNAUDITED)
REVENUES. Revenues increased approximately 6.1%, from approximately $87.7
million for the year ended June 30, 1996, to approximately $93.1 million for the
year ended June 30, 1997. The increase in revenues was due primarily to MHC's
acquisitions in October 1995, the acquisitions in fiscal 1997 and an increase in
contract services, patient services and other revenues.
Contract services revenues increased approximately 4.7% from approximately
$45.7 million for the year ended June 30, 1996, to approximately $47.8 million
for the year ended June 30, 1997. This increase was due to higher utilization
from customers, primarily hospitals.
Patient services revenues increased approximately 4% from approximately $41
million for the year ended June 30, 1996, to approximately $42.7 million for the
year ended June 30, 1997. This increase was due primarily to the acquisitions
discussed above and to higher utilization at existing facilities, offset by
declines in reimbursement from third party payors.
COSTS OF OPERATIONS. Costs of operations decreased approximately 0.3% from
approximately $80.6 million for the year ended June 30, 1996, to approximately
$80.3 million for the year ended June 30, 1997. This decrease was due primarily
to the write down of approximately $1.5 million of goodwill and other
intangibles related to two of MHC's Multi-Modality Centers during the year ended
June 30, 1996, offset by increased costs associated with the acquisitions
discussed above.
GROSS PROFIT. Gross profit increased approximately 78.5% from approximately
$7.1 million for the year ended June 30, 1996, to approximately $12.7 million
for the year ended June 30, 1997. The increase was due to the acquisitions
discussed above increased utilization at existing facilities and the decrease in
costs of operations.
43
<PAGE>
CORPORATE OPERATING EXPENSES. Corporate operating expenses decreased
approximately 12.1%, from approximately $8.5 million for the year ended June 30,
1996, to approximately $7.4 million for the year ended June 30, 1997. This
decrease was due primarily to the duplicative administrative infrastructure of
MHC and AHS in 1996. In fiscal 1997, the Company achieved annualized cost
savings compared to the historical combined costs of MHC and AHS.
INTEREST EXPENSE, NET. Interest expense, net increased approximately 6.4%
from approximately $3.8 million for the year ended June 30, 1996, to
approximately $4.1 million for the year ended June 30, 1997. The increase was
due to additional debt related to the acquisitions discussed above, offset by
amortization of the deferred gain on the debt restructure with GE and
amortization of long-term debt.
PROVISION FOR SECURITIES LITIGATION SETTLEMENT. In anticipation of the MHC
settlement of two class-action lawsuits originally filed in 1993, the Company
recorded a charge of $1.5 million in the year ended June 30, 1996. In February
1996, MHC and the other parties to such lawsuits reached a settlement. On July
29, 1996, following final court approval, MHC and the other parties collectively
paid to the plaintiffs in the class action the balance of the agreed upon
settlement amount.
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT. In connection with the Merger,
MHC recorded an extinguishment of $9 million of long-term obligations owed to GE
in June 1996. The extraordinary gain represents the excess of the carrying value
of the debt obligations settled over the sum of fair value of MHC's preferred
stock issued in exchange for such debt extinguishment and the sum of future
interest payable on all remaining obligations owed to GE.
In accordance with the provisions of troubled debt accounting, a portion of
the extraordinary gain, equal to the sum of the current and long-term portions
of future interest payable on all remaining GE debt was deferred and will be
reduced by future interest payments over the terms of the respective debt
instruments.
YEAR ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately $66.6 million for the year ended
June 30, 1997, compared to the six months ended June 30, 1996. The increase in
revenues was due primarily to additional revenues as a result of the Merger
(approximately $38.7 million), increases in revenues due to acquisitions
(approximately $2 million) and an increase in contract services, patient
services and other revenues at MHC (approximately $25.9 million). The increase
of approximately $25.9 million in MHC revenues was due primarily to a year of
results for 1997 compared to the six month period in 1996. MHC revenues
decreased by approximately 0.1% from approximately $52.9 million (on an
annualized basis) for the six months ended June 30, 1996 to approximately $52.4
million for the year ended June 30, 1997.
Contract services revenues increased approximately $27.8 million for the
year ended June 30, 1997, compared to the six months ended June 30, 1996. This
increase was due primarily to additional revenues as a result of the Merger
(approximately $7.8 million), an increase in revenues due to acquisitions
(approximately $0.2 million) and an increase in MHC revenues of approximately
$19.8 million. The increase of approximately $19.8 million was due primarily to
a year of results for 1997 compared to a six month period in 1996. MHC revenues
decreased by approximately 0.5% from approximately $40.1 million (on an
annualized basis) for the six months ended June 30, 1996 to approximately $39.9
million for the year ended June 30, 1997. This decrease was due to reductions in
reimbursement (approximately 6%) from customers, primarily hospitals, offset by
increased utilization (approximately 30%).
Patient services revenues increased approximately $36.9 million for the year
ended June 30, 1997, compared to the six months ended June 30, 1996. The
increase in revenues was due primarily to additional revenues as a result of the
Merger (approximately $30.5 million), increased revenues due to acquisitions
(approximately $1.8 million), and an increase in MHC revenues of approximately
$4.6 million. The increase in MHC revenues of approximately $4.6 million was due
primarily to a year of results for 1997
44
<PAGE>
compared to a six month period in 1996. MHC revenues decreased by approximately
11% from approximately $11.7 million (on an annualized basis) for the six months
ended June 30, 1996 to approximately $10.4 million for the year ended June 30,
1997. This decrease was due to continued declines in reimbursement
(approximately 5%) from third party payors and the closure of a Fixed Facility
in June 1996, offset by increased utilization (approximately 20%).
COSTS OF OPERATIONS. Costs of operations increased approximately $52.9
million for the year ended June 30, 1997, compared to the six months ended June
30, 1996. This increase was due primarily to additional costs as a result of the
Merger (approximately $29.8 million), an increase in costs due to acquisitions
(approximately $1.5 million), and an increase in costs at MHC of approximately
$21.6 million. The increase of approximately $21.6 million at MHC was due
primarily to a year of results for 1997 compared to a six month period in 1996.
MHC costs decreased by approximately 10.6% from approximately $54.8 million (on
an annualized basis) for the six months ended June 30, 1996 to approximately $49
million for the year ended June 30, 1997. This decrease was due to a reduction
in costs of services, provision for doubtful accounts, and equipment leases and
depreciation and amortization.
Costs of services, including the provision for doubtful accounts, increased
approximately $35.6 million for the year ended June 30, 1997, compared to the
six months ended June 30, 1996. The increase in costs was due primarily to
additional costs as a result of the Merger (approximately $20.8 million), an
increase in costs due to acquisitions (approximately $1.2 million) and an
increase in costs at MHC (approximately $13.6 million). The increase in costs at
MHC was due primarily to a year of results for 1997 compared to a six month
period in 1996. MHC costs decreased by approximately 8.7% from approximately $33
million (on an annualized basis) for the six months ended June 30, 1996 to
approximately $30.2 million for the year ended June 30, 1997. This decrease was
due to (i) reduced costs in service supplies and equipment maintenance and (ii)
one time charges in fiscal 1996 related to the closure of two Multi-Modality
Centers and the early return of four Mobile Facilities.
Equipment leases and depreciation and amortization increased approximately
$17.4 million for the year ended June 30, 1997, compared to the six months ended
June 30, 1996. The increase was due primarily to additional costs as a result of
the Merger (approximately $9.2 million), increased costs due to acquisitions
(approximately $0.3 million) and an increase in costs at MHC (approximately $7.9
million). The increase at MHC of $7.9 million was primarily due to a year of
results for 1997 compared to a six month period in 1996. MHC costs decreased by
approximately 13.3% from approximately $21.8 million (on an annualized basis)
for the six months ended June 30, 1996 to approximately $18.9 million for the
year ended June 30, 1997. This decrease was due to a write down of approximately
$1.5 million of intangibles in fiscal 1996 which did not occur in fiscal 1997.
Under the terms of the amended equipment maintenance service agreement with
GE, GE was entitled to receive a supplemental service fee equal to 14% of pretax
income, subject to certain adjustments. During the year ended June 30, 1997, the
Company recorded a provision of approximately $0.3 million in connection with
this agreement. The Company's future obligations under this agreement were
terminated as part of the Recapitalization. The Company recorded a non-recurring
expense of $6.3 million in the second quarter of fiscal 1998 in connection with
the termination of this agreement.
GROSS PROFIT. Gross profit increased approximately $13.7 million during the
year ended June 30, 1997, compared to the six months ended June 30, 1996. The
increase was due primarily to additional gross profit as a result of the Merger
(approximately $8.9 million), an increase due to acquisitions (approximately
$0.5 million), and an increase at MHC (approximately $4.3 million).
45
<PAGE>
CORPORATE OPERATING EXPENSES. Corporate operating expenses increased
approximately $5.3 million for the year ended June 30, 1997, compared to the six
months ended June 30, 1996. The increase was partially related to maintaining
duplicate staffing during the transition phase of the Merger and to additional
consulting and legal costs associated with the Company's acquisition activities.
The Company has achieved annualized cost savings (approximately $1 million)
compared to the historical combined costs of MHC and AHS, primarily as a result
of elimination of duplicate facilities including corporate headquarters, and
synergies in staff and functional areas.
INTEREST EXPENSE, NET. Interest expense, net increased approximately $2.9
million for the year ended June 30, 1997, compared to the six months ended June
30, 1996. The increase was due primarily to (i) additional debt assumed as a
result of the Merger (approximately $3.3 million) and (ii) additional debt
related to acquisitions (approximately $0.3 million), offset by reduced interest
as a result of (i) amortization of the deferred gain on the debt restructure
with GE (approximately $1 million) and (ii) amortization of long-term debt.
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT. In connection with the Merger,
MHC recorded an extraordinary gain on debt extinguishment of approximately $3.2
million in 1996. There was no similar gain in 1997.
INCOME (LOSS) PER COMMON SHARE. Net income per common share was $0.24 for
the year ended June 30, 1997, compared to a net loss per common share before
extraordinary item of $(2.99) for the six months ended June 30, 1996. The
improvement in income per common share is the result of (i) increased gross
profit and (ii) an increase in earnings from unconsolidated partnerships, offset
by (x) increased corporate operating expenses and (y) increased interest
expense.
MAXUM HEALTH CORP.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
REVENUES. Revenues increased by approximately 8.3% from approximately $24.4
million for the six months ended June 30, 1995 to approximately $26.5 million
for the six months ended June 30, 1996. The increase in revenues was due
primarily to the (i) acquisition of certain customer contracts in April 1995,
(ii) acquisition of certain Fixed Facility locations in October 1995 and (iii)
increases in volumes on certain contracts serviced by Mobile Facilities and
Fixed Facilities. These increases were offset by decreases in reimbursement
rates from third party payors.
COSTS OF OPERATIONS. Costs of operations increased by approximately 19.3%
from approximately $23 million for the six months ended June 30, 1995 to
approximately $27.4 million for the six months ended June 30, 1996. This
increase was primarily due to (i) the write down of approximately $1.5 million
of goodwill and other intangibles related to two of MHC's Multi-Modality
Centers, (ii) an increase in cost of services of $2.3 million and (iii) an
increase in depreciation of $0.7 million, offset by a decrease in the provision
for doubtful accounts of $0.4 million. Costs of services increased $2.3 million
during the six months ended June 30, 1996, compared with the same period in
1995. The increase was due primarily to (i) certain one-time charges relating to
operating strategies associated with the Merger which include provisions for the
closure of two Multi-Modality Centers, the write down of a Mobile Facility and
the estimated costs and termination fees for the early return of four Mobile
Facilities, (ii) increased costs associated with acquisitions and (iii) higher
costs associated with the increase in patient services revenues which include
personnel costs, facility costs, service supplies and professional fees.
The provision for doubtful accounts decreased by approximately $0.4 million
for the six months ended June 30, 1995 compared to the six months ended June 30,
1996. This decrease is primarily attributable to a $0.3 million charge recorded
in June 1995. A similar charge was not recorded in 1996.
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Depreciation and amortization increased by approximately $0.7 million for
the six months ended June 30, 1995 compared to the six months ended June 30,
1996. This increase was due primarily to capital leases entered into,
acquisitions completed, and leasehold improvements incurred at several of MHC's
Fixed Facilities subsequent to June 30, 1995.
GROSS PROFIT. Gross profit decreased by approximately 166.3% from
approximately $1.4 million for the six months ended June 30, 1995 to a loss of
approximately $1 million for the six months ended June 30, 1996. This decrease
was primarily attributable to the increase in costs of services discussed above.
CORPORATE OPERATING EXPENSES. Corporate operating expenses increased by
approximately 11.1% from approximately $1.9 million for the six months ended
June 30, 1995 to approximately $2.1 million for the six months ended June 30,
1996. This increase was due primarily to a provision in June 1996 of $0.6
million for termination benefits and facility costs in connection with the
reduction in the duplicative administrative infrastructure as a result of the
Merger.
INTEREST EXPENSE, NET. Interest expense, net increased by approximately
76.5% from approximately $0.6 million for the six months ended June 30, 1995 to
approximately $1.1 million for the six months ended June 30, 1996. This increase
was due primarily to debt financed in 1995 in connection with acquisitions and
the financing of certain operating expenses.
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT. In connection with the Merger,
MHC recorded an extinguishment of $9 million of long-term obligations owed to GE
in June 1996. The extraordinary gain represents the excess of the carrying value
of the debt obligations settled over the sum of the fair value of the MHC
preferred stock issued in exchange for such debt extinguishment and the sum of
future interest payable on all remaining obligations owed to GE.
In accordance with the provisions of troubled debt accounting, a portion of
the extraordinary gain, equal to the sum of the current and long-term portions
of future interest payable on all remaining GE debt was deferred and will be
reduced by future interest payments over the terms of the respective debt
instruments.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased by approximately 10.3% from approximately
$45.9 million for the year ended December 31, 1994 to approximately $50.6
million for the year ended December 31, 1995. The increase in revenues was
related primarily to acquisitions. This increase was partially offset by the
continued decline in reimbursement rates and a decrease in other revenues in
1995 compared to 1994.
An increase in fee-for-service revenues of $5 million in 1995 compared to
1994 was attributable to (i) the award of an exclusive capitated managed care
contract in December 1994, under which MHC's fees were paid directly by the
managed care organization and were earned on a per-member-per-month basis and
(ii) the acquisition of certain customer contracts in the first half of 1995.
Other fee-for-service revenues, including equipment rental revenues (derived
primarily from Mobile Facilities), decreased $1.8 million, compared to 1994, due
to expiration of hospital service contracts and third party equipment leases.
Management fees decreased $0.6 million in 1995, compared to 1994, due primarily
to the sale or termination of certain partnerships in late 1994.
Approximately 58% of the $2.4 million increase in patient services revenues
was due to increased patient services revenues associated with acquisitions
during 1995. Approximately 25% of the increase is attributable to a contract
awarded in the third quarter of 1994 to provide radiology and management
services at an outpatient Fixed Facility for a hospital customer. The remainder
of the increase was due primarily to increases in procedure volumes at MHC's
other Multi-Modality Centers, offset by continued declines in reimbursement
rates. Other revenues decreased during 1995 compared to 1994, due primarily to
the sale of MHC's technical services division in June 1994.
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COSTS OF OPERATIONS. Costs of operations increased by approximately 7.4%
from approximately $45.4 million for the year ended December 31, 1994 to
approximately $48.8 million for the year ended December 31, 1995. Costs of
services in 1995 was reduced by $0.8 million related to sales/use tax refunds.
These refunds represent taxes paid in prior years attributable to certain mobile
diagnostic imaging equipment, and were received due to a determination by the
taxing authority that the mobile equipment was subject to motor vehicle tax
rather than sales/use tax.
Occupancy expense (which includes operating costs of facilities leased or
subcontracted by MHC) increased by approximately $0.8 million, or approximately
88%, for the year ended December 31, 1995 compared to the year ended December
31, 1994. This increase was due primarily to subcontracting costs incurred
related to the capitated managed care contract that was awarded in December
1994.
Professional fees increased by approximately $0.7 million, or approximately
41% for the year ended December 31, 1995 compared to the year ended December 31,
1994. The increase was due primarily to the increase in patient services
revenues and to costs incurred related to the capitated managed care contract.
In addition to the net impact of the sales/use tax refund, occupancy expense
and professional fees discussed above, all other components of costs of
operations experienced a net increase of $2.2 million in 1995 compared to 1994,
due primarily to the variable costs associated with the increase in revenues
resulting primarily from acquisitions in 1995.
The provision for doubtful accounts increased by approximately $0.5 million,
or approximately 48% for the year ended December 31, 1995 compared to the year
ended December 31, 1994, due primarily to the increase in patient services
revenues and a shift in the payor mix at MHC's Multi-Modality Centers related to
the penetration of managed care. This change in payor mix had an unfavorable
impact on reimbursement rates realized by the Multi-Modality Centers and
resulted in an increase in bad debt expense in 1995 associated with unreimbursed
amounts which were not subsequently collectible from patients.
Depreciation decreased by approximately $0.2 million, or 6% for the year
ended December 31, 1995 compared to the year ended December 31, 1994. This
decrease was due primarily to a purchase and sale-leaseback transaction (in
connection with MHC's settlement with a significant creditor in June 1994) which
resulted in reductions in net book values of certain Mobile Facilities.
GROSS PROFIT. Gross profit increased by approximately $1.4 million, or
approximately 326% for the year ended December 31, 1995 compared to the year
ended December 31, 1994. The increase was primarily attributable to higher
profit margins from the absorption of excess capacity associated with
acquisitions completed in 1995 and the capitated managed care contract awarded
in December 1994.
CORPORATE OPERATING EXPENSES. Corporate operating expenses decreased by
approximately 16.5% from approximately $4 million for the year ended December
31, 1994 to approximately $3.4 million for the year ended December 31, 1995.
This decrease was due primarily to reductions in legal costs and insurance
premiums.
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS. Equity in earnings of
unconsolidated partnerships decreased by approximately 58.3% from approximately
$0.8 million for the year ended December 31, 1994 to approximately $0.3 million
for the year ended December 31, 1995. This decrease was due to the sale of
certain partnerships in late 1994 discussed below.
INTEREST EXPENSE, NET. Interest expense, net increased by approximately
34.8% from approximately $1.2 million for the year ended December 31, 1994 to
approximately $1.6 million for the year ended December 31, 1995. This increase
was due primarily to (i) the addition of several capital leases of diagnostic
imaging equipment, (ii) debt obligations incurred as a result of the
acquisitions during 1995 and (iii) interest on operating expenses financed
during late 1994 and in 1995.
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PROVISION FOR SECURITIES LITIGATION SETTLEMENT. In anticipation of the MHC
settlement of two class-action lawsuits originally filed in 1993, MHC recorded a
charge of $1.5 million in the fourth quarter of 1995.
GAIN ON SALE OF PARTNERSHIP INTERESTS. In December 1994, MHC sold its
interests in three lithotripsy partnerships for approximately $5 million in
cash, which resulted in a pretax gain of approximately $5.0 million.
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENTS. During 1994, MHC settled its
outstanding debt and lease obligations owed to a significant creditor and two
smaller creditors, which resulted in a net extraordinary gain of approximately
$3.3 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was approximately $10 million for
the nine months ended March 31, 1998 and $7.3 million for the year ended June
30, 1997. Cash provided by operating activities resulted primarily from net
income before depreciation and amortization (approximately $9.3 million) and the
provision for supplemental service fee termination ($6.3 million), offset by an
increase in accounts receivable (approximately $4.7 million). The increase in
accounts receivable is due primarily to the Company's acquisition activities.
Net cash used in investing activities was approximately $29.1 million for
the nine months ended March 31, 1998 and $30.3 million for the year ended June
30, 1997. Cash used in investing activities resulted primarily from the Company
purchasing new diagnostic imaging equipment or upgrading its existing diagnostic
imaging equipment (approximately $15.2 million) and from the Company's
acquisition activities (approximately $12.9 million).
The Company generated approximately $21.6 million from financing activities,
primarily from the Carlyle investment pursuant to the Recapitalization, which
was used to refinance a portion of the Company's outstanding indebtedness. The
decrease in cash from the refinancing of debt was offset primarily by increased
debt incurred in connection with the Company's acquisition activities.
The Company has committed to purchase or lease, at an aggregate cost of
approximately $11.3 million, six MRI systems for delivery during the six months
ending September 30, 1998. The Senior Credit Facilities are expected to be used
to finance the purchase of such equipment. In addition, the Company has
committed to purchase or lease from GE, at an aggregate cost of approximately
$24 million, including siting costs, 20 Open MRI systems for delivery and
installation over the next two years. As of March 31, 1998, the Company had
installed three of such Open MRI systems: one at an existing Multi-Modality
Center, one at an existing Fixed Facility and one in a newly opened Fixed
Facility, and siting improvements were under construction for installation of
three other Open MRI systems. The Company may purchase, lease or upgrade other
MRI systems as opportunities arise to place new equipment into service when new
contract services agreements are signed, existing agreements are renewed,
acquisitions are completed, or new imaging centers are developed in accordance
with the Company's business strategy.
On October 14, 1997, the Company consummated the Recapitalization, pursuant
to which the Company issued 25,000 shares of Series B Preferred Stock and
warrants to purchase 250,000 shares of the Company's common stock to Carlyle for
cash proceeds of $25 million and 27,953 shares of Series C Preferred Stock to GE
as part of the Recapitalization. Concurrently, the Company entered into the
Senior Credit Facilities with NationsBank, N.A., as agent, which included a $50
million term loan facility, a $25 million revolving working capital facility
and, as amended, a $75 million acquisition facility. The net proceeds from the
Carlyle investment were used to refinance a portion of the outstanding GE
indebtedness (approximately $20 million). At the initial funding of the Senior
Credit Facilities, all of the term loan facility was drawn down to refinance all
of the remaining GE indebtedness (approximately $50 million) and approximately
$8 million of the revolving facility was drawn down for working capital
purposes. See
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"Description of Preferred Stock" and "Description of Senior Credit Facilities."
The Company used the net proceeds from the issuance of the Outstanding Notes,
together with the borrowing under the term loan portion of the Senior Credit
Facilities, to repay all amounts outstanding under the revolving credit facility
and the acquisition facility portions of the Senior Credit Facilities, leaving
the $75 million acquisition facility and the $25 million working capital
facility available in full for future borrowings. See "Use of Proceeds." The
terms of the Series B Preferred Stock, the Series C Preferred Stock and the
Senior Credit Facilities contain certain restrictions on the Company's ability
to act without first obtaining a waiver or consent from Carlyle, GE and the
required lenders under the Senior Credit Facilities. In addition, the covenants
contained in the Senior Credit Facilities and the Notes will restrict, among
other things, the ability of the Company and the Subsidiary Guarantors to incur
additional indebtedness and issue preferred stock, enter into sale and leaseback
transactions, pay dividends or make certain other restricted payments, incur
liens, sell stock of subsidiares, apply net proceeds from certain asset sales,
merge or consolidate with any other person, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of the Company and enter
into certain transactions with affiliates. See "Description of Notes" and
"Description of Senior Credit Facilities."
The Company believes that, based on proceeds from the issuance of the
Outstanding Notes, current levels of operations and anticipated growth, its cash
from operations, together with other available sources of liquidity, including
borrowings available under the Senior Credit Facilities, will be sufficient over
the next several years to fund anticipated capital expenditures and make
required payments of principal and interest on its debt, including payments due
on the Notes and obligations under the Senior Credit Facilities. In addition,
the Company continually evaluates potential acquisitions and expects to fund
such acquisitions from its available sources of liquidity, including borrowings
under the Senior Credit Facilities. The Company's acquisition strategy, however,
may require sources of capital in addition to that currently available to the
Company, and no assurance can be given that the Company will be able to raise
any such necessary additional funds on terms acceptable to the Company or at
all. See "Risk Factors--Business Strategy; Acquisitions."
YEAR 2000 ISSUE
The Company has assessed and continues to assess the impact of the Year 2000
Issue on its reporting systems and operations. The Year 2000 Issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date occurs, date sensitive systems
may recognize the Year 2000 as 1900 or not at all. This inability to recognize
or properly treat Year 2000 may cause the Company's systems to process critical
financial and operational information incorrectly. The Company has developed a
plan to modify existing computer systems and applications. The Company has not
determined the final amounts necessary to modify existing computer systems and
applications but believes such amounts will not be material. If the Company's
remediation plan is not successful, there could be a significant disruption of
the Company's ability to transact business with its customers, third party
payors and suppliers.
INFLATION
Inflation in recent years has not had a significant impact on the Company's
business and is not expected to adversely affect the Company in the near future.
NEW PRONOUNCEMENTS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation." As
permitted under the standard, the Company continued to account for employee
stock options in accordance with APB Opinion No. 25 and made necessary pro forma
disclosures mandated by SFAS No. 123. The adoption of this standard had no
impact on the Company's results of operations.
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In fiscal 1998, the Company will be required to adopt SFAS No. 129,
"Disclosure of Information about Capital Structure," which continues the
existing requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of companies
subject to portions of its requirements. The adoption of this standard will have
no effect on the Company's results of operations.
In fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share
("EPS")". SFAS No. 128 replaces primary EPS and fully diluted EPS with basic
EPS. Basic EPS is computed by dividing reported earnings by weighted average
shares outstanding. Diluted EPS is computed in the same way as the previously
used fully diluted EPS, except that the calculation now uses the average share
price for the reporting period to compute dilution from options and warrants
under the treasury stock method.
In June 1997, the FASB issued SFAS Nos. 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information." SFAS Nos. 130 and 131 are effective for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The Company
believes that adoption of these standards will not have a material effect on the
Company.
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THE DIAGNOSTIC IMAGING INDUSTRY
OVERVIEW
Diagnostic imaging uses non-surgical techniques to generate representations
of internal structures and organs on film or video. The Company believes that
diagnostic imaging services accounted for 1997 revenues in the United States in
excess of $50 billion, constituting approximately 5% of total health care
spending. The Company believes that outpatient diagnostic imaging services,
including MRI services, accounted for approximately $6 billion of revenues in
the United States in 1996, which is the most recent year for which such
information is available. The approximately 4,000 MRI systems in the United
States include approximately 2,400 hospital-owned systems, 1,000 independent
fixed site systems and 600 mobile systems.
MRI uses high strength magnetic fields and radio waves to produce
cross-sectional images of the anatomy, enabling physicians to differentiate
between internal organs, structures and tissues, thereby facilitating the early
diagnosis of diseases and disorders. MRI frequently lessens the cost and amount
of care needed and often eliminates the need for invasive diagnostic procedures.
MRI is the preferred imaging modality for the brain, the spine and soft tissue
because it produces a superior image and does not expose patients to ionizing
radiation. As a result of MRI's increasing cost efficiency and clinical
effectiveness, MRI services have experienced substantial growth as measured by
total utilization, which increased at a compounded annual growth rate of 8.6%
from 7.7 million in 1993 to 10.7 million in 1997. The Company believes that
growth in MRI scan volumes has been attributable to increased physician
acceptance, substitution of MRI for other imaging modalities (including x-ray
based techniques), expanding applications for MRI technology and health care
reform, which has led to a significant increase in outpatient services.
DIAGNOSTIC IMAGING AND TREATMENT TECHNOLOGY
Diagnostic imaging systems have evolved from conventional x-rays to the
advanced technologies of MRI, CT, ultrasound and nuclear medicine. Additional
services provided by some diagnostic imaging companies, such as InSight, include
radiation oncology, lithotripsy and Gamma Knife procedures. Following is a brief
description of such diagnostic imaging and related services:
- MRI uses magnetic fields and radio waves to produce cross-sectional images
of the anatomy, enabling physicians to differentiate between internal
organs, structures and tissues, thereby facilitating the early diagnosis
of diseases and disorders.
- CT uses digital x-ray technology to provide cross-sectional images of
particular organs or areas of the body.
- Ultrasound uses sound wave technology to generate images of soft tissues
and internal body organs.
- Nuclear medicine detects gamma radiation generated by inhaled or injected
pharmaceuticals to develop information about organ functions.
- X-ray is the conventional method of producing bone images and
contrast-enhanced vasculature and organ images. Digital x-ray systems add
computer image processing capability to traditional x-ray images.
- Radiation oncology uses external beam radiation or electrons from linear
accelerators to treat cancer.
- Lithotripsy uses extracorporeal shockwaves to shatter kidney stones, which
then pass out of the body naturally.
- Gamma Knife procedures use a radiosurgical device to treat intracranial
neoplasma and vascular anomalies without surgical intervention.
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Each of these diagnostic imaging and treatment modalities (other than
conventional x-ray) represents the marriage of computer technology and various
medical imaging modalities. See "Business--Diagnostic Imaging and Treatment
Services Offered."
During approximately the last 20 years, there has been a major effort
undertaken by the medical and scientific communities to develop cost-effective
diagnostic imaging technologies and to minimize the risks associated with the
application of such technologies. Much of the thrust of product development
during the last 20 years has been to reduce the hazards associated with
conventional x-ray and nuclear medicine techniques, which include potentially
harmful ionizing radiation, and to develop new, virtually harmless imaging
technologies such as ultrasound and MRI.
The Company expects technological improvements to expand the services and
capabilities of diagnostic imaging systems and to favorably affect the
diagnostic imaging industry in the upcoming years. Originally, MRI was used to
explore the structure of the brain and for spinal and orthopedic imaging.
Currently, however, newer MRI methods are creating a much broader array of uses
for MRI. Magnetic resonance angiography, for example, is used to create images
of blood flow through vessels, which may reduce the cost of bypass surgery and
the length of inpatient hospital stay and replace conventional angiography for
some patients. Furthermore, experimental MRI imaging techniques, such as
magnetic resonance spectroscopic imaging, are used to show the functions of the
brain and to investigate how epilepsy, AIDS, brain tumors, Alzheimer's and other
abnormalities affect the brain. Additional improvements in MRI technologies,
contrast agents and scan capabilities are leading to new non-invasive methods of
diagnosing blockages in the heart's vital coronary arteries, liver metastasises,
pelvic diseases and certain vascular abnormalities without exploratory surgery.
MRI INDUSTRY TRENDS
In 1984, the Food and Drug Administration (the "FDA") approved the sale of
MRI systems to community hospitals and private clinics. MRI services today are
provided by hospitals with in-house systems, independent fixed site operators
and independent mobile operators.
The history of the MRI industry can be divided into three periods: (i)
initial growth from 1984 to 1992; (ii) downturn in 1993 and 1994; and (iii)
renewed growth and consolidation from 1995 to the present. The increased use of
MRI as a diagnostic tool between 1984 and 1992 resulted from a variety of
factors, including declining equipment costs, increased physician acceptance of
MRI technology, increased number of clinical applications and Congressional
Medicare reform in 1983, which has led to a significant increase in outpatient
services. Changes in the health care industry and legislative reform between
1992 and 1994 slowed the growth of the MRI industry. The threat of health care
reform and the desire to control medical costs and pricing placed physicians
under scrutiny to control costs and further contributed to the decrease in use
of MRI by the medical profession. Simultaneously, the shift towards HMOs and the
trend towards decreased utilization of outpatient services and declining
reimbursement rates led to a period in which the use of MRI as a diagnostic tool
was limited.
Despite the new cost-conscious environment in which hospitals and physicians
operated, the advantages of MRI as compared to other forms of diagnostic imaging
equipment, development of new practical uses of MRI and increased Medicare
reimbursement levels (1% to 2% increase per year between 1994 and 1996) resulted
in increased MRI use beginning in 1995 to 1996. As a result, hospitals and other
health care providers seeking to provide MRI technology and related services
despite budgetary limitations are using third parties, such as the Company, to
provide the necessary imaging systems and related services. Mobile MRI is a
cost-effective alternative for hospitals unwilling or unable to make the
significant capital investment associated with MRI systems or lacking the
patient volume necessary to use an MRI system in a cost-effective manner. Mobile
MRI operators employ systems housed in specially designed trailers and typically
enter into contracts to provide a specified schedule of service on a
fee-per-scan basis. Operators
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then design schedules for each system to rotate among multiple hospitals in a
manner that optimizes system utilization.
The MRI services industry is highly fragmented. Recently, however, the
industry has begun to undergo consolidation. The Company believes such
consolidation is primarily driven by (i) economies of scale in the provision of
services to a larger customer base; (ii) growth of managed care in the delivery
of health care services; and (iii) the decision by many smaller, capital
constrained operators to sell their MRI businesses rather than make substantial
investments in new imaging systems. Despite ongoing industry consolidation, the
top ten MRI service providers accounted for less than 15% of the nation's total
outpatient diagnostic imaging revenues in 1996, which is the most recent year
for which such information is available.
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BUSINESS
The Company is a leading nationwide provider of diagnostic imaging and
related information services, including MRI, CT, mammography, ultrasound, x-ray
and lithotripsy services. The Company believes it is unique in its ability to
offer a broad continuum of diagnostic imaging services, ranging from single
modality Mobile Facilities to comprehensive Multi-Modality Centers to the joint
ownership and management of the multi-modality radiology department of a
hospital or multi-specialty physician group. The breadth of the Company's
services allows it to meet the diverse and developing needs of its customers,
which include leading health care providers such as managed care organizations,
hospitals, radiologists and insurance companies. InSight delivers these services
through strong regional networks of diagnostic imaging facilities, which will
continue to be the principal method of development for the Company. The Company
believes its regional networks increase its economies of scale and enhance its
appeal to managed care organizations, thereby increasing its overall scan
volume. The Company has a substantial presence in California, Texas, New
England, the Carolinas and the Midwest (Illinois, Indiana and Ohio), and
provides its services through 50 Fixed Facilities, including 16 Multi-Modality
Centers, and 51 Mobile Facilities. For the twelve months ended March 31, 1998,
MRI services accounted for approximately 77% of the Company's total revenues.
The Company was formed in June 1996 as a result of the merger of AHS and
MHC, two publicly held providers of diagnostic imaging services. The Merger was
consummated in order to achieve cost savings, enhanced marketing capabilities,
increased market presence and greater financial resources, and to take advantage
of positive consolidating trends in the diagnostic imaging industry. Under the
leadership of its experienced management team, the Company has successfully
implemented its business strategy and capitalized on the business strengths
afforded by the Merger through a geographically disciplined growth strategy
focused on providing the highest quality, most cost-effective diagnostic
information within its regional diagnostic imaging networks. The Company's
operating profits have increased during each of the seven quarters since the
Merger (excluding a one-time non-cash charge of $6.3 million incurred in
connection with the Recapitalization) due in part to its successful integration
of seven acquisitions and increases in scan volumes, at its existing facilities.
For the twelve months ended March 31, 1998, after giving effect to the Pro Forma
Transactions, the Company had revenues of $135.3 million and adjusted EBITDA of
$38.1 million.
COMPETITIVE STRENGTHS
The Company believes it is well-positioned to take advantage of current
trends in the diagnostic imaging industry and attributes its favorable market
position to the following strengths:
STRONG REGIONAL NETWORKS WITH SIGNIFICANT MARKET PRESENCE. InSight has
developed a substantial presence in its targeted markets by forming regional
networks of diagnostic imaging services that provide superior service and
convenience to the Company's customers, including managed care organizations,
hospitals, radiologists and insurance companies. The Company believes these
networks enable InSight to increase its overall scan volume by effectively
addressing its customers' demands for high-quality service, customized
diagnostic information, flexible scheduling, single invoices and convenient
locations. In addition, such regional networks enable the Company to benefit
from enhanced economies of scale, including greater purchasing power, reduced
overhead, centralized billing and more efficient use of marketing expenditures.
CONTINUUM OF SERVICES. The Company believes it is unique in its ability to
offer a broad continuum of diagnostic services, from single modality Mobile
Facilities to comprehensive Multi-Modality Centers to the joint ownership and
management of the multi-modality radiology department of a hospital or multi-
specialty physician group. Through this continuum of increasing value-added
services, the Company is able to meet the diverse and developing needs of its
customers as their individual requirements change.
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STRONG RELATIONSHIPS WITH HOSPITALS AND MANAGED CARE. The Company's
contractual relationships with its hospital and managed care customers accounted
for approximately 83% of the Company's revenues during the twelve months ended
March 31, 1998.
HOSPITALS. The Company has over 200 exclusive contracts with hospitals for
Mobile Facility services and 13 exclusive contracts with hospitals for Fixed
Facility services. The Company provides MRI services to hospitals that require
such services but that do not want to incur the substantial capital investment
associated with MRI systems. InSight's Mobile Facilities employ systems housed
in specially designed trailers and typically operate under contracts with
average terms of three years to provide a specified schedule of service on a
fee-per-scan basis. The Company designs schedules for each system to rotate
among multiple hospitals in a manner that optimizes equipment utilization. Since
the Merger, the Company has experienced a renewal rate of approximately 85% for
its Mobile Facility hospital contracts. InSight's contracts with hospitals to
provide Fixed Facility and other diagnostic imaging services generally last from
five to ten years.
MANAGED CARE ORGANIZATIONS. The Company recognizes managed care as the
driving force behind its changing customer mix and has focused its marketing
efforts on appealing to what it believes are the primary concerns of managed
care: quality, cost, convenience and service. As a result, the Company currently
has in excess of 400 contracts with managed care organizations for diagnostic
imaging services at the Company's Fixed Facilities, primarily on a discounted
fee-for-service basis. The Company provides managed care organizations with
"one-stop shopping" consisting of centralized scheduling, single invoices, wide
geographic coverage, quality assurance and utilization management. The Company
experienced a 25% increase in the number of its managed care contracts from
March 31, 1997 to March 31, 1998.
TECHNOLOGICALLY ADVANCED EQUIPMENT. The Company's Fixed Facilities and
Mobile Facilities are operated with state-of-the-art equipment. Of the Company's
100 conventional MRI systems, 79% have a magnet strength of at least 1.0 Tesla.
In addition, the Company operates 13 Open MRI systems, nine of which are less
than one year old. The Company believes its technologically advanced equipment
allows the Company to perform the variety and volume of scans and to produce the
high quality images that its customers demand. In order to increase throughput
and productivity, the Company's MRI systems are periodically upgraded with the
latest software, which reduces the time per scan and improves image quality. As
a result of these upgrades, the Company's maintenance capital expenditures have
been stable and the Company expects such expenditures to remain stable for the
foreseeable future. In addition, the Company believes it is well-positioned to
benefit from new applications (e.g. mammography and stroke detection) for MRI
technology.
EXPERIENCED MANAGEMENT TEAM. The Company has a highly experienced senior
management team with an average of 15 years industry experience. Since the
Merger, management has successfully implemented the Company's business strategy,
resulting in increasing quarterly operating profitability (excluding a one-time
non-cash charge of $6.3 million incurred in connection with the
Recapitalization). In addition, the Company's successful integration of seven
acquisitions has produced increased revenues and cash flows. Management will
continue to develop the Company's business strategy by growing through regional
network expansion, pursuing opportunities within existing networks, focusing on
managed care and introducing new products.
STRONG EQUITY SPONSORSHIP. InSight enjoys strong strategic support from its
equity sponsors, The Carlyle Group and GE. In October 1997, Carlyle purchased
$25 million of a new series of the Company's preferred stock, currently
convertible into approximately 30% of the Company's common stock on a fully
diluted basis, and GE exchanged its existing preferred stock for a new series of
the Company's preferred stock, currently convertible into approximately 33% of
the Company's common stock on a fully diluted basis. The Carlyle Group is a
global investment firm which originates, structures and acts as lead equity
investor in targeted industries. Designees of Carlyle and GE serve on the Board.
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BUSINESS STRATEGY
The Company's business strategy is to further develop and expand regional
diagnostic imaging networks that emphasize quality of care, produce
cost-effective diagnostic information and provide superior service and
convenience to its customers. The Company's strategy primarily consists of the
following components:
GROWTH THROUGH REGIONAL NETWORK EXPANSION. The Company intends to further
participate in the consolidation occurring in the diagnostic imaging industry by
continuing to build its market presence in its existing regional diagnostic
imaging networks through geographically disciplined acquisitions. In addition,
the Company may develop or acquire additional regional networks in strategic
locations where the Company can offer a broad range of services to its customers
and realize increased economies of scale.
PURSUE OPPORTUNITIES WITHIN EXISTING NETWORKS. The Company will continue to
market current diagnostic imaging applications through its existing facilities
to optimize and increase overall procedure volume. The Company also expects to
increase scan volume as new applications develop for the Company's existing
diagnostic imaging equipment. In addition, the Company's management remains
focused on maximizing cost savings through increased purchasing power and the
reduction of overhead.
FOCUS ON MANAGED CARE. As the Company continues to strengthen its regional
diagnostic imaging networks, management recognizes the importance of managed
care customers and has developed specialized "one-stop shopping" for managed
care organizations. InSight intends to capitalize on its existing relationships
in the managed care industry and believes its regional networks and
strategically located Fixed Facilities give it a significant competitive
advantage in marketing to managed care organizations.
NEW PRODUCT INTRODUCTIONS. The Company is currently implementing a variety
of new products and services designed to further leverage its core business
strengths, including:
OPEN MRI SYSTEMS. The Company intends to expand beyond its existing 13 Open
MRI systems by establishing Open MRI imaging services throughout its regional
diagnostic imaging networks. Open MRI services allow for the diagnosis of a
patient without requiring the patient to enter into a conventional large-bore
MRI. The "open" application of the MRI technology offers treatment previously
unavailable to certain patients, including infants, pediatric patients,
claustrophobic patients, large or obese patients and patients suffering from
post-traumatic stress syndrome. Certain MRI applications, such as kinematic
studies, are more easily conducted in an Open MRI than in a conventional MRI.
RADIOLOGY CO-SOURCE PRODUCT. The Company seeks to develop its co-sourcing
product, which will involve the joint ownership and management (outsourcing) of
the physical and technical operations of the multi-modality radiology department
of a hospital or multi-specialty physician group. The Company believes it has
the expertise to manage these operations more efficiently and cost-effectively
than many hospitals and multi-specialty groups and views the co-source product
as a significant opportunity to expand its products and services from the $6
billion outpatient diagnostic imaging services industry to the $50 billion
diagnostic imaging services industry as a whole.
DIAGNOSTIC IMAGING AND TREATMENT SERVICES OFFERED
The Company provides a broad range of diagnostic imaging services, including
MRI, Open MRI, CT, ultrasound, nuclear medicine and x-ray services, as well as a
range of treatment services, including radiation oncology, lithotripsy and Gamma
Knife services.
MRI SERVICES. The Company provides MRI services through 51 Mobile
Facilities and 49 Fixed Facilities serving its regional networks. For the twelve
months ended March 31, 1998, MRI services accounted for approximately 77% of the
Company's total revenues. During the nine months ended March 31, 1998 compared
to the same period during the prior year, the Company had an increase in scan
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volumes at its existing facilities of approximately 12%. MRI uses high strength
magnetic fields and radio waves to produce cross-sectional images of the
anatomy, enabling physicians to differentiate between internal organs,
structures and tissues, thereby facilitating the early diagnosis of diseases and
disorders. MRI frequently lessens the cost and amount of care needed and often
eliminates the need for invasive diagnostic procedures. MRI is the preferred
imaging modality for the brain, the spine and soft tissue because it uses low
energy radiowaves to manipulate protons (usually hydrogen) in the body. As a
result, MRI produces a superior image without exposing patients to ionizing
radiation.
The major components of an MRI system are a large magnet, radio wave
equipment and a computer for data storage and image processing. During an MRI
study, a patient lies on a table, which is then placed into the magnet. Once in
the magnetic field, the protons in a patient's body will tend to align with the
magnetic field. Radio frequency ("RF") waves, produced by a radio antenna coil
which surrounds the body part to be imaged, are "pulsed" against the magnetic
field. The RF energy is then turned off, and the protons are observed for
different types of behavior, movement or "relaxation". Different tissues have
different relaxation times, depending on the amount of hydrogen or water in the
tissue. The data on each proton's behavior are collected digitally by the
system's computer and then reconstructed into cross-sectional images in three
dimensional planes of orientation. The resulting image reproduces soft tissue
anatomy (as found in the brain, spinal cord and interior ligaments of body
joints such as the knee) with superior clarity, not available by any other
currently existing imaging modality. A typical MRI examination takes from 20 to
45 minutes.
Because the signals used to produce magnetic resonance images contain both
chemical and structural information, the Company believes this technique has
greater potential for many important diagnostic applications than any other
imaging technology currently in use. While existing MRI systems demonstrate
excellent portrayals of anatomical structures within the human body, of even
greater significance is the fact that MRI is also sensitive to subtle
differences between tissues. Thus, MRI offers not only the opportunity for
highly effective classical diagnosis, but also the potential for future
monitoring of chemical processes within the body.
Depending upon type, features and options selected, an MRI system and
related housing and installation generally cost between $1.6 million and $2.2
million. The largest manufacturers of MRI systems are General Electric Medical
Systems ("GEMS"), Hitachi Medical Systems America, Inc., Phillips Medical
Systems North America Company, Picker International, Inc. and Siemens Medical
Systems, Inc. These manufacturers also supply maintenance and service under
warranties and contracts. Industry participants typically enter into contracts
with the manufacturers after expiration of the warranty for comprehensive
maintenance programs on equipment to minimize downtime (the period of time
equipment is unavailable during scheduled use hours because of malfunctions).
OPEN MRI SERVICES. The Company has 13 Open MRI systems, nine of which are
less than one year old. Recent technological advances in software and gradient
coil technology for MRI systems have allowed equipment with lower magnetic field
strength and open architecture design to offer significantly improved image
quality. Open MRI systems use permanent electromagnetic technology rather than
superconductivity magnets, substantially lowering both siting and service costs,
but do not provide images as efficiently as conventional large-bore MRI systems.
The open design allows for studies not normally possible in conventional MRI
systems, including exams of infants, pediatric patients, claustrophobic
patients, large or obese patients and patients suffering from post-traumatic
stress syndrome. Open MRI is also capable of conducting musculoskeletal exams
that require the patient to move or flex, such as kinematic knee studies. A
typical Open MRI non-kinematic exam takes from 45 to 90 minutes. Open MRI
systems are priced in the range of $0.6 million to $1 million. The Company
believes that Open MRI provides additional flexibility to its customers within a
regional network who either need or desire Open MRI capabilities.
CT SERVICES. Thirteen of the Company's Multi-Modality Centers offer CT
services in addition to MRI. CT scanning is performed by the rotation of a high
output x-ray tube around the patient. The x-ray
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tube emits a thin fan-shaped beam of x-rays that passes through the patient and
is absorbed by an array of x-ray detectors located on the side of the patient
opposite from the x-ray tube. The detected x-rays are then converted into
digital measurements of x-ray intensity directly proportional to the density of
the portion of the patient through which the beam passes. These digital
measurements of x-ray intensity are then processed by a specialized image
reconstruction computer system into a cross-sectional image. CT systems perform
multiple scans to create a "stack" of cross-sectional images. Typical scanning
times for a single image are in the one second to six second range. A complete
CT examination takes from 15 minutes to 45 minutes, depending on the complexity
of the examination and number of individual cross-sectional images required. The
current selling prices of CT systems fall in the range of $0.3 million to $1.5
million, depending upon the specific performance characteristics of the systems.
ULTRASOUND SERVICES. Nine of the Company's Multi-Modality Centers offer
ultrasound services in addition to MRI. Ultrasound systems emit, detect and
process high frequency sound waves to generate images of soft tissues and
internal body organs. The sound waves used in ultrasound do not involve ionizing
radiation and are not known to cause any harmful effects to the patient.
NUCLEAR MEDICINE SERVICES. Five of the Company's Multi-Modality Centers
offer nuclear medicine services in addition to MRI. Nuclear medicine gamma
cameras, which are based upon the detection of gamma radiation generated by
radioactive pharmaceuticals injected or inhaled into the body, are used to
provide information about organ function as opposed to anatomical structure.
X-RAY SERVICES. Thirteen of the Company's Multi-Modality Centers offer
x-ray services in addition to MRI. X-ray is the most common energy source used
in imaging the body. In addition to its use for CT scans, x-ray is employed in
two other imaging modalities: (i) conventional x-ray systems, the oldest method
of imaging, produce bone images and images of contrast-enhanced vasculature and
organs and constitute the largest number of installed systems; and (ii) digital
x-ray systems add computer image processing capability to conventional x-ray
systems.
RADIATION ONCOLOGY SERVICES. The Company offers radiation oncology services
at one Multi-Modality Center and at one dedicated radiation oncology center.
Radiation oncology generally uses external beam radiation from a linear
accelerator to treat cancer with ionizing radiation of the same type, but at
higher doses, as for diagnostic x-rays. In addition to x-rays, certain linear
accelerators have the capacity to produce electrons. While x-ray radiation can
penetrate the body a certain distance before delivering its maximum dose, and
therefore can treat internal structures, electrons have less penetrating ability
and permit the clinician to treat superficial lesions. Radiation oncology also
includes brachytherapy, which implants radioactive sources directly into or near
a tumor.
LITHOTRIPSY SERVICES. The Company acquired four mobile lithotripters in
connection with its acquisition of Signal, all of which operate in New England
or the Southeast. Lithotripsy is a non-invasive procedure for the treatment of
kidney stones, typically performed on an outpatient basis, that eliminates the
need for lengthy hospital stays and extensive recovery periods associated with
surgery. Lithotripters shatter kidney stones through the use of extracorporeal
shockwaves, following which the resulting kidney stone fragments pass out of the
body naturally.
GAMMA KNIFE SERVICES. The Company currently owns one Gamma Knife system.
The Gamma Knife delivers a single high dose of ionizing radiation by way of
individual beams focused on a common target, producing an intense concentration
of radiation at the target site, destroying the lesion while spreading the entry
radiation dose uniformly and harmlessly over the patient's skull. The Gamma
Knife treatment requires no open surgical intervention, no lengthy hospital stay
and no risk of post-surgical bleeding or infection. Typical treatment time is
approximately 10 to 15 minutes per area of interest ("isocenter"). Gamma Knife
systems generally cost approximately $3 million. During the nine months ended
March 31, 1998, the Company transferred the operations of one Gamma Knife unit
to the hospital where it was located.
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OPERATIONS
CUSTOMERS AND FEES. The Company's revenues are primarily generated from
contract services and patient services. For the nine months ended March 31,
1998, contract services and patient services accounted for 46% and 51%,
respectively, of the Company's revenues. Contract services revenues are
generally earned from services billed to a hospital or other health care
provider. During the nine months ended March 31, 1998, (i) 97% of contract
services revenues were derived from fee-for-service arrangements, in which
revenues are based upon a contractual rate per procedure; (ii) 1% of contract
services revenues were derived from equipment rental, in which revenues are
generally based upon a fixed monthly rental; and (iii) 2% of contract services
revenues were derived from management fees. Contract services revenues are
primarily earned through Mobile Facilities and certain Fixed Facilities and are
generally paid pursuant to hospital contracts with a life span of one to five
years for Mobile Facilities and five to ten years for Fixed Facilities. The
Company has over 200 exclusive contracts with hospitals for Mobile Facility
services and 13 exclusive contracts with hospitals for Fixed Facility services.
Patient services are billed directly to patients or third party payors
(generally managed care organizations, Medicare, Medicaid, private insurers and
workers compensation funds) on a fee-for-service basis, and are primarily earned
through Fixed Facilities, including Multi-Modality Centers.
The following chart illustrates the Company's payor mix based on revenues
for its patient services and contract services for the twelve months ended March
31, 1998:
<TABLE>
<CAPTION>
PATIENT CONTRACT
PAYOR SERVICES SERVICES CONSOLIDATED(1)
- -------------------------------------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Hospital........................................................................ 2% 100 % 56%
Managed Care.................................................................... 60% -- 27%
Medicare/Medicaid............................................................... 23% -- 10%
Workers' Compensation, Liens and Personal Injury................................ 10% -- 4%
Indemnity Insurance............................................................. 5% -- 3%
</TABLE>
- ------------------------
(1) Consolidated payor mix refers to the weighted average calculation of each
type of payor contribution to the Company's respective patient services and
contract services.
The Company's Fixed Facility operations are principally dependent on the
Company's ability (either directly or indirectly through its hospital customers)
to attract referrals from physicians and other health care providers
representing a variety of specialties. The Company's eligibility to provide
service in response to a referral is often dependent on the existence of a
contractual arrangement with the referred patient's insurance carrier (primarily
if the insurance is provided by a managed care organization). The Company
currently has in excess of 400 contracts with managed care organizations for
diagnostic imaging services provided at the Company's Fixed Facilities,
primarily on a discounted fee-for-service basis. A significant decline in
referrals and/or reimbursement rates would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Referrals for Fixed Facilities."
Each year approximately one-quarter to one-third of the Company's contract
services agreements for Mobile Facilities are subject to renewal. It is expected
that some high volume customer accounts will elect not to renew their agreements
and instead will purchase or lease their own diagnostic imaging equipment and
some customers may choose an alternative services provider. In the past, when
such agreements have not been replaced, the Company has generally been able to
obtain replacement contracts. While some replacement accounts have initially
been smaller than the lost accounts, such replacement accounts' revenues have
generally increased over the term of the agreement. There can be no assurance,
however, that new and renewal contracts will offset revenues lost from customers
electing not to renew their contracts with the Company. Although the non-renewal
of a single customer agreement would not have a
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material adverse effect on the Company's contract services revenues, non-renewal
of several agreements could have a material adverse effect on contract services
revenues.
In addition, the Company's contract services revenues with regard to its
Mobile Facilities in certain markets depend in part on some hospital accounts
with high volume. If the future reimbursement levels of such customers were to
decline or cease or if such customers were to become financially insolvent and
if such agreements were not replaced with new accounts or with the expansion of
services on existing accounts, the Company's contract services revenues would be
adversely affected. No single source accounts for more than 10% of the Company's
revenues. See "Risk Factors--Contract Renewals."
SALES AND MARKETING. The Company selectively invests in marketing and sales
resources and activities for the purpose of obtaining new sources of revenues
for the Company, expanding business relationships, growing revenues at its
existing facilities and maintaining present business alliances and contractual
agreements. Marketing activities include efforts to contact physicians,
education programs on new applications and uses of technology, customer service
programs and contracting with insurance payors for volume discounts. Sales
activities principally focus on hospital customers who purchase Mobile Facility
services from the Company or enter into other more extensive relationships for
Fixed Facility partnerships or radiology department management services.
EQUIPMENT. The Company has estimated that it has invested approximately $50
million since the Merger to replace and upgrade its existing diagnostic imaging
systems and to purchase new systems. As a result, the Company has
technologically advanced, state-of-the-art diagnostic imaging equipment. The
Company owns or leases 137 diagnostic imaging and treatment systems, of which
100 are conventional MRI systems, 13 are Open MRI systems, 16 are CT systems,
five are lithotripters, two are radiation oncology systems and one is a Gamma
Knife. The Company owns 75 of its imaging and treatment systems and has
operating leases for the remaining 59 systems. Of the Company's 100 conventional
MRI systems, 36% have a magnet strength of 1.5 Tesla and 40% have a magnet
strength of 1.0 Tesla. Currently, the industry standard magnet strength for
fixed systems is 1.5 Tesla and the industry standard magnet strength for mobile
systems is 1.0 Tesla. The Company is in the process of upgrading or replacing
its remaining conventional MRI systems from magnet strengths of less than 1.0
Tesla to magnet strengths of at least 1.0 Tesla. Nine of the Company's 13 Open
MRI systems are less than one year old.
The Company's master lease agreement with GEMS includes a variable lease
arrangement for 17 of the Company's 59 leased imaging and treatment systems,
which significantly reduces the Company's downside cash flow risk. Under the
Company's standard operating lease agreement with GEMS, the Company pays
approximately $30,000 per month to lease each system. Under the variable rate
election, the Company may choose to pay a monthly rental fee averaging $18,000
per system, plus 40% of the operating profits generated by such system, or to
store idle systems at a fixed location for a monthly payment from GEMS of $1,500
per system, representing approximately half of the monthly maintenance costs for
an idle system. The Company's variable lease arrangement with GEMS covers most
of the Company's older systems, which the Company either has upgraded or expects
to replace within the next 18 to 24 months. As of May 15, 1998, the Company had
elected the variable lease option with respect to four of the 17 systems in the
variable rate pool, each of which requires total monthly payments of $13,000 or
less. The option to elect the variable lease structure in the future with
respect to additional systems provides the Company with downside cash flow
protection in the event that any particular MRI system experiences low
utilization.
Several substantial companies are presently engaged in the manufacture of
MRI (including Open MRI), CT and other diagnostic imaging equipment, including
GEMS, Hitachi Medical Systems, Inc., Philips Medical Systems North America
Company, Picker International, Inc. and Siemens Medical Systems, Inc. The
Company maintains good working relationships with many of the major
manufacturers to better ensure an adequacy of supply as well as access to those
types of diagnostic imaging systems which appear most appropriate for the
specific diagnostic or treatment center to be established.
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COMPETITION
The health care industry in general, and the market for diagnostic imaging
services in particular, is highly competitive. The Company competes principally
on the basis of its reputation for productive and cost-effective quality
services. The Company's operations must compete with groups of radiologists,
established hospitals and certain other independent organizations, including
equipment manufacturers and leasing companies, that own and operate imaging
equipment. The Company will continue to encounter substantial competition from
hospitals and independent organizations, including, with respect to its Mobile
Facilities, Alliance Imaging, Inc. and its affiliates. Some of the Company's
direct competitors that provide contract diagnostic imaging services may have
access to greater financial resources than the Company.
Certain hospitals, particularly the larger hospitals, may be expected to
directly acquire and operate imaging and treatment equipment on-site as part of
their overall inpatient servicing capability, subject only to their decision to
acquire a diagnostic imaging system, assume the associated financial risk,
employ the necessary technologists and satisfy applicable licensure
requirements, if any. Historically, smaller hospitals have been reluctant to
purchase imaging and treatement equipment. This reluctance, however, has
encouraged the entry of start-up ventures and more established business
operations into the diagnostic services business. As a result, there is
significant excess capacity in the diagnostic imaging business in the United
States, which negatively affects utilization and reimbursement. See "Risk
Factors--Competition."
LIABILITY INSURANCE
The hospitals and physicians who use the Company's diagnostic imaging
services and imaging systems are involved in the delivery of health care
services to the public and, therefore, are exposed to the risk of liability
claims. The Company's position is that it does not engage in the practice of
medicine. The Company provides only the equipment and technical components of
diagnositic imaging, including certain limited nursing services, and has not
experienced any material losses due to claims for malpractice. Nevertheless,
claims for malpractice have been asserted against the Company in the past and
any future claims, if successful, could result in substantial damage awards to
the claimants, which may exceed the limits of any applicable insurance coverage.
While the Company maintains professional liability insurance, there can be no
assurance that any such claims against the Company will not exceed the amount of
insurance maintained. Successful malpractice claims asserted against the
Company, to the extent not covered by the Company's liability insurance, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Risks Inherent in the Provision of
Diagnostic Imaging Services."
GOVERNMENT REGULATION
The health care industry is highly regulated and changes in laws and
regulations can be significant. Changes in the law or new interpretations of
existing laws can have a material effect on permissible activities of the
Company, the relative costs associated with doing business and the amount of
reimbursement by government and other third party payors. The federal government
and all states in which the Company currently operates regulate various aspects
of the Company's business. Failure to comply with these laws could adversely
affect the Company's ability to receive reimbursement for its services and
subject the Company and its officers to penalties. See "Risk Factors--Government
Regulation."
ANTI-KICKBACK STATUTES
The Company is subject to federal and state laws which govern financial and
other arrangements between health care providers. These include the federal
anti-kickback statute which prohibits bribes, kickbacks, rebates and any other
direct or indirect remuneration in return for or to induce the referral of an
individual to a person for the furnishing, directing or arranging of services,
items or equipment for which payment may be made in whole or in part under
Medicare, Medicaid or other federal health care
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programs. Violation of the anti-kickback statute may result in criminal
penalties and exclusion from the Medicare and other federal health care
programs. Many states have enacted similar statutes which are not limited to
items and services paid for under Medicare or a federally funded health care
program. In recent years, there has been increasing scrutiny by law enforcement
authorities, HHS, the courts and Congress of financial arrangements between
health care providers and potential sources of patient and similar referrals of
business to ensure that such arrangements are not designed as mechanisms to pay
for patient referrals. HHS interprets the anti-kickback statute broadly to
apply, under certain circumstances, to distributions of partnership and
corporate profits to investors who refer federal health care program patients to
a corporation or partnership in which they have an ownership interest and to
payments for service contracts and equipment leases that are designed to provide
direct or indirect remuneration for patient referrals or similar opportunities
to furnish reimbursable items or services. In July 1991, HHS issued "safe
harbor" regulations that set forth certain provisions which, if met, will assure
that health care providers and other parties who refer patients or other
business opportunities, or who provide reimbursable items or services, will be
deemed not to violate the anti-kickback statute. The Company is also subject to
separate laws governing the submission of false claims. The Company believes
that its operations materially comply with the anti-kickback statutes. See "Risk
Factors--Government Regulation--Health Care Fraud and Abuse Regulations."
STARK II; STATE PHYSICIAN SELF-REFERRAL LAWS
A federal law, commonly known as the "Stark Law" or "Stark II," also imposes
civil penalties and exclusions for referrals for "designated health services" by
physicians to certain entities with which they have a financial relationship
(subject to certain exceptions). "Designated health services" include, among
other things, radiology services, including MRIs, CTs and ultrasound, and
inpatient and outpatient hospital services. The law applies only to services
reimbursable by Medicare or Medicaid. The Stark Law is self-effectuating and
does not require implementing regulation; however, while implementing
regulations have been issued relating to referrals for clinical laboratory
services, final regulations have not been issued regarding the other designated
health services. In addition, several states in which the Company operates have
enacted or are considering legislation that prohibits "physician self-referral"
arrangements or requires physicians to disclose to their patients any financial
interest they may have with a health care provider whom they recommend. Possible
sanctions for violating these provisions include loss of licensure and civil and
criminal sanctions. Such state laws vary from state to state and seldom have
been interpreted by the courts or regulatory agencies. Nonetheless, strict
enforcement of these requirements is likely. Although the Company believes its
operations materially comply with these federal and state physician
self-referral laws, there can be no assurance that Stark II or other regulations
will not be interpreted or changed in a manner that would have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Risk Factors--Government Regulation--Health Care Fraud and
Abuse Regulations."
INDEPENDENT PHYSIOLOGICAL LABORATORIES; INDEPENDENT DIAGNOSTIC TREATMENT
FACILITIES
Under past Medicare policy, imaging centers generally participated in the
Medicare program as either medical groups or, subject to the discretion of
individual Medicare carriers, Independent Physiological Laboratories ("IPLs").
The IPL is a loosely defined Medicare provider category that is not specifically
authorized to provide imaging services. Accordingly, certain carriers permit
IPLs to provide imaging services and others do not. In the past, the Company has
preferred, to the extent possible, to operate its imaging centers for Medicare
purposes as IPLs. The Company believes that the designation of its imaging
centers as IPLs gave it greater operational control than it would have had if
its imaging centers were operated under the medical group model, where the
Company would function as a "manager".
The Health Care Financing Administration ("HCFA") has established a new
category of Medicare provider intended to replace IPLs, referred to as
Independent Diagnostic Treatment Facilities ("IDTFs"). HCFA has not yet
implemented a mechanism for processing IDTF applications, but the Company
expects such mechanism to be put in place during calendar 1998. Under the
regulations, it appears that imaging
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centers will have the option to participate in the Medicare program either as
IDTFs or as medical groups. The Company believes that the impact of the IDTF
regulations is likely to be positive overall. Accordingly, the Company will
convert some or all of its existing centers into IDTFs, except in those states
where the medical group model is required. Since the mechanism to be used to
convert to IDTFs is still undetermined, it is possible that such conversions
will raise unanticipated issues. In addition, since the IDTF designation is new,
it is unclear to what extent and in what manner IDTFs will be monitored by HCFA,
but it is probable that HCFA will exercise increased oversight of IDTFs compared
to IPLs, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Reimbursement
of Health Care Costs."
FDA PREMARKET APPROVALS
The FDA has issued the requisite premarket approval for all of the MRI, CT,
lithotripsy and Gamma Knife systems utilized by the Company. Although the
Company does not believe that any further FDA approval is required in connection
with equipment currently in operation or proposed to be operated, there can be
no assurance that the Company's equipment vendors will be able to obtain any
requisite FDA premarket approvals in the future.
CERTIFICATES OF NEED
Some states require hospitals and certain other health care facilities to
obtain a CON or similar regulatory approval prior to the commencement of certain
health care operations or services and/or the acquisition of major medical
equipment, including MRI and Gamma Knife systems. CON regulations may limit or
preclude the Company from providing diagnostic imaging services or systems in
certain states. The Company believes that it will not be required to obtain CONs
in most of the states in which it intends to operate and in those states where a
CON is required, the Company believes it has complied or will comply with such
requirements. Nevertheless, a significant increase in the number of states
regulating the Company's business within the CON or state licensure framework
could adversely affect the Company's business, financial condition and results
of operations. Conversely, repeal of existing CON regulations in jurisdictions
where the Company has obtained or operates under a CON could also adversely
affect the Company's business, financial condition and results of operations as
barriers to entry are reduced or removed. This is an area of continuing
legislative activity, and there can be no assurance that the Company will not be
subject to CON and licensing statutes in other states in which it operates or
may operate in the future. See "Risk Factors--Government Regulation--Other State
Health Care Regulations."
RADIOLOGIST LICENSING
The radiologists with whom the Company may enter into agreements to provide
professional services are subject to licensing and related regulations by the
states. As a result, the Company requires its radiologists to have and maintain
appropriate licensure. Although the Company does not believe that such laws and
regulations will either prohibit or require licensure approval of its business
operations, there can be no assurance that such laws and regulations will not be
interpreted to extend such prohibitions or requirements to the Company's
operations. See "Risk Factors--Government Regulation--Health Care Fraud and
Abuse Regulations."
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REIMBURSEMENT OF HEALTH CARE COSTS
MEDICARE
The Medicare program provides reimbursement for hospitalization, physician,
diagnostic and certain other services to eligible persons 65 years of age and
over and certain others. Providers of service are paid by the federal government
in accordance with regulations promulgated by HHS and generally accept said
payment, with nominal co-insurance amounts required to be paid by the service
recipient, as payment in full. In general, these regulations provide for a
specific prospective payment to reimburse hospitals for inpatient treatment
services based upon the diagnosis of the patient. Although outpatient services
such as those primarily provided by the Company are presently exempt from
prospective payment reimbursement, Congress has instructed the Prospective
Payment Assessment Commission to study alternative methods for reimbursing
hospitals for outpatient services, including prospective payment methods, and
the Medicare program has adopted fee schedules for some diagnostic services.
Recent congressional and regulatory action has also imposed additional
requirements on the eligibility of certain diagnostic services for reimbursement
by the Medicare program, including new requirements regarding necessary
documentation from ordering physicians and supervision by radiologists. Such
congressional and regulatory action reflects industry-wide cost containment
pressures which the Company believes will affect all health care providers for
the foreseeable future. Such reductions in reimbursement levels may affect
health care providers' ability to pay for the services offered by the Company
and could indirectly adversely affect the Company's business, financial
condition and results of operations. See "Risk Factors--Reimbursement of Health
Care Costs."
MEDICAID
The Medicaid program is a combined federal and state program providing
coverage for low income persons. The specific services offered and reimbursement
methods vary from state to state. In many states, Medicaid reimbursement is
patterned after the Medicare program. There can be no assurance that changes in
Medicaid program reimbursement would not have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Reimbursement of Health Care Costs."
MANAGED CARE
HMOs and PPOs attempt to control the cost of health care services. Managed
care contracting has become very competitive and reimbursement schedules are at
or below Medicare reimbursement levels. The development and expansion of HMOs,
PPOs and other managed care organizations within the Company's regional networks
could have a negative impact on utilization of the Company's services in certain
markets and/or affect the revenue per procedure which the Company can collect
because such organizations will exert greater control over patients' access to
diagnostic imaging services, the selection of the provider of such services and
the reimbursement thereof. The Company expects that the excess capacity of
equipment in the United States may negatively impact operations because of the
competition among health care providers for contracts with all types of managed
care organizations. As a result of such competition, the length of term of any
contracts which the Company may obtain and the payment to the Company for such
services may also be negatively affected. See "Risk Factors--Reimbursement of
Health Care Costs" and "Business--Operations--Customers and Fees."
PRIVATE INSURANCE REIMBURSEMENT
Private health insurance programs generally have authorized the payment for
diagnostic imaging and Gamma Knife procedures on satisfactory terms and HCFA has
authorized reimbursement under the federal Medicare program for all diagnostic
imaging and Gamma Knife services currently being provided by the Company.
However, if Medicare reimbursement is reduced, the Company believes that private
65
<PAGE>
health insurance programs will also reduce reimbursement, which could have an
adverse impact on the Company's business, financial condition and results of
operations. See "Risk Factors--Reimbursement of Health Care Costs."
LEGAL PROCEEDINGS
The Company is engaged from time to time in the defense of lawsuits arising
out of the ordinary course and conduct of its business and has insurance
policies covering such potential insurable losses where the Company believes
such coverage is cost-effective. The Company believes that the outcome of any
such lawsuits will not have a material adverse impact on the Company's business.
On May 8, 1998, Medical Synergies, Inc. ("MSI") and its subsidiary, The
Center for Diagnostic Medical Services, Inc. ("CDMSI"), filed a complaint
against InSight Health Corp., a wholly owned subsidiary of the Company ("IHC"),
and certain of its officers, E. Larry Atkins, Thomas V. Croal, Glenn P. Cato,
Robert N. LaDouceur and Michael A. Boylan, in the District Court of Dallas
County, Texas. Plaintiffs allege that they had a final and binding agreement
with IHC with respect to the acquisition by IHC of certain assets, and
assumption by IHC of certain liabilities, of MSI and CDMSI. Plaintiffs'
complaint includes claims of anticipatory repudiation of an alleged agreement,
fraud, negligent misrepresentation, tortious interference with contract,
tortious interference with prospective business relations and attorneys' fees
based on breach or repudiation of the alleged agreement. The complaint requests
a judgment for actual, compensatory and consequential damages in an unspecified
amount, punitive and exemplary damages in an unspecified amount, pre-judgment
and post-judgment interest, attorneys' fees, expenses, costs and disbursements.
The Company, IHC and the other defendants have answered the complaint and the
case has been removed to the U.S. Bankruptcy Court for the Northern District of
Texas, Dallas Division, since MSI and CDMSI filed, after the filing of the
complaint against the defendants, for protection under Chapter 11 of the federal
bankruptcy law. The Company, IHC and the other defendants believe that
plaintiffs' claims are without merit and intend to vigorously defend the
lawsuit.
PROPERTIES
The Company leases approximately 12,300 square feet of office space for its
executive offices in Newport Beach, California, under a lease expiring in 2001,
and approximately 5,300 square feet of office space in Farmington, Connecticut,
under a lease expiring in 2002. The Company believes its facilities are adequate
for its reasonably foreseeable needs. In addition, the following table sets
forth the other principal properties used by the Company as of June 30, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
NAME OF FACILITY SQUARE FEET LOCATION
- ------------------------------------------- ------------- -----------------------------------
<S> <C> <C>
OWNED PROPERTIES:
Northern Indiana Oncology Center........... 3,500 Valparaiso, Indiana
Berwyn Magnetic Resonance Center (1)....... 3,800 Berwyn, Illinois
Garfield Imaging Center (1)................ 4,500 Monterey Park, California
LAC/USC Imaging Sciences
Center (1)............................... 8,500 Los Angeles, California
Maxum Diagnostic Center--Eighth Avenue..... 10,000 Ft. Worth, Texas
Diagnostic Outpatient Center (1)........... 13,800 Hobart, Indiana
Harbor/UCLA Diagnostic Imaging Center
(1)...................................... 15,000 Torrance, California
Mountain Diagnostics....................... 19,100 Las Vegas, Nevada
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
NAME OF FACILITY SQUARE FEET LOCATION
- ------------------------------------------- ------------- -----------------------------------
<S> <C> <C>
LEASED PROPERTIES:
Buckhead Imaging........................... 1,500 Atlanta, Georgia
Redwood City MRI........................... 2,900 Redwood City, California
Dublin Imaging............................. 3,900 Dublin, Ohio
Open MRI of Orange County.................. 4,000 Santa Ana, California
Washington Magnetic Resonance Center....... 4,100 Whittier, California
Imaging Center at Murfreesboro............. 5,000 Murfreesboro, Tennessee
Marshwood Imaging.......................... 5,000 Scarborough, Maine
Maxum Diagnostic Center--Preston Road...... 5,800 Dallas/Plano, Texas
Open MRI of Hayward........................ 6,400 Hayward, California
Central Maine Imaging Center............... 7,250 Lewiston, Maine
Ocean Medical Imaging Center............... 8,700 Tom's River, New Jersey
Broad Street Imaging Center................ 12,700 Columbus, Ohio
Maxum Diagnostic Center--Forest Lane....... 14,100 Dallas, Texas
Chattanooga Outpatient Center.............. 14,700 Chattanooga, Tennessee
Fleet Services/Training/Applications....... 20,000 Winston-Salem, North Carolina
</TABLE>
- ------------------------
(1) The Company owns the building and holds the related land under a long-term
lease.
On April 24, 1998, the Company completed the purchase of 77,690 square feet
of land in Ft. Worth, Texas, upon which the Company intends to build a
Multi-Modality Center to which certain existing operations in Ft. Worth will be
relocated.
EMPLOYEES
At June 30, 1998, the Company had approximately 800 full-time and 50
part-time employees. None of the Company's employees are covered by a collective
bargaining agreement. Management believes its employee relations to be
satisfactory.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of the
persons who are directors and executive officers of the Company. Each director
will hold office until the date indicated in the appropriate footnote or until
his successor has been elected and qualified. Officers are elected by the Board
and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
E. Larry Atkins................. 51 President, Chief Executive Officer and Director (1) (2)
Thomas V. Croal................. 38 Senior Executive Vice President, Chief Operating Officer and Chief
Financial Officer
Michael A. Boylan............... 42 Executive Vice President and Chief Development Officer
Marilyn U. MacNiven-Young....... 47 Executive Vice President, General Counsel and Secretary
Michael D. Cragin............... 50 Senior Vice President--Operations
Brian G. Drazba................. 36 Senior Vice President--Finance and Corporate Controller
Robert N. LaDouceur............. 53 Senior Vice President--Operations
Deborah M. MacFarlane........... 42 Senior Vice President--Marketing
Brian P. Stone.................. 38 Senior Vice President--Operations
Frank E. Egger.................. 53 Chairman of the Board and Director (1) (3)
Michael E. Aspinwall............ 45 Director (4)
Grant R. Chamberlain............ 33 Director (1) (5)
David W. Dupree................. 45 Director (6)
Leonard H. Habas................ 54 Director (1) (3)
Ronald G. Pantello.............. 54 Director (1) (5)
Glenn A. Youngkin............... 31 Director (6)
</TABLE>
- ------------------------
(1) Elected by the holders of the Company's common stock.
(2) Class I Director (term expires at the Company's annual meeting of
stockholders in 2000).
(3) Class III Director (term expires at the Company's annual meeting of
stockholders in 1999).
(4) Elected by the holders of the Series C Preferred Stock.
(5) Class II Director (term expires at the Company's annual meeting of
stockholders in 1998).
(6) Elected by the holders of the Series B Preferred Stock.
E. LARRY ATKINS has been a director and president and chief executive
officer of the Company since February 23, 1996. Mr. Atkins joined AHS in 1986
and has served as AHS's president and chief executive officer since August 1990
and chairman of the board from December 1990 to June 1992. Mr. Atkins served as
executive vice president and chief operating officer of AHS from 1986 to August
1990. Mr. Atkins became a director of AHS in 1988. From 1979 to 1986, Mr. Atkins
served as president and chief executive officer of AMI Diagnostic Services, a
wholly owned subsidiary of American Medical International, Inc.
THOMAS V. CROAL has been senior executive vice president, chief operating
officer and chief financial officer of the Company since July 21, 1998. He was
executive vice president, chief financial officer and secretary of the Company
from February 23, 1996 to July 21, 1998. Mr. Croal served as a director of AHS
from March 1991 until June 26, 1996. He has served as vice president and chief
financial officer of AHS
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<PAGE>
since April 1991. He was controller of AHS from 1989 until April 1991. In
December 1990, Mr. Croal was appointed corporate secretary. From 1981 to 1989,
Mr. Croal was employed by Arthur Andersen & Co., an independent public
accounting firm.
MICHAEL A. BOYLAN has been executive vice president and chief development
officer of the Company since April 1, 1998. From February 23, 1996 to April 1,
1998, he was senior vice president-operations of the Company. Mr. Boylan has
served as executive vice president of MHC since March 1994. From 1992 to 1994,
he served as a regional vice president of MHC's principal operating subsidiary,
Maxum Health Services Corp. ("MHSC"). From 1991 to 1992, he served as an
executive director of certain of MHC's operations. From 1986 to 1991, Mr. Boylan
served in various capacities as an officer and employee, including president and
chief operating officer, with American Medical Imaging Corporation.
MARILYN U. MACNIVEN-YOUNG has been executive vice president, general counsel
and secretary of the Company since August 1, 1998. From July 1, 1996 through
July 31, 1998, she served as outside general counsel of the Company. From
September 1994 through June 1995, Ms. MacNiven-Young served as vice president,
general counsel and secretary of Abbey Healthcare Group Inc. From 1991 to 1994,
she served as general counsel of AHS.
MICHAEL D. CRAGIN has been senior vice president-operations of the Company
since February 23, 1996. Mr. Cragin has served as regional vice president,
western operations of AHS since he joined AHS in May 1994. From 1989 to 1994, he
was Director of Professional Business Affairs at Saint John's Hospital, Santa
Monica, California.
BRIAN G. DRAZBA was elected senior vice president-finance of the Company on
July 18, 1997. From March 28, 1996, he served as vice president-finance of the
Company. Since June 1995, he has served as vice president-finance of AHS. Mr.
Drazba served as corporate controller for AHS from 1992 to 1995. From 1985 to
1992, Mr. Drazba was employed by Arthur Andersen & Co.
ROBERT N. LADOUCEUR has been senior vice president-operations of the Company
since February 23, 1996. Mr. LaDouceur has served as executive vice president of
MHC since March 1994. From 1992 to 1994, he served as a regional vice president
of MHSC. From 1991 to 1992, he served as an executive director of certain of
MHC's operations. From 1984 to 1991, Mr. LaDouceur served in various capacities
as an officer or employee, including vice president, with Glassrock Home Health
Care.
DEBORAH M. MACFARLANE has been senior vice president-marketing of the
Company since March 28, 1996. Since July 1991, she has served as vice president,
marketing of AHS. From 1987 until June 1991, Ms. MacFarlane served as director
of marketing for the Center Operating Group of Medical Imaging Centers of
America, Inc.
BRIAN P. STONE has been senior vice president-operations of the Company
since May 18, 1998. From 1994 until May 18, 1998, Mr. Stone served as president
and chief executive officer of Signal. From 1991 until 1994, Mr. Stone served as
treasurer and chief financial officer of Signal.
FRANK E. EGGER has been chairman of the board and a director of the Company
since February 23, 1996. Mr. Egger was a director of AHS from August 1991 until
June 26, 1996. He was appointed chairman of the board of AHS in May 1995, and
served as such until June 26, 1996. From 1995 through December 1996, Mr. Egger
served as vice president of Kovens & Associates, Inc. ("Kovens & Associates"), a
successor entity to Kovens Enterprises, where Mr. Egger served as chief
financial officer from 1980 to 1995. Kovens & Associates is a group of real
estate development and investment companies based in Miami, Florida. Since
December 1996, Mr. Egger has been a consultant.
MICHAEL E. ASPINWALL has been a director of the Company since November 20,
1997. Mr. Aspinwall is senior vice president and health care industry leader in
Equity Capital Group, Inc., a subsidiary of General Electric Capital
Corporation, and specializes in private equity investments in the health care
industry. From 1994 to 1996, Mr. Aspinwall was senior vice president and
manager, health care receivables in
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<PAGE>
Commercial Finance Group, Inc., a subsidiary of General Electric Capital
Corporation. From 1987 to 1994, Mr. Aspinwall held several vice presidential
positions with Chase Manhattan Bank, N.A. in New York.
GRANT R. CHAMBERLAIN has been a director of the Company since July 19, 1996.
Since January 1, 1998, Mr. Chamberlain has been a managing director of Shattuck
Hammond Partners, Inc. ("Shattuck Hammond"), an investment banking firm based in
New York City. From April 1995 to January 1, 1998, Mr. Chamberlain was a vice
president of Shattuck Hammond. From April 1991 to April 1995, he served as
manager of strategic investments and restructurings for GE.
DAVID W. DUPREE has been a director of the Company since October 14, 1997.
Mr. Dupree is a managing director of The Carlyle Group, a Washington, D.C. based
merchant banking firm where he has been employed since 1992. From 1990 to 1992,
Mr. Dupree was a principal in Corporate Finance, Private Placements, with
Montgomery Securities. From 1988 to 1990, he was vice president-corporate
finance and co-head of Equity Private Placements at Alex, Brown & Sons,
Incorporated. Mr. Dupree is also a director of Care Systems Corporation,
Pharmaceutical Research Associates, Inc., and Whole Foods Market, Inc.
LEONARD H. HABAS has been a director of the Company since February 23, 1996.
From 1986 to June 26, 1996, Mr. Habas was a director of MHC. Since 1995 he has
been a director , chairman of the board and chief executive officer of Advance
Publishers, L.C., a book distribution company based in Winter Park, Florida. He
established his own financing and consulting firm in 1987, which he continues to
own. Mr. Habas is also a director of Dick Davis Digest and CeraMed Corporation.
RONALD G. PANTELLO has been a director of the Company since February 23,
1996. From 1993 to June 26, 1996, Mr. Pantello was a director of MHC. He is a
founding partner of Lally, McFarland & Pantello, an advertising agency
specializing in the health care industry, based in New York City, and has been
its chief executive officer since 1980.
GLENN A. YOUNGKIN has been a director of the Company since October 14, 1997.
Mr. Youngkin is a vice president at The Carlyle Group, where he has been
employed since 1995. Mr. Youngkin was a consultant with McKinsey & Company, a
global management consulting firm from 1994 to 1995. From 1990 to 1992, Mr.
Youngkin worked in the Natural Resource Group of CS First Boston where he
structured and executed merger and acquisition transactions and capital market
financings. Mr. Youngkin also serves as a director of Elgar Holdings, Inc.
COMMITTEES
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During fiscal
1998 prior to the Recapitalization, the Company's Compensation Committee
consisted of two non-employee directors, Messrs. Habas (co-chairman) and
Pantello (co-chairman). Since the Recapitalization, the Compensation Committee
has consisted of three non-employee directors, Messrs. Habas, Pantello and
Youngkin. The Compensation Committee is responsible for determining the specific
forms and levels of compensation of the Company's executive officers, and
administering the Company's 1998 Employee Stock Option Plan, 1997 Management
Stock Option Plan, 1996 Employee Stock Option Plan and 1996 Directors' Stock
Option Plan, AHS's 1987 Stock Option Plan, AHS's 1992 Option and Incentive Plan,
and MHC's 1989 Stock Option Plan.
ACQUISITION COMMITTEE. The Acquisition Committee was created pursuant to
the Recapitalization. It currently consists of Messrs. Aspinwall, Atkins, Egger
and Youngkin. Its principal functions are to consider certain transactions with
respect to which the aggregate compensation payable in connection therewith is
less than $15 million.
AUDIT COMMITTEE. During fiscal 1998 prior to the Recapitalization, the
Audit Committee consisted of Messrs. Egger (chairman) and Chamberlain. Its
principal functions are to review the results of the Company's annual audit with
the Company's independent auditors and review the performance of the
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<PAGE>
Company's independent auditors. Since the Recapitalization, the Audit Committee
has consisted of Messrs. Chamberlain and Pantello. It is intended that the Joint
Director, when appointed and approved, will be a member of the Audit Committee.
EXECUTIVE COMMITTEE. Following the Recapitalization, the Executive
Committee was created. The Executive Committee currently consists of Messrs.
Aspinwall, Atkins, Dupree and Egger. It is authorized to exercise all the power
and authority of the Board in the management of the business of the Company but
its authority does not extend to certain fundamental corporate transactions.
NOMINATING COMMITTEE. The Nominating Committee currently consists of
Messrs. Habas and Egger. Its principal function is to make recommendations
relating to the composition of the Board, including identifying potential
candidates as Board members.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Because the Company was not a reporting company pursuant to Section 13(a) or
15(d) of the Exchange Act until June 26, 1996, its fiscal year ended shortly
thereafter on June 30, 1996 and each of its predecessors, MHC and IHC, were
reporting companies and have reported executive compensation information through
the year ended December 31, 1995, the following table sets forth information
concerning the annual, long-term and all other compensation for services
rendered in all capacities to the Company, its subsidiaries and predecessors for
the year ended December 31, 1995, the six months ended June 30, 1996 and the
years ended June 30, 1998 and 1997 of (i) the Company's chief executive officer
and (ii) the four most highly compensated executive officers (other than the
chief executive officer) of the Company (the "Other Executive Officers"), whose
aggregate cash compensation exceeded $100,000 for the year ended June 30, 1998.
71
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- AWARDS
NAME AND PRINCIPAL FISCAL YEAR STOCK OPTIONS ALL OTHER
POSITION ENDED SALARY(1) BONUS(2) OTHER(3) (SHARES) COMP(3)
- -------------------------------------------------- ------------- ---------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins................................... 1998 $ 287,000 $ -- $ 9,000 200,000 $ 16,242
President and Chief 1997 246,400 86,000 9,000 100,000 11,040
Executive Officer 1996(4) 123,200 -- 4,500 -- 4,691
1995 246,400 61,600 4,680 175,000 7,882
Glenn P. Cato..................................... 1998 207,000 -- 9,000 110,000 14,335
Senior Executive Vice 1997 180,000 54,000 9,000 25,000 13,296
President and Chief 1996(4) 97,500 10,000 3,000 -- --
Operating Officer(5) 1995 172,500 20,000 6,000 30,000 3,158
Thomas V. Croal................................... 1998 200,000 33,333 9,000 165,000 12,748
Executive Vice President, 1997 175,230 53,000 9,000 25,000 9,804
Chief Financial Officer and 1996(4) 87,615 -- 4,500 -- 2,669
Secretary (6) 1995 175,230 43,808 4,742 125,000 2,669
Robert N. LaDouceur............................... 1998 181,500 -- 7,800 60,000 14,638
Senior Vice President- 1997 165,000 36,000 7,800 10,000 8,169
Operations 1996(4) 82,500 10,000 3,900 -- --
1995 165,000 20,000 6,400 30,000 3,072
Michael A. Boylan................................. 1998 188,250 -- 7,800 60,000 7,715
Executive Vice President and Chief 1997 165,000 36,000 7,800 10,000 5,509
Development Officer 1996(4) 81,865 25,000 3,900 -- --
1995 165,000 20,000 6,400 30,000 --
</TABLE>
- ------------------------
(1) Includes amounts for periods during which the chief executive officer and
the Other Executive Officers of the Company whose aggregate cash
compensation exceeded $100,000 served as executive officers of IHC or MHC,
which are now wholly owned subsidiaries of the Company.
(2) Annual bonuses are earned and accrued during the fiscal years indicated, and
paid subsequent to the end of each fiscal year.
(3) Amounts of Other Annual Compensation include perquisites (auto allowances
and commissions for contract awards and renewals) and amounts of All Other
Compensation include (i) amounts contributed to the Company's, MHC's or
IHC's 401(k) profit sharing plans, as the case may be, (ii) specified
premiums on executive split-dollar insurance arrangements and (iii)
specified premiums on executive health insurance arrangements, for the chief
executive officer and the Other Executive Officers of the Company.
(4) Six months ending June 30, 1996.
(5) Mr. Cato's employment by the Company was terminated as of July 21, 1998.
(6) On July 21, 1998 Mr. Croal became Senior Executive Vice President and Chief
Operating Officer of the Company. He remained Chief Financial Officer of the
Company and was replaced as Secretary of the Company.
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<PAGE>
COMPENSATION OF DIRECTORS
The members of the Board who are not employees of the Company receive an
annual director fee of $15,000 and options to purchase the Company's common
stock for their services as directors, as provided in the Company's 1996
Directors' Stock Option Plan ("Directors' Plan"). On March 28, 1996, the Company
entered into a consulting agreement with Mr. Egger pursuant to which Mr. Egger
receives $85,000 per year for services rendered to the Company in connection
with its acquisition and financing activities. See "Employment Agreements and
Severance Agreements" and "Certain Relationships and Related Transactions."
The Directors' Plan provided for the automatic grant at the effective time
of the merger of each of AHS and MHC into wholly owned subsidiaries of the
Company ("Merger") to each non-employee director then serving on the Board of an
option to purchase 15,000 shares of the Company's common stock at an exercise
price equal to the fair market value of such stock on the date of the grant. In
addition, each new director of the Company who commences service after the
effective time of the Merger will be granted an option to purchase 15,000 shares
of the Company's common stock. The initial grants vest monthly on a pro rata
basis over a three-year period, so long as the individual remains a director of
the Company or is an employee or independent contractor of the Company or any of
its subsidiaries. At the end of such three-year period and annually thereafter
during the term of the Directors' Plan, so long as the individual remains a
director, he or she will be granted an option to purchase 5,000 shares of the
Company's common stock. These additional grants vest monthly over one year on
the same terms as the initial grants. These options expire ten years from the
date of grant. In accordance with this formula, on June 26, 1996, each of
Messrs. Egger, Habas and Pantello were granted options to purchase 15,000 shares
of the Company's common stock at an exercise price of $5.37 per share. In
addition, on July 19, 1996, Mr. Chamberlain was granted an option to purchase
15,000 shares of the Company's common stock at an exercise price of $7.00 per
share.
On July 17, 1997, the Company issued to each of Messrs. Chamberlain, Egger,
Habas and Pantello a warrant to purchase 15,000 shares of the Company's common
stock at an exercise price of $4.56 per share, which was the fair market value
of the Company's common stock on such date. The warrants vest cumulatively at
the rate of 416.66 shares per month and are exercisable at any time up to July
17, 2000.
In lieu of an automatic grant, under the Directors' Plan, to each of the
Series B Directors and the Series C Director of an option to purchase 15,000
shares of the Company's common stock, at the request of the Preferred Stock
Directors (as defined below), upon the date each of them became a Preferred
Stock Director, the Company issued to an affiliate of Carlyle a warrant to
purchase 30,000 shares of the Company's common stock at an exercise price of
$7.25 per share and GE a warrant to purchase 15,000 shares of the Company's
common stock at an exercise price of $10.00 per share. The Carlyle warrant vests
cumulatively at the rate of 833.33 shares per month and the GE warrant vests
cumulatively at the rate of 416.67 shares per month. The Carlyle warrant is
exercisable at any time up to October 14, 2000 and the GE warrant is exercisable
at any time up to November 20, 2000. See "Transactions With Holders of Preferred
Stock".
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<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to
each of the chief executive officer and the Other Executive Officers of the
Company during the year ended June 30, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------
NAME GRANTED IN FISCAL YEAR SHARE (1) DATE 5% 10%
- ---------------------------------- ----------- ----------------- ----------- ----------- ---------- ------------
E. Larry Atkins................... 50,000 5% $ 4.56 07/17/07(3) $ 143,388 $ 363,373
150,000 16% 8.37 11/07/07(4) 789,577 2,000,944
Glenn P. Cato..................... 30,000 3% 4.56 07/17/07(3) 86,033 218,024
80,000 8% 8.37 11/07/07(4) 421,108 1,067,170
Thomas V. Croal................... 25,000 3% 4.56 07/17/07(3) 71,694 181,687
140,000 14% 8.37 11/07/07(4) 736,939 1,867,547
Robert N. LaDouceur............... 10,000 1% 4.56 07/17/07(3) 28,678 72,675
50,000 5% 8.37 11/07/07(4) 263,192 666,981
Michael A. Boylan................. 10,000 1% 4.56 07/17/07(3) 28,678 72,675
50,000 5% 8.37 11/07/07(4) 263,192 666,981
</TABLE>
- ------------------------
(1) All options were granted at fair market value (the closing price reported on
The Nasdaq SmallCap Market for the Company's common stock) on the date of
grant.
(2) Potential realizable value is determined by taking the exercise price per
share and applying the stated annual appreciation rate compounded annually
for the remaining term of the options (ten years), subtracting the exercise
price per share at the end of the period and multiplying the remaining
number by the number of options granted. Actual gains, if any, on stock
option exercises and the Company's common stock holdings are dependent on
the future performance of the Company's common stock and overall stock
market conditions.
(3) Options are exercisable starting twelve (12) months after the grant date,
with 25% of the shares becoming exercisable at that time and with an
additional 25% of the shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date. The options were granted for a term of ten years, subject to earlier
termination in certain events related to termination of employment.
(4) 50% of the options are exercisable starting twelve (12) months after the
grant date, with 33% of the shares becoming exercisable at that time and
with in additional 33% of the shares becoming exercisable on each successive
anniversary date. The remaining 50% of the options are exercisable 7 years
after the grant date, with 33% of the shares becoming exercisable at that
time and with an additional 33% of the shares becoming exercisable on each
successive anniversary date, with acceleration in certain circumstances. The
options were granted for a term of ten years, subject to earlier termination
in certain events related to termination of employment.
OPTION EXERCISES DURING FISCAL 1998 AND FISCAL YEAR-END VALUES
During the year ended June 30, 1998, neither of the chief executive officer
nor the Other Executive Officers of the Company (except Mr. Cato) exercised any
stock options. The following table sets forth information with respect to the
stock options exercised by Mr. Cato during fiscal 1998 and the unexercised stock
options to purchase the Company's common stock granted, under (i) MHC's and
AHS's stock option
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plans and assumed by the Company pursuant to the Merger, and (ii) the Company's
1996 Employee Stock Option Plan and (iii) the Company's 1997 Management Stock
Option Plan to the chief executive officer and the Other Executive Officers of
the Company as of June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE- MONEY
ACQUIRED HELD AT JUNE 30, 1998 OPTIONS AT JUNE 30, 1998(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins......................... -- -- 39,000 278,500 $18,375 $1,032,875
Glenn P. Cato........................... 34,385 $487,011(2) 24,190 128,750 195,819 460,475
Thomas V. Croal......................... -- -- 16,250 186,250 13,125 592,950
Robert N. LaDouceur..................... -- -- 41,370 67,500 408,165 214,650
Michael A. Boylan....................... -- -- 41,370 67,500 408,165 214,650
</TABLE>
- ------------------------
(1) Based on the closing price reported on The Nasdaq SmallCap Market for the
Company's common stock on that date of $10.75 per share.
(2) The value realized is the fair market value of the shares on the date of
exercise less the exercise price.
INDEMNIFICATION AGREEMENTS
The Company has entered into separate indemnification agreements with each
of its directors and executive officers that could require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors and executive officers and to
advance expenses incurred by them as a result of any proceedings against them as
to which they could be indemnified.
The Recapitalization agreements also contain provisions for the
indemnification of the Company's directors under certain circumstances. The
agreements pursuant to which Carlyle and GE acquired Series B Preferred Stock
and Series C Preferred Stock, respectively, provide that the Company will
indemnify, defend and hold harmless Carlyle and GE, as the case may be, and
their respective affiliates, directors, officers, advisors, employees and agents
to the fullest extent lawful from and against all demands, losses, damages,
penalties, claims, liabilities, obligations, actions, causes of action and
reasonable expenses ("Losses") arising out of the agreements or the related
transactions or arising by reason of or resulting from the breach of any
representation, warranty, covenant or agreement of the Company contained in such
agreements for the period for which such representation or warranty survives;
provided, however, that the Company does not have any liability to indemnify
Carlyle or GE with respect to Losses arising from the bad faith or gross
negligence of the Carlyle or GE indemnified party. The Recapitalization
agreements provide that no claim may be made by Carlyle or GE against the
Company for indemnification until the aggregate dollar amount of all Losses
incurred by Carlyle or GE, as applicable, exceeds $250,000 and the
indemnification obligations of the Company shall be effective only until the
dollar amount paid in respect of the Losses incurred by Carlyle or GE, as
applicable, and indemnified against aggregates to an amount equal to $25
million, except with respect to Losses resulting from the breaches of certain
representations or covenants, which are unlimited in amount.
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EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company has entered into executive employment agreements with its chief
executive officer, the Other Executive Officers and Messrs. Cragin, Drazba and
Stone and Ms. MacFarlane and Ms. MacNiven-Young, which provide for rolling
twelve (12) month periods of employment, and severance compensation equal to 12
months of compensation at his or her annual salary rate then in effect, in the
event the executive's employment is terminated (i) because of physical or mental
disability, (ii) because of discretionary action of the Board or (iii)
voluntarily by the executive due to a "Change of Control" and in the case of Mr.
Stone and Ms. MacNiven-Young voluntarily by them for "good reason" as defined in
their employment agreements. A "Change of Control" will have occurred if the
Company or its stockholders enter 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 Company's outstanding common stock such that one person or "group" (as
defined by the SEC) owns, of record or beneficially, not less than 50% of the
Company's outstanding common stock. In the event that the executive's employment
is terminated for cause, he or she has no right to receive any severance
compensation under his or her employment agreement. In consideration for such
severance compensation, each executive has agreed not to solicit, entice, divert
or otherwise contact any customer or employee of InSight for any provision of
services which constitute "Company Business" during the period that the
executive is receiving severance compensation or for a period of 12 months after
the executive's termination of employment, whichever is later. "Company
Business" means the development and operation, at times together with other
healthcare providers, of outpatient facilities which provide diagnostic services
in the areas of general radiology, MRI, cardiology and neurosciences utilizing
the related equipment and computer programs and software and various
distribution methods and investment structures.
Mr. Egger, a director and chairman of the board, has entered into a
consulting agreement with InSight providing for compensation at the rate of
$85,000 per year. Mr. Egger's agreement provides for severance compensation
equal to 12 months of compensation in the event the agreement is terminated as a
result of (i) Mr. Egger becoming physically or mentally disabled, (ii)
discretionary action of the Board, or (iii) a corporate reorganization that has
the effect of diminishing or impairing Mr. Egger's consulting responsibilities.
Pursuant to his executive employment agreement, Mr. Cato will receive
severance equal to twelve months salary at his level of compensation as of July
21, 1998 in connection with his termination of employment.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership, reported to the Company
as of June 30, 1998, of the Company's common stock, including shares as to which
a right to acquire ownership exists (for example, through the exercise of stock
options and warrants and conversions of Preferred Stock within the meaning of
Rule 13d-3(d)(1) under the Exchange Act), of (i) each person known to the
Company to own
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beneficially 5% or more of the Company's common stock, (ii) each director of the
Company, (iii) the Company's executive officers, and (iv) all directors and
executive officers, as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESSES OF BENEFICIAL OWNERSHIP PERCENTAGE OF COMMON STOCK
BENEFICIAL OWNERS OF COMMON STOCK (1) BENEFICIALLY OWNED (1)
- --------------------------------------------------------------- -------------------- ---------------------------
<S> <C> <C>
Carlyle (2) ................................................... 3,243,408 53.5%
1001 Pennsylvania Avenue, N.W.
Suite 220
Washington, D.C. 20004
General Electric Company (3) .................................. 3,591,331 56.0%
20825 Swenson Drive
Suite 100
Waukesha, WI 53186
E. Larry Atkins (4) ........................................... 63,600 2.2%
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Grant R. Chamberlain (5) ...................................... 16,250 *
620 Fifth Avenue
Suite 2950
New York, NY 10111
Frank E. Egger (6) ............................................ 62,552 2.2%
10301 S.W. 13th Street
Pembroke Pines, FL 33025
Leonard H. Habas (7) .......................................... 59,091 2.0%
501 S. New York Avenue
Suite 210
Winter Park, FL 32789
David W. Dupree (8) ........................................... 0 0
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Glenn A. Youngkin (9) ......................................... 1,000 *
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Roz Kovens (10) ............................................... 149,079 5.0%
9999 Collins Avenue #1K
Bal Harbour, FL 33154
Ronald G. Pantello (11) ....................................... 34,606 1.2%
60 Madison Avenue
New York, NY 10010
Glenn P. Cato (12) ............................................ 66,371 2.0%
400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
</TABLE>
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<TABLE>
<S> <C> <C>
Thomas V. Croal (13) .......................................... 24,000 *
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Michael A. Boylan (14) ........................................ 43,870 1.5%
110 Gibraltar Road
Horsham, PA 18901
Robert N. LaDouceur (15) ...................................... 43,870 1.5%
11011 King Street
Suite 240
Overland Park, KS 66210
Michael D. Cragin (16) ........................................ 6,250 *
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Brian G. Drazba (17) .......................................... 4,500 *
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Deborah M. MacFarlane (18) .................................... 6,750 *
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Brian P. Stone (19) ........................................... 8,930 *
74 Batterson Park Road
Farmington, CT 06032
All directors and executive officers as a group (15 persons) 434,140 13.4%
(20).........................................................
</TABLE>
- ------------------------
* Less than 1% of the Company's outstanding common stock.
(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 June 30, 1998.
(2) The information in the table is based upon the Schedule 13D filed with the
Commission by Carlyle on October 24, 1997. Represents shares of the
Company's common stock issuable upon conversion of all 25,000 shares of
Series B Preferred Stock (convertible into 2,985,075 shares of the Company's
common stock) and exercise of certain warrants ("Carlyle Warrants")
(exercisable for 250,000 shares of the Company's common stock) held by
Carlyle, which is comprised of the entities listed in the following
sentence. The cumulative Carlyle ownership figure represents (i) 3,235,075
shares beneficially owned by Carlyle Partners II, L.P., including 8,208
shares of Series B Preferred Stock (convertible into 980,028 shares of the
Company's common stock) and Carlyle Warrants to purchase 82,077 shares of
the Company's common stock with respect to which it has disposal power, and
3,235,075 shares with respect to which it shares voting power; (ii)
3,235,075 shares beneficially owned by Carlyle Partners III, L.P., including
375 shares of Series B Preferred Stock (convertible into 44,732 shares of
the Company's common stock) and Carlyle Warrants to purchase 3,764 shares of
the Company's common stock with respect to which it has disposal power, and
3,235,075 shares with respect to which it shares voting power; (iii) 896,526
shares beneficially owned by Carlyle International Partners II,
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<PAGE>
L.P., including 6,928 shares of Series B Preferred Stock (convertible into
827,244 shares of the Company's common stock) and Carlyle Warrants to
purchase 69,282 shares of the Company's common stock with respect to which
it has disposal power and shares voting power; (iv) 48,304 shares
beneficially owned by Carlyle International Partners III, L.P., including
373 shares of Series B Preferred Stock (convertible into 44,571 shares of
the Company's common stock) and Carlyle Warrants to purchases 3,733 shares
of the Company's common stock with respect to which it has disposal power
and shares voting power; (v) 201,857 shares beneficially owned by C/S
International Partners, including 1,559 shares of Series B Preferred Stock
(convertible into 186,258 shares of the Company's common stock) and Carlyle
Warrants to purchase 15,599 shares of the Company's common stock with
respect to which it has disposal power and shares voting power; (vi) 1,115
shares beneficially owned by Carlyle Investment Group, L.P., including 9
shares of Series B Preferred Stock (convertible into 1,029 shares of the
Company's common stock) and Carlyle Warrants to purchase 86 shares of the
Company's common stock with respect to which it has disposal power and
shares voting power; (vii) 118,902 shares beneficially owned by
Carlyle-InSight International Partners, L.P., including 919 shares of Series
B Preferred Stock (convertible into 109,714 shares of the Company's common
stock) and Carlyle Warrants to purchase 9,178 shares of the Company's common
stock with respect to which it has disposal power and shares voting power;
(viii) 3,235,075 shares beneficially owned by Carlyle-InSight Partners, L.P.
including 3,181 shares of Series B Preferred Stock (convertible into 379,863
shares of the Company's common stock) and Carlyle Warrants to purchase
31,813 shares of the Company's common stock with respect to which it has
disposal power and 3,235,075 shares with respect to which it shares voting
power; (ix) 446,404 shares beneficially owned by Carlyle Investment
Management, L.L.C. acting as investment advisor and manager with
responsibility to invest certain assets of the State Board of Administration
of the State of Florida ("State Board"), including 3,448 shares of Series B
Preferred Stock (convertible into 411,658 shares of the Company's common
stock) and Carlyle Warrants to purchase 34,746 shares of the Company's
common stock with respect to which it has disposal power and shares voting
power; and (x) warrants to purchase 8,333 shares of the Company's common
stock at an exercise price of $7.25 per share owned by TC Group Management,
LLC. Does not include warrants to purchase 21,667 shares of the Company's
common stock at an exercise price of $7.25 per share, owned by TC Group
Management, LLC, which are not currently exercisable. TC Group, L.L.C. may
be deemed to share voting and disposal power with respect to, and therefore
be the beneficial owner of 3,235,075 shares of the Company's common stock as
the general partner of Carlyle Partners II, L.P., Carlyle Partners III,
L.P., Carlyle Investment Group, L.P., and Carlyle-InSight Partners, L.P.,
and as the managing partner of Carlyle International Partners II, L.P.,
Carlyle International Partners III, L.P., C/S International Partners, and
Carlyle-InSight International Partners II, L.P. TCG Holdings, L.L.C., as a
member holding a controlling interest in TC Group, L.L.C., may be deemed to
share all rights herein described belonging to TC Group, L.L.C. Furthermore,
because certain managing members of TCG Holdings, L.L.C., are also managing
members of Carlyle Investment Management, L.L.C., Carlyle Investment
Management, L.L.C. may be deemed to be part of Carlyle and consequently, TCG
Holdings, L.L.C. may be deemed the beneficial owner of the shares of the
Company's common stock controlled by Carlyle Investment Management, L.L.C.
The principal business address of TC Group, L.L.C. and TCG Holdings, L.L.C.
is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South,
Washington, D.C. 20004. The principal business address of Carlyle Partners
II, L.P., Carlyle Partners III, L.P., Carlyle Investment Group, L.P.,
Carlyle-InSight Partners, L.P., and Carlyle Investment Management, L.L.C. is
Delaware Trust Building, 900 Market Street, Suite 200, Wilmington, Delaware
19801. The principal business address of Carlyle International Partners II,
L.P., Carlyle International Partners III, L.P., C/S International Partners,
and Carlyle-InSight International Partners, L.P. is Coutts & Co., P.O. Box
707, Cayman Islands, British West Indies. Carlyle owns all of the
outstanding shares of the Series B Preferred Stock.
(3) The information in the table is based upon Amendment No. 1 to Schedule 13D
filed by GE with the Commission on October 23, 1997. Represents shares of
the Company's common stock issuable upon
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(i) conversion of all 27,953 shares of Series C Preferred Stock (convertible
into 3,337,581 shares of the Company's common stock) held by GE, (ii)
exercise of certain warrants ("GE Warrants") (exercisable for 250,000 shares
of the Company's common stock), and (iii) warrants to purchase 3,750 shares
of the Company's common stock at an exercise price of $10.00 per share. Does
not include warrants to purchase 11,250 shares of the Company's common stock
at an exercise price of $10.00 per share, which are not currently
exercisable. GE owns all of the outstanding shares of Series C Preferred
Stock.
(4) Includes (i) options to purchase 14,000 shares of the Company's common stock
at an exercise price of $2.50 per share, (ii) options to purchase 25,000
shares of the Company's common stock at an exercise price of $6.25 per share
and (iii) options to purchase 2,500 shares of the Company's common stock at
an exercise price of $4.56 per share. Does not include (i) options to
purchase 3,500 shares of the Company's common stock at an exercise price of
$2.50 per share, (ii) options to purchase 75,000 shares of the Company's
common stock at an exercise price of $6.25 per share, (iii) options to
purchase 37,500 shares of the Company's common stock at an exercise price of
$4.56 per share, and (iv) options to purchase 150,000 shares of the
Company's common stock at an exercise price of $8.37 per share, which are
not currently exercisable.
(5) Includes (i) options to purchase 10,417 shares of the Company's common stock
at an exercise price of $7.00 per share and (ii) warrants to purchase 5,833
shares of the Company's common stock at an exercise price of $4.56 per
share. Does not include options to purchase 4,583 shares of the Company's
common stock at an exercise price of $7.00 per share and (ii) warrants to
purchase 9,167 shares of the Company's common stock at an exercise price of
$4.56 per share, which are not currently exercisable.
(6) Includes (i) options to purchase 10,833 shares of the Company's common stock
at an exercise price of $5.37 per share, (ii) options to purchase 2,400
shares of the Company's common stock at an exercise price of $2.50 per
share, (iii) options to purchase 2,000 shares of the Company's common stock
at an exercise price of $16.20 per share, (iv) warrants to purchase 2,268
shares of the Company's common stock at an exercise price of $5.64 per
share, and (v) warrants to purchase 5,833 shares of the Company's common
stock at an exercise price of $4.56 per share. Does not include (i) options
to purchase 4,167 shares of the Company's common stock at an exercise price
of $5.37 per share, (ii) options to purchase 600 shares of the Company's
common stock at an exercise price of $2.50 per share and (iii) warrants to
purchase 9,167 shares of the Company's common stock at an exercise price of
$4.56 per share, which are not currently exercisable.
(7) Includes (i) options to purchase 10,833 shares of the Company's common stock
at an exercise price of $5.37 per share, (ii) options to purchase 4,485
shares of the Company's common stock at an exercise price of $15.64 per
share, (iii) options to purchase 8,970 shares of the Company's common stock
at an exercise price of $1.25 per share, (iv) options to purchase 8,970
shares of the Company's common stock at an exercise price of $0.10 per share
and (v) warrants to purchase 5,833 shares of the Company's common stock at
an exercise price of $4.56 per share. Does not include (i) options to
purchase 4,167 shares of the Company's common stock at an exercise price of
$5.37 per share and (ii) warrants to purchase 9,167 shares of the Company's
common stock at an exercise price of $4.56 per share, which are not
currently exercisable.
(8) Mr. Dupree is a managing member of TCG Holdings, L.L.C. Mr. Dupree's
interest in TCG Holdings, L.L.C. is not controlling and thus Mr. Dupree
expressly disclaims any beneficial ownership in the Company's common stock
beneficially owned by TCG Holdings, L.L.C.
(9) Mr. Youngkin is an employee of The Carlyle Group and holds no economic
interest in either TC Group L.L.C. or TCG Holdings, L.L.C., and as such
expressly disclaims any beneficial ownership in the Company's common stock
beneficially owned by Carlyle.
(10) The information in the table is based upon Schedule 13G filed with the
Commission on March 12, 1998. Includes (i) options to purchase 600 shares of
the Company's common stock at an exercise price
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<PAGE>
of $2.50 per share and (ii) by virtue of her status as personal
representative of the Estate of Cal Kovens, the 1,004 shares of the
Company's common stock beneficially owned thereby. Does not include options
to purchase 600 shares at an exercise price of $2.50 per share, which are
not currently exercisable.
(11) Includes (i) options to purchase 10,417 shares of the Company's common
stock at an exercise price of $5.37 per share, (ii) options to purchase
8,970 shares of the Company's common stock at an exercise price of $1.25 per
share, (iii) options to purchase 8,970 shares of the Company's common stock
at an exercise price of $0.10 per share and (iv) warrants to purchase 5,417
shares of the Company's common stock at an exercise price of $4.56 per
share. Does not include (i) options to purchase 4,583 shares of the
Company's common stock at an exercise price of $5.37 per share and (ii)
warrants to purchase 9,583 shares of the Company's common stock at an
exercise price of $4.56 per share, which are not currently exercisable.
(12) Includes (i) options to purchase 17,940 shares of the Company's common
stock at an exercise price of $2.50 per share, (ii) options to purchase
6,250 shares of the Company's common stock at an exercise price of $6.25 per
share and (iii) options to purchase 7,500 shares of the Company's common
stock at an exercise price of $4.56 per share.
(13) Includes (i) options to purchase 10,000 shares of the Company's common
stock at an exercise price of $2.50 per share and (ii) options to purchase
6,250 shares of the Company's common stock at an exercise price of $6.25 per
share. Does not include (i) options to purchase 18,750 shares of the
Company's common stock at an exercise price of $6.25 per share, (ii) options
to purchase 25,000 shares of the Company's common stock at an exercise price
of $4.56 per share, (iii) options to purchase 2,500 shares of the Company's
common stock at $2.50 per share, and (iv) options to purchase 140,000 shares
of the Company's common stock at an exercise price of $8.37 per share, which
are not currently exercisable.
(14) Includes (i) options to purchase 11,960 shares of the Company's common
stock at an exercise price of $0.42 per share, (ii) options to purchase
8,970 shares of the Company's common stock at an exercise price of $0.10 per
share, (iii) options to purchase 17,940 shares of the Company's common stock
at an exercise price of $0.84 per share and (iv) options to purchase 2,500
shares of the Company's common stock at an exercise price of $6.25 per
share. Does not include (i) options to purchase 7,500 shares of the
Company's common stock at an exercise price of $6.25 per share, (ii) options
to purchase 10,000 shares of the Company's common stock at an exercise price
of $4.56 per share, and (iii) options to purchase 50,000 shares of the
Company's common stock at an exercise price of $8.37 per share, which are
not currently exercisable.
(15) Includes (i) options to purchase 11, 960 shares of the Company's common
stock at an exercise price of $0.42 per share, (ii) options to purchase
8,970 shares of the Company's common stock at an exercise price of $0.10 per
share, (iii) options to purchase 17,940 shares of the Company's common stock
at an exercise price of $0. 84 per share, (iv) options to purchase 2,500
shares of the Company's common stock at an exercise price of $6.25 per share
and (v) options to purchase 2,500 shares of the Company's common stock at an
exercise price of $4.56 per share. Does not include (i) options to purchase
7,500 shares of the Company's common stock at an exercise price of $6.25 per
share, (ii) options to purchase 7,500 shares of the Company's common stock
at an exercise price of $4.56 per share, and (iii) options to purchase
50,000 shares of the Company's common stock at an exercise price of $8.37
per share, which are not currently exercisable.
(16) Includes (i) options to purchase 3,750 shares of the Company's common stock
at an exercise price of $6.25 per share and (ii) options to purchase 2,500
shares of the Company's common stock at an exercise price of $4.56 per
share. Does not include (i) options to purchase 11,250 shares of the
Company's common stock at an exercise price of $6.25 per share, (ii) options
to purchase 7,500 shares of the Company's common stock at an exercise price
of $4.56 per share, and (iii) options to purchase
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30,000 shares of the Company's common stock at an exercise price of $8.37
per share, which are not currently exercisable.
(17) Includes (i) options to purchase 2,000 shares of the Company's common stock
at an exercise price of $6.25 per share and (ii) options to purchase 2,500
shares of the Company's common stock at an exercise price of $4.56 per
share. Does not include (i) options to purchase 6,000 shares of the
Company's common stock at an exercise price of $6.25 per share and (ii)
options to purchase 7,500 shares of the Company's common stock at an
exercise price of $4.56 per share, which are not currently exercisable.
(18) Includes (i) options to purchase 3,750 shares of the Company's common stock
at an exercise price of $6.25 per share and (ii) options to purchase 2,500
shares of the Company's common stock at an exercise price of $4.56 per
share. Does not include (i) options to purchase 11,250 shares of the
Company's common stock at an exercise price of $6.25 per share and (ii)
options to purchase 7,500 shares of the Company's common stock at an
exercise price of $4.56 per share, which are not currently exercisable.
(19) Includes options to purchase 8,930 shares of the Company's common stock at
an exercise price of $12.57 per share. Does not include options to purchase
98,230 shares of the Company's common stock at an exercise price of $12.57
per share, which are not currently exercisable.
(20) Assumes the exercise in full of options or warrants described in footnotes
(4) through (7) and (11) through (19) that are currently exercisable or that
will become exercisable within 60 days of June 30, 1998.
Except as otherwise noted, the Company believes that each of the
stockholders listed in the table above has sole voting and dispositive power
over all shares owned.
POSSIBLE FUTURE BOARD CHANGES
The Company's common stock holders currently are entitled to elect a
majority of the Board. Under certain circumstances, the holders of the Series D
Preferred Stock (which is issuable only on conversion of the Series B Preferred
Stock and the Series C Preferred Stock) would be entitled to elect a majority of
the Board. If, at any time on or after October 22, 1998 ("Trigger Date"), a
majority of the holders of each of the Series B Preferred Stock and the Series C
Preferred Stock elect to convert such Stock into Series D Preferred Stock, then
all shares of Series B Preferred Stock and Series C Preferred Stock will
automatically be converted into shares of Series D Preferred Stock on the date
of such election ("Conversion Date"). Immediately following such conversion, the
number of members of the Board will be increased by an additional number of
directors ("Conversion Directors") such that the percentage of the total Board
represented by the Conversion Directors and the Preferred Stock Directors
("Series D Directors") would correspond to the percentage of Common Stock owned
by the Series D Preferred Stock holders on an as-if-converted basis, provided
that the Series D Directors shall constitute less than two-thirds of the Board.
In such event, the Preferred Stock Directors would remain on the Board and the
vacancies created for the Conversion Directors would be filled by the Series D
Preferred Stock holders. Assuming conversion of all of the outstanding Series B
Preferred Stock and Series C Preferred Stock, the percentage of the Company's
outstanding common stock currently owned by the Series B Preferred Stock holders
is approximately 33% and the percentage of the Company's common stock currently
owned by the Series C Preferred Stock holders is approximately 37%. If such
Preferred Stock were converted into Series D Preferred Stock on or after the
Trigger Date, the aggregate percentage of the Company's common stock owned by
the Series D Preferred Stock holders would be approximately 70%. Thus, as a
result of such conversion, designees of the Series D Preferred Stock holders
would constitute a majority (but less than two-thirds) of the Board.
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The holders of Series D Preferred Stock will have the right to vote with the
holders of the Company's common stock with respect to all matters submitted to a
stockholder vote except, until the second annual meeting of stockholders after
the Conversion Date, for the election of directors. At and after the second
annual stockholders meeting, the positions of all directors whose terms have
expired will be subject to election by holders of the Company's common stock and
Series D Preferred Stock voting together as a class, with each share of Series D
Preferred Stock having the number of votes equal to the number of shares of the
Company's common stock into which such share is then convertible.
Notwithstanding the foregoing, if the Conversion Date is prior to October 14,
1999, then from the Conversion Date until the second subsequent annual
stockholders meeting, except as provided in the next sentence, none of the
following transactions may be effected by the Company, and neither Carlyle, GE
nor any other holder of Series D Preferred Stock shall participate in such
transactions, if any transferee of Carlyle or GE or any other person referred to
in the following clauses beneficially owns five percent (5%) or more of the
Company's voting shares: (i) any merger or consolidation of the Company or any
of its subsidiaries with or into such person; (ii) any sale, lease, exchange or
other disposition of all or any substantial part of the assets of the Company or
any of its subsidiaries to such other person; (iii) the issuance or delivery of
any voting securities of the Company or any of its subsidiaries to such other
person in exchange for cash, other assets or securities, or a combination
thereof; or (iv) any dissolution or liquidation of the Company. The foregoing
prohibition shall not apply with respect to a transaction approved by (i) at
least 80% of the Company's outstanding voting shares (which includes the
Company's common stock and the Series D Preferred Stock) or (ii) at least
two-thirds of the Company's directors (which must include, to the extent still a
director, either (A) the Joint Director (as defined herein), if such Joint
Director served in such position as of the Conversion Date or has been approved
by a majority of the directors who were Common Stock Directors (as defined
herein) as of the Conversion Date or (B) at least one director who was a Common
Stock Director prior to the Conversion Date). See "Description of Preferred
Stock."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KOVENS TRANSACTIONS
In November 1994, AHS issued Cal Kovens, who was a director of AHS until his
death on February 6, 1995, a warrant to purchase 200,000 shares of AHS common
stock at $0.25 per share in consideration of certain Gamma Knife financing
activities which Mr. Kovens assisted in facilitating. Pursuant to the terms of
the Merger, the warrant became a warrant to purchase 20,000 shares of the
Company's common stock at the exercise price of $2.50 per share. The warrant was
exercised by the estate of Mr. Kovens, of which Roz Kovens, spouse of Mr.
Kovens, is the personal representative, in November 1997. In addition, a loan to
a wholly owned subsidiary of AHS was secured by a letter of credit of $400,000
which was guaranteed by the estate of Mr. Kovens until September 30, 1997, when
the guarantee expired. See "--Transactions with Holders of AHS Series B
Preferred Stock."
TRANSACTIONS WITH FRANK E. EGGER
Since July 1, 1996, Mr. Egger, chairman of the Board, has been and continues
to be paid $85,000 per year for acquisition and financing activities pursuant to
a consulting agreement. In the event the agreement is terminated as a result of
(i) Mr. Egger becoming physically or mentally disabled, (ii) discretionary
action of the Board or (iii) a corporate reorganization that has the effect of
diminishing or impairing Mr. Egger's consulting responsibilities, he is entitled
to severance compensation equal to twelve months of compensation. See
"--Transactions with Holders of AHS Series B Preferred Stock."
TRANSACTIONS WITH GE
GE, as the primary creditor of AHS and MHC, had from time to time granted
AHS and MHC certain financial accommodations with respect to certain loans and
leases. In exchange for such accommodations, AHS and MHC issued certain
considerations to GE. As a prerequisite to the consummation of the Merger,
certain financial accommodations were provided by GE, the primary creditor of
each of AHS and MHC, and its affiliates. As a result, certain debt and operating
lease obligations of AHS and MHC were reduced in exchange for, among other
things, the issuance to GE immediately prior to the consummation of the Merger
of AHS Series C Preferred Stock and MHC Series B Preferred Stock. At the
effective time of the Merger, the AHS Series C Preferred Stock and MHC Series B
Preferred Stock issued to GE was converted into the right to receive such number
of shares of InSight Series A Preferred Stock which were convertible into the
Company's common stock representing approximately 48% of the Company's common
stock outstanding at the effective time of the Merger (after giving effect to
such conversion).
In addition, as part of the granting of certain financial accommodations
contemplated to be provided by GE, at the effective time of the Merger, warrants
previously issued to GE by AHS to acquire 1,589,072 shares of AHS common stock,
and warrants previously issued to GE by MHC to acquire 700,000 shares of MHC
common stock, were canceled without payment therefor. Furthermore, GE had the
right to receive for ten years annual payments ("Supplemental Service Fee")
under its maintenance agreements with the Company, AHS and MHC equal to 14% of
InSight pretax income, subject to certain adjustments, and further subject to
proportional reductions for certain post-Merger acquisitions. The Company
terminated the Supplemental Service Fee on October 14, 1997 as part of the
Recapitalization in exchange for the issuance to GE of 7,000 shares of Series C
Preferred Stock. In connection with the Recapitalization, the net proceeds from
the Carlyle investment were used to refinance a portion of the Company's
outstanding indebtedness to GE (approximately $20 million). At the initial
funding of the Senior Credit Facilities, all of the term loan facility was drawn
down to refinance all of the remaining GE indebtedness (approximately $50
million). In addition, the Company has purchased a majority of its MRI systems
from GE, through GEMS, and the Company currently leases a majority of its
diagnostic imaging and treatment systems from GEMS under a master lease
agreement, including 18 systems within a variable lease pool. See
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"Business--Operations--Equipment." GEMS also provides maintenance services with
respect to the Company's GE equipment.
TRANSACTIONS WITH HOLDERS OF AHS SERIES B PREFERRED STOCK
Pursuant to certain agreements among the Company, AHS and the holders of AHS
Series B Preferred Stock, including Mr. Egger, Roz Kovens and the estate of Cal
Kovens, the holders of the AHS Series B Preferred Stock agreed to waive any
rights to dividends, liquidation preferences, voting and redemption they might
have had in connection with the Merger and certain other rights. In
consideration therefor, upon the consummation of the Merger, the Company issued
to such holders, warrants to purchase an aggregate of 50,000 shares of the
Company's common stock (including 7,660 shares to Roz Kovens and 33,645 shares
to the estate of Mr. Kovens, which have since been exercised, and 2,268 shares
to Mr. Egger) at the exercise price of $5.64 per share, exercisable at any time
up to August 9, 2001. In addition, subject to certain conditions, the holders
have certain "piggy-back" registration rights to register the shares subject to
the warrants under the Securities Act.
TRANSACTIONS WITH SHATTUCK HAMMOND
On August 14, 1996, the Company entered into an agreement with Shattuck
Hammond, an investment banking firm located in New York in which a director of
the Company, Mr. Chamberlain, is a vice president, pursuant to which Shattuck
Hammond provides general strategic advisory and investment banking services. The
term of the agreement commenced July 1, 1996 and extended through December 31,
1997. The Company has agreed to extend the term of the agreement through
December 31, 1998. The Company is obligated to pay Shattuck Hammond $30,000 per
quarter. Shattuck Hammond also is entitled to separately negotiated fees for
certain mergers or acquisitions. The Company also issued Shattuck Hammond a
warrant to purchase 35,000 shares of the Company's common stock at an exercise
price of $5.50 per share, which vested cumulatively on a monthly basis over the
18 month term of the initial agreement. The warrant is now fully exercisable and
is exercisable at any time up to August 14, 2000. In addition, Shattuck Hammond
has certain "piggy-back" registration rights to register the shares subject to
the warrant under the Securities Act. In connection with the Recapitalization,
the Company paid Shattuck Hammond a fee of $500,000 for providing certain
advisory services.
TRANSACTIONS WITH HOLDERS OF PREFERRED STOCK
In lieu of an automatic grant, under the 1996 Directors' Stock Option Plan,
to each of the Series B Directors (appointed by Carlyle) and the Series C
Director (appointed by GE) of an option to purchase 15,000 shares of the
Company's common stock, at the request of such Preferred Stock Directors, upon
the date each of them became a Preferred Stock Director, the Company issued to
an affiliate of Carlyle a warrant to purchase 30,000 shares of the Company's
common stock at an exercise price of $7.25 per share and GE a warrant to
purchase 15,000 shares of the Company's common stock at an exercise price of
$10.00 per share. The Carlyle warrant vests cumulatively at the rate of 833.33
shares per month and the GE warrant vests cumulatively at the rate of 416.67
shares per month. The Carlyle warrant is exercisable at any time up to October
14, 2000 and the GE warrant is exercisable at any time up to November 20, 2000.
In connection with the Recapitalization, the Company paid to each of Carlyle
and GE a placement fee of $125,000, reimbursed Carlyle and GE an aggregate of
$500,000 for reasonable out-of-pocket expenses incurred and agreed to pay each
of Carlyle and GE an annual financial advisory fee equal to $50,000, payable
quarterly, for a two-year period.
TRANSACTIONS WITH BRIAN P. STONE
In connection with the acquisition by merger of Signal (the "Signal
Merger"), the Company paid to Mr. Stone approximately $2.9 million in cash in
consideration for tendering his shares of Signal's common
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stock in the Signal Merger. On May 18, 1998, at the consummation of the Signal
Merger, the Company and Mr. Stone entered into an employment agreement pursuant
to which Mr. Stone was appointed senior vice president-operations for an initial
term of one year. Thereafter, such employment agreement renews automatically for
additional one year terms unless terminated by either party pursuant to the
terms thereof. Under the terms of his employment agreement, Mr. Stone receives a
base salary of $165,000 per year, a stay bonus of $408,300 payable over four
years and a discretionary bonus the amount of which is based upon the financial
performance of the Company. Pursuant to his employment agreement, Mr. Stone also
received options to purchase 107,160 shares of the Company's common stock at
$12.57 per share. See "Security Ownership of Certain Beneficial Owners and
Management."
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DESCRIPTION OF SENIOR CREDIT FACILITIES
The Company entered into a Credit Agreement, dated as of October 14, 1997,
as amended on November 17, 1997, December 19, 1997, March 23, 1998 and June 12,
1998 (as so amended, the "Senior Credit Facilities"), among the Company, as the
Borrower, certain of the Company's subsidiaries named therein, as the
Guarantors, the financial institutions named therein, as the Lenders, and
NationsBank, N.A., as the Agent, pursuant to which the Company obtained a $150
million credit facility, composed of (a) a five-year $25 million revolving
credit facility, (b) a two-year $65 million acquisition facility with increasing
amortization over a five-year period and (c) a $60 million term loan facility
consisting of (i) a $20 million tranche with increasing amortization over a
five-year period and (ii) a $40 million tranche with increasing amortization
over a seven-year period. At March 31, 1998, approximately $8.3 million was
outstanding under the revolving credit facility, $2.9 million under the
acquisition facility and an aggregate of $59 million under the two term loan
facilities, for a total of $70.2 million outstanding under the Senior Credit
Facilities.
Concurrently with the issuance of the Outstanding Notes (the "Amendment
Date"), the Company amended the Senior Credit Facilities to, among other things,
(i) increase the acquisition facility from $65 million to $75 million, with a
two-year availability period and amortization over a five-year period from the
first anniversary of the Amendment Date, (ii) refinance and consolidate the
existing $20 million tranche term loan and $40 million tranche term loan into a
single $50 million term loan, with amortization over a six-year period from the
Amendment Date, and (iii) extend the termination date of the five-year $25
million revolving credit facility to the fifth anniversary of the Amendment
Date. The amendment also provided that, without consent of the Agent, advances
under the acquisition facility may not exceed $15 million with respect to any
single acquisition or $50 million for all acquisitions in any fiscal year of the
Company.
The Senior Credit Facilities contain customary representations and
warranties, affirmative and negative covenants and events of default.
Specifically, the Company is (i) obligated to maintain a number of covenants
keyed to the Company's financial conditions and performance, (ii) obligated to
limit liens on its assets to those incurred in the ordinary course of business
and for taxes and other similar obligations and (iii) subject to customary
covenants, including (A) disposition of assets only in the ordinary course of
business and generally at fair value and (B) restrictions on acquisitions,
mergers, consolidations, loans, leases, joint ventures, contingent obligations
and certain transactions with affiliates. The obligations of the Company under
the Senior Credit Facilities are secured by substantially all of the assets of
the Company, including a pledge of the capital stock of all of its subsidiaries,
in favor of the Agent. The Company's obligations are also guaranteed by certain
subsidiaries of the Company named in the Senior Credit Facilities and secured by
substantially all of the assets of such subsidiaries in favor of the Agent.
Specifically, the financial covenants of the Company were amended to require
the Company's total leverage ratio not to exceed 4.5:1, the senior leverage
ratio not to exceed 3.0:1, the interest coverage ratio not to be less than 2.0:1
and the fixed charge coverage ratio not to be less than 1.1:1, in each case
during the first two years after the Amendment Date, with certain adjustments
thereafter. Interest rates on the Senior Credit Facilities equal LIBOR plus 175
basis points, subject to a performance pricing.
The net proceeds of the issuance of the Outstanding Notes and the borrowing
under the term loan portion of the Senior Credit Facilities were or will be used
in part to repay all of the Company's outstanding indebtedness under the
acquisition facility and the revolving credit facility under the Senior Credit
Facilities. Upon consummation of the issuance of the Outstanding Notes, the
borrowing under the term loan portion of the Senior Credit Facilities and
application of the net proceeds therefrom, the acquisition facility and the
revolving credit facility became available to the Company in full for future
borrowings.
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DESCRIPTION OF NOTES
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS DESCRIPTION OF
NOTES TO (I) THE "AMENDED CREDIT AGREEMENT" REFER TO THE AMENDED CREDIT
AGREEMENT AND (II) THE "PREFERRED STOCK" REFER TO PREFERRED STOCK, EACH AS
DEFINED IN "DESCRIPTION OF NOTES--CERTAIN DEFINITIONS."
GENERAL
The Outstanding Notes were issued, and the Exchange Notes will be issued,
under an indenture dated as of June 1, 1998 (the "Indenture") among the Company,
as issuer, each of the Company's Restricted Subsidiaries (the "Subsidiary
Guarantors"), as Subsidiary Guarantors and State Street Bank and Trust Company,
N.A., as trustee (the "Trustee"), a copy of which has been filed as an exhibit
to the Registration Statement. The terms of the Exchange Notes are identical in
all material respects to the terms of the Outstanding Notes except that the
Exchange Notes have been registered under the Securities Act and are issued free
from any covenant regarding registration and except that, if the Exchange Offer
has not been consummated or a shelf registration statement is not declared
effective on or prior to December __, 1998, then the Company will pay liquidated
damages to each Holder of Outstanding Notes for the first 90 days following such
date in an amount equal to $.05 per week per $1,000 principal amount of
Outstanding Notes held by such Holder. The amount of liquidated damages will
increase by an additional $.05 per week per $1,000 principal amount of
Outstanding Notes at the beginning of each subsequent 90-day period until the
Exchange Offer is consummated or the shelf registration is declared effective,
up to a maximum amount of liquidated damages of $.30 per week per $1,000
principal amount of Outstanding Notes. The Exchange Notes and the Outstanding
Notes are treated as one series of Notes under the Indenture and holders thereof
are entitled to the benefit of the Indenture. Accordingly, unless specifically
stated to the contrary, the following description applies equally to all Notes.
Upon issuance of the Exchange Notes, the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "Certain Definitions" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on June 15, 2008, are limited in aggregate principal
amount to $100 million and are senior subordinated unsecured obligations of the
Company. The Indenture provides for the issuance of up to $75 million aggregate
principal amount of additional Notes having identical terms and conditions to
the Notes offered hereby (the "Additional Notes"), subject to compliance with
the covenants contained in the Indenture. Any Additional Notes will be part of
the same issue as the Notes offered hereby and will vote on all matters with the
Notes offered hereby. For purposes of this "Description of the Notes," reference
to the Notes does not include Additional Notes. No offering of any such
Additional Notes is being or shall in any manner be deemed to be made by this
Prospectus. In addition, there can be no assurance as to when or whether the
Company will issue any such Additional Notes or as to the aggregate principal
amount of such Additional Notes. Interest on the Notes accrues at the rate of
9 5/8% per annum and is payable semiannually on each June 15 and December 15,
commencing December 15, 1998, to the Holders of record on the immediately
preceding June 1 and December 1. Interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been paid,
from June 12, 1998 (the "Issue Date"). Interest is computed on the basis of a
360-day year comprising twelve 30-day months.
The principal of and premium, if any, and interest on the Notes is payable
and the Notes are exchangeable and transferable, at the office or agency of the
Company in the City of New York maintained
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for such purposes (which initially will be the office of the Trustee located at
61 Broadway, 15th Floor, New York, New York 10006) or, at the option of the
Company, payment of interest may be paid by check mailed to the address of the
person entitled thereto as such address appears in the security register. The
Notes will be issued only in registered form without coupons and only in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange or redemption of
Notes, but the Company may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
Notes that remain outstanding after the consummation of the Exchange Offer
and Exchange Notes issued in connection with the Exchange Offer will be treated
as a single class of securities under the Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
SUBORDINATION
The Notes are unsecured senior subordinated obligations of the Company. The
payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or cash equivalents of Senior Indebtedness.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness (including interest after the commencement
of any such proceeding at the rate specified in the applicable Senior
Indebtedness) before the Holders of Notes will be entitled to receive any
payment in respect of any Obligations with respect to the Notes, and until all
Obligations with respect to Senior Indebtedness are paid in full in cash or cash
equivalents, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Indebtedness (except that Holders of
Notes may receive securities that are subordinated at least to the same extent
as the Notes to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness and Holders of Notes may recover payments made from the
trust described under the caption "Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described under the
caption "Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness which permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Agent
Bank or the holders or the representative of the holders of any Designated
Senior Indebtedness. Payments on the Notes may and shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced by a Payment Blockage Notice unless and until (i) 360
days have elapsed since the first day of the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due have been paid in
full in cash. No nonpayment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice, unless such default has been
cured or waived for a period of not less than 90 days.
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The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of any Event
of Default.
As a result of the subordination provisions described above, in the event of
an insolvency, bankruptcy, reorganization or liquidation of the Company,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and assets which would otherwise
be available to pay obligations in respect of the Notes will be available only
after all Senior Indebtedness has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes. See
"Risk Factors--Subordination of Notes and Subsidiary Guarantees; Asset
Encumbrances." As of March 31, 1998, after giving pro forma effect to the
acquisition of Signal, the borrowing under the term loan portion of the Senior
Credit Facilities, the issuance of the Outstanding Notes and the application of
the net proceeds therefrom, the Company would have had $53.4 million of Senior
Indebtedness outstanding and $100 million available to be borrowed under the
Amended Credit Agreement, all of which would be Senior Indebtedness. The terms
of the Indenture permit the Company and its Restricted Subsidiaries to incur
additional Senior Indebtedness, subject to certain limitations, including
Indebtedness that may be secured by Liens on property of the Company and its
Restricted Subsidiaries. See the discussion below under the captions "Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" and
"Certain Covenants--Liens." See "Risk Factors--Subordination of Notes and
Subsidiary Guarantees; Asset Encumbrances."
SUBSIDIARY GUARANTEES
Payment of the principal of (and premium, if any) and interest on the Notes,
when and as the same become due and payable, is guaranteed, jointly and
severally, on a senior subordinated and unsecured basis (the "Subsidiary
Guarantees") by the Subsidiary Guarantors. At the Closing Date, each of the
Company's Restricted Subsidiaries (other than Permitted Joint Ventures) became a
Subsidiary Guarantor. In addition, if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary (other than any Foreign
Subsidiary and any Permitted Joint Venture), then such Subsidiary shall be
required to execute a Subsidiary Guarantee, in accordance with the terms of the
Indenture. See "Certain Covenants-- Guarantees of Indebtedness by Restricted
Subsidiaries." The obligations of the Subsidiary Guarantors under the Subsidiary
Guarantees are limited so as not to constitute a fraudulent conveyance under
applicable statutes. See "Risk Factors--Fraudulent Conveyance Statutes."
Each Subsidiary Guarantee is subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full in cash or cash equivalents of
Senior Indebtedness of the relevant Subsidiary Guarantor.
Upon any distribution to creditors of a Subsidiary Guarantor in a
liquidation or dissolution of such Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to such
Subsidiary Guarantor or its property, an assignment for the benefit of creditors
or any marshaling of such Subsidiary Guarantor's assets and liabilities, the
holders of Senior Indebtedness of such Subsidiary Guarantor will be entitled to
receive payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness (including interest after the commencement
of any such proceeding at the rate specified in the applicable Senior
Indebtedness of such Subsidiary Guarantor) before the Holders of Notes will be
entitled to receive any payment in respect of any Obligations with respect to
the relevant Subsidiary Guarantee, and until all Obligations with respect to
Senior Indebtedness of such Subsidiary Guarantor are paid in full in cash or
cash equivalents, any payment that would have been made under such Subsidiary
Guarantee shall be made to the holders of Senior Indebtedness of such Subsidiary
Guarantor (except that Holders of Notes may receive (i) Capital Stock of such
Subsidiary Guarantor (other than Disqualified Stock) and (ii) securities that
are subordinated at least to the same extent as such Subsidiary Guarantee to
Senior Indebtedness of such Subsidiary Guarantor and to any securities issued in
exchange for Senior Indebtedness of such Subsidiary Guarantor).
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Such Subsidiary Guarantor also may not make any payment upon or in respect
of its Subsidiary Guarantee (except in such subordinated securities of such
Subsidiary Guarantor) if (i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Indebtedness of the relevant
Subsidiary Guarantor occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness of such Subsidiary Guarantor which permits
holders of the Designated Senior Indebtedness of such Subsidiary Guarantor as to
which such default relates to accelerate its maturity and the Trustee receives a
Payment Blockage Notice from the holders or the representative of the holders of
any Designated Senior Indebtedness of such Subsidiary Guarantor. Any payments
under any Subsidiary Guarantee may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced by a Payment Blockage Notice unless and until (i) 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if any,
and interest on the Notes that have become due and payable have been paid in
full. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice, unless such default has been
cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
an insolvency, bankruptcy, reorganization or liquidation of a Subsidiary
Guarantor creditors of the relevant Subsidiary Guarantor who are holders of
Senior Indebtedness of such Subsidiary Guarantor may recover more, ratably, than
the holders of the Notes, and assets which would otherwise be available to pay
obligations in respect of the Notes will be available only after all Senior
Indebtedness of such Subsidiary Guarantor has been paid in full, and there may
not be sufficient assets remaining to pay amounts due on any or all of the
Notes. As of March 31, 1998, after giving pro forma effect to the acquisition of
Signal, the borrowing under the term loan portion of the Amended Credit
Agreement, the issuance of the Outstanding Notes and the application of net
proceeds therefrom, the Subsidiary Guarantors would have had $53.4 million of
Senior Indebtedness outstanding, all of which would have represented guarantees
of Indebtedness under the Amended Credit Agreement. The terms of the Indenture
permit Restricted Subsidiaries of the Company to incur additional Senior
Indebtedness, subject to certain limitations, including Indebtedness that may be
secured by Liens on property of the Restricted Subsidiaries. See the discussion
below under the captions "Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "Certain Covenants--Liens."
The Indenture provides that upon a sale or other disposition to a Person not
an Affiliate of the Company of all or substantially all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition to a Person not an Affiliate of the Company of all of the
Capital Stock of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, which transaction is carried out in accordance with the covenants
described below under the captions "Repurchase at the Option of Holders--Asset
Sales" or "Certain Covenants--Merger, Consolidation or Sale of Assets," so long
as (a) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
release, (b) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of "Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock" on the date on which such
release occurs, such Subsidiary Guarantor will be deemed automatically and
unconditionally released and discharged from all of its obligations under its
Subsidiary Guarantee without any further action on the part of the Trustee or
any holder of the Notes; PROVIDED that any such termination shall occur only to
the extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure any, Indebtedness of the Company shall also terminate
upon such sale, disposition or release.
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OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to June 15, 2003.
Thereafter, the Notes will be redeemable, at the option of the Company, as a
whole or from time to time in part, on not less than 30 nor more than 60 days'
prior notice to the Holders at the following Redemption Prices (expressed as
percentages of principal amount) together with accrued interest, if any, to the
redemption date (subject to the right of holders of record in the relevant
record date to receive interest due on an interest payment date), if redeemed
during the 12-month period beginning on June 15 of the years indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---------------------------------------------------------------- ------------
<S> <C>
2003............................................................ 104.8125%
2004............................................................ 103.2083%
2005............................................................ 101.6042%
2006 and thereafter............................................. 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
June 15, 2001, the Company may redeem, on one or more occasions, up to 35% of
the sum of (i) the initial aggregate principal amount of the Notes and (ii) the
initial aggregate principal amount of any Additional Notes with the net proceeds
of one or more Equity Offerings at a redemption price equal to 109.625% of the
principal amount thereof, plus accrued interest, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on an interest payment date); PROVIDED that, immediately
after giving effect to such redemption, at least 65% of the sum of (x) the
initial aggregate principal amount of the Notes and (y) the initial aggregate
principal amount of any Additional Notes remains outstanding; PROVIDED FURTHER
that such redemptions shall occur within 60 days of the date of closing of each
Equity Offering.
If less than all the Notes or Additional Notes, if any, are to be redeemed,
the particular Notes to be redeemed will be selected not more than 60 days prior
to the redemption date by the Trustee by such method as the Trustee deems fair
and appropriate, PROVIDED that no Note of $1,000 in principal amount at maturity
or less shall be redeemed in part.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs at any time, then each Holder will have the
right to require that the Company purchase such Holder's Notes and Additional
Notes, if any, in whole or in part in integral multiples of $1,000, at a
purchase price in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the date of purchase, pursuant to the
offer described below (the "Change of Control Offer") and the other procedures
set forth in the Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each Holder
of Notes and Additional Notes by first-class mail, postage prepaid, at its
address appearing in the security register, stating, among other things: (i) the
purchase price and the purchase date, which will be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Note or Additional Note not tendered will continue to accrue
interest; (iii) that, unless the Company defaults in the payment of the purchase
price, any Notes or
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Additional Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control purchase date; and
(iv) certain other procedures that a Holder must follow to accept a Change of
Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes and Additional Notes that might be tendered by Holders of Notes and
Additional Notes seeking to accept the Change of Control Offer. The failure of
the Company to make or consummate the Change of Control Offer or pay the
applicable Change of Control purchase price when due would result in an Event of
Default and would give the Trustee and the Holders of Notes and Additional Notes
the rights described under "Events of Default and Remedies."
The Amended Credit Agreement provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. If
a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes and Additional Notes, if any, the Company could seek the
consent of its lenders to the purchase of Notes and Additional Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes and Additional Notes, if any. In
such case, the Company's failure to purchase tendered Notes and Additional Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Amended Credit Agreement. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders of Notes and Additional Notes.
One of the events that constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, if
Holders of Notes and Additional Notes elect to require the Company to purchase
the Notes and Additional Notes and the Company elects to contest such election,
there can be no assurance as to how a court interpreting New York law would
interpret the phrase in many circumstances.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all the Notes validly tendered and not withdrawn under such Change of
Control Offer.
The existence of a Holder's right to require the Company to purchase such
Holder's Notes or Additional Notes upon a Change of Control may deter a third
party from acquiring the Company in a transaction that constitutes a Change of
Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford Holders of Notes or Additional
Notes the right to require the Company to repurchase such Notes or Additional
Notes in the event of a highly leveraged transaction or certain transactions
with the Company's management or its Affiliates, including a reorganization,
restructuring, merger or similar transaction involving the Company (including,
in certain circumstances, an acquisition of the Company by management or its
Affiliates) that may adversely affect Holders, if such transaction is not a
transaction defined as a Change of Control. See "Certain Definitions" below for
the definition of "Change of Control." A transaction involving the Company's
management or its Affiliates, or a transaction involving a recapitalization of
the Company, would result in a Change of Control if it is the type of
transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of
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Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
The Company will not, and will not permit any Restricted Subsidiary to,
create any restriction (other than restrictions existing under Indebtedness as
in effect on the Closing Date or in refinancings of such Indebtedness) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or Additional Notes tendered for purchase.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens
on its or their property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Notes and Additional Notes, if any, and there can be no assurance that the
Company or the acquiring party will have sufficient financial resources to
effect such redemption or repurchase. In certain circumstances, such
restrictions and the restrictions on transactions with Affiliates may make more
difficult or discourage any leveraged buyout of the Company or any of its
Restricted Subsidiaries. While such restrictions cover a variety of arrangements
which have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Notes and Additional Notes, if any,
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any Asset Sale unless (i) the consideration received by the Company or
such Restricted Subsidiary for such Asset Sale is not less than the fair market
value of the assets sold evidenced by a resolution of the board of directors of
such entity set forth in an officers' certificate delivered to the Trustee and
(ii) the consideration received by the Company or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or cash
equivalents (for purposes of this clause (ii), cash and cash equivalents
includes (a) the principal amount of any Indebtedness for money borrowed (as
reflected in the Company's consolidated balance sheet) of the Company or any
Restricted Subsidiary that is assumed by any transferee of any such assets or
other property in such Asset Sale, but only to the extent that such assumption
is effected on a basis under which there is no further recourse to the Company
or any of its Restricted Subsidiaries with respect to such Indebtedness) and (b)
any securities, notes or other similar obligations received by the Company or
any such Restricted Subsidiary from such transferee that are converted within 90
days of the related Asset Sale by the Company or such Restricted Subsidiary into
cash or cash equivalents (to the extent of the net cash proceeds or the cash
equivalents (net of related costs) received upon such conversion)).
If the Company or any Restricted Subsidiary engages in an Asset Sale, the
Company may, at its option, within 12 months after such Asset Sale, (i) apply
all or a portion of the Net Cash Proceeds to the permanent reduction of amounts
outstanding under the Amended Credit Agreement (and to correspondingly reduce
the commitments, if any, with respect thereto) or to the repayment of other
Senior Indebtedness of the Company or a Restricted Subsidiary, PROVIDED that the
repayment of any Indebtedness incurred under the Amended Credit Agreement in
connection with the acquisition of any Facility with the proceeds of any
subsequent Sale and Leaseback Transaction relating to such Facility shall not
result in the permanent reduction of the amounts outstanding under the Amended
Credit Agreement or correspondingly permanently reduce the commitments
thereunder, or (ii) invest (or enter into a legally binding agreement to invest)
all or a portion of such Net Cash Proceeds in properties and assets to replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in businesses of the Company or its
Restricted Subsidiaries, as the case may be, existing on the Closing Date
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or in businesses the same, similar or reasonably related thereto. If any such
legally binding agreement to invest such Net Cash Proceeds is terminated, the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, invest such Net Cash Proceeds as provided in
clause (i) or (ii) (without regard to the parenthetical contained in such clause
(ii)) above. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in a manner that is not prohibited by the Indenture. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph constitutes
"Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5 million, the Company
will, within 30 days thereafter, make an offer to purchase (an "Excess Proceeds
Offer") from all Holders of Notes and Additional Notes, if any, on a pro rata
basis, in accordance with the procedures set forth in the Indenture, the maximum
principal amount (expressed as a multiple of $1,000) of Notes and Additional
Notes, if any, that may be purchased with the Excess Proceeds, at a purchase
price in cash equal to 100% of the principal amount thereof, plus accrued
interest, if any, to the date such offer to purchase is consummated. To the
extent that the aggregate principal amount of Notes and Additional Notes, if
any, tendered pursuant to such offer to purchase is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes. If
the aggregate principal amount of Notes and Additional Notes, if any, validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, the
Notes and Additional Notes, if any, to be purchased will be selected on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds will be reset to zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Company or any Restricted
Subsidiary, other than (i) dividends or distributions payable solely in
Qualified Equity Interests or (ii) dividends or distributions by a
Restricted Subsidiary payable to the Company or another Wholly Owned
Restricted Subsidiary;
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock, or any options, warrants or
other rights to acquire such shares of Capital Stock, of the Company, any
Restricted Subsidiary or any Affiliate of the Company (other than, in either
case, any such Capital Stock owned by the Company or any of its Wholly Owned
Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Pari Passu Indebtedness or
Subordinated Indebtedness; and
(d) make any Investment (other than a Permitted Investment) in any
Person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock," and
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(iii) the aggregate amount of all Restricted Payments made after the
Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
during the period (taken as one accounting period) from the first day
of the Company's first fiscal quarter commencing after the Closing
Date to the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income is a loss, minus 100% of such
amount); plus
(B) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date from the issuance or sale (other than
to a Subsidiary) of either (1) Qualified Equity Interests of the
Company or (2) debt securities or Disqualified Stock that have been
converted into or exchanged for Qualified Stock of the Company,
together with the aggregate net cash proceeds received by the Company
at the time of such conversion or exchange.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take the following actions, so long as no Default or Event of Default has
occurred and is continuing or would occur:
(a) the payment of any dividend in cash or Qualified Equity Interests of
the Company within 60 days after the date of declaration thereof, if at the
declaration date such payment would not have been prohibited by the
foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Pari Passu Indebtedness or Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance and sale (other than to a Subsidiary) of,
shares of Qualified Equity Interests of the Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Pari Passu Indebtedness or Subordinated Indebtedness
in exchange for, or out of the net cash proceeds of a substantially
concurrent issuance or sale (other than to a Subsidiary) of, Pari Passu
Indebtedness or Subordinated Indebtedness, respectively, so long as the
Company or a Restricted Subsidiary would be permitted to refinance such
original Pari Passu Indebtedness or Subordinated Indebtedness with such new
Pari Passu Indebtedness or Subordinated Indebtedness pursuant to clause (iv)
of the definition of Permitted Indebtedness;
(e) the repurchase of any Subordinated Indebtedness at a purchase price
not greater than 101% of the principal amount of such Subordinated
Indebtedness in the event of a Change of Control in accordance with
provisions similar to the "Change of Control" covenant; PROVIDED that, prior
to or simultaneously with such repurchase, the Company has made the Change
of Control Offer as provided in such covenant with respect to the Notes and
has repurchased all Notes validly tendered for payment in connection with
such Change of Control Offer;
(f) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
held by officers or employees or former officers or employees (or their
estates or beneficiaries under their estates) or by any employee benefit
plan, upon death, disability, retirement or termination of employment or
pursuant to the terms of any employee benefit plan or any other agreement
under which such shares of stock or related rights were issued; PROVIDED
that the aggregate
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cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock after the
Closing Date does not exceed $500,000 in any fiscal year; and
(g) Investments constituting Restricted Payments not to exceed $5
million at any one time outstanding.
The actions described in clauses (b), (c), (e), (f) and (g) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph but will reduce the amount that would otherwise
be available for Restricted Payments under clause (iii) of the first paragraph
of this covenant and the actions described in clauses (a) and (d) of the
preceding paragraph will be Restricted Payments that will be permitted to be
taken in accordance with this paragraph and will not reduce the amount that
would otherwise be available for Restricted Payments under clause (iii) of the
first paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in an amount equal to the greater of the
fair market value or net book value of the net assets of such Restricted
Subsidiary at the time of such designation as determined by the Board, and (ii)
any property transferred to or from an Unrestricted Subsidiary will be valued at
fair market value at the time of such transfer, as determined by the Board. The
amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an officer's certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required under "Certain Covenants--Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other Person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the net asset value of such Subsidiary at the
time it becomes a Restricted Subsidiary and (y) the initial amount of such
Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise, other than the redesignation of an Unrestricted
Subsidiary or other Person as a Restricted Subsidiary), to the extent such net
reduction is not included in the Company's Consolidated Net Income; PROVIDED
that the total amount by which the aggregate amount of all Restricted Payments
may be reduced may not exceed the lesser of (x) the cash proceeds received by
the Company and its Restricted Subsidiaries in connection with such net
reduction and (y) the initial amount of such Investment.
In computing the Consolidated Net Income of the Company for purposes of the
foregoing clause (iii)(A) of the first paragraph of this covenant, (i) the
Company may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion of
such period and (ii) the Company will be permitted to rely in good faith on the
financial statements and other financial data derived from its books and records
that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of the Indenture, such Restricted Payment will be deemed to have
been
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made in compliance with the Indenture notwithstanding any subsequent adjustments
made in good faith to the Company's financial statements affecting Consolidated
Net Income of the Company for any period.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Company will not, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur (collectively, "incur"), any
Indebtedness (including Acquired Indebtedness and the issuance of Disqualified
Stock), except that the Company and any Subsidiary Guarantors may incur
Indebtedness if, at the time of such event, the Fixed Charge Coverage Ratio for
the immediately preceding four full fiscal quarters for which internal financial
statements are available, taken as one accounting period, would have been equal
to at least (i) 2.00 to 1.0 from the Closing Date through and including June 30,
2000 and (ii) 2.25 to 1.0 thereafter.
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect will be given to the Offering, as if
such transactions had occurred at the beginning of such four-quarter period. In
addition (but without duplication), in making the foregoing calculation, pro
forma effect will be given to: (i) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period; and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period. In making a computation under the
foregoing clause (i) or (ii), (A) the amount of Indebtedness under a revolving
credit facility will be computed based on the average daily balance of such
Indebtedness during such four-quarter period, (B) if such Indebtedness bears, at
the option of the Company, a fixed or floating rate of interest, interest
thereon will be computed by applying, at the option of the Company, either the
fixed or floating rate, and (C) the amount of any Indebtedness that bears
interest at a floating rate will be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Hedging Obligations applicable to such Indebtedness if such
Hedging Obligations have a remaining term at the date of determination in excess
of 12 months).
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries to, incur the following Indebtedness ("Permitted
Indebtedness"):
(i) Indebtedness of the Company or any Subsidiary Guarantor under the
Amended Credit Agreement (and the incurrence by any Subsidiary Guarantor of
guarantees thereof) in an aggregate principal amount at any one time
outstanding not to exceed $150 million, less any amounts applied to the
permanent reduction of such credit facilities pursuant to the provisions of
the covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales;"
(ii) Indebtedness represented by the Notes (other than the Additional
Notes) and the Subsidiary Guarantees;
(iii) Existing Indebtedness;
(iv) the incurrence by the Company of Permitted Refinancing Indebtedness
in exchange for, or the net proceeds of which are used to refund, refinance
or replace, any Indebtedness that is permitted to be incurred under clause
(ii) or (iii) above;
(v) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (PROVIDED that
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such Indebtedness is held by the Company or such Restricted Subsidiary);
PROVIDED, HOWEVER, that any Indebtedness of the Company owing to any such
Restricted Subsidiary is unsecured and subordinated in right of payment from
and after such time as the Notes shall become due and payable (whether at
Stated Maturity, acceleration, or otherwise) to the payment and performance
of the Company's obligations under the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vii) Indebtedness of the Company or any Restricted Subsidiary consisting
of guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock;
(viii) either (A) Capitalized Lease Obligations of the Company or any
Restricted Subsidiary or (B) Indebtedness under purchase money mortgages or
secured by purchase money security interests so long as (x) such
Indebtedness is not secured by any property or assets of the Company or any
Restricted Subsidiary other than the property and assets so acquired and (y)
such Indebtedness is created within 60 days of the acquisition of the
related property; PROVIDED that the aggregate amount of Indebtedness under
clauses (A) and (B) does not exceed 5% of Consolidated Tangible Assets at
any one time outstanding;
(ix) Guarantees by any Restricted Subsidiary made in accordance with the
provisions of the covenant described under the caption "--Guarantees of
Indebtedness by Restricted Subsidiaries;"
(x) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within two business days of incurrence;
(xi) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(xii) the incurrence of Non-Recourse Indebtedness by Permitted Joint
Ventures; and
(xiii) Indebtedness of the Company, any Subsidiary Guarantor or any
Permitted Joint Venture not permitted by any other clause of this
definition, in an aggregate principal amount not to exceed $15 million at
any one time outstanding.
LIENS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Pari Passu Indebtedness or Subordinated Indebtedness of the Company on
or with respect to any of its property or assets, including any shares of stock
or Indebtedness of any Restricted Subsidiary, whether owned at the Closing Date
or thereafter acquired, or any income, profits or proceeds therefrom, or assign
or otherwise convey any right to receive income thereon, unless (i) in the case
of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien
on such property, assets or proceeds that is senior in priority to such Lien and
(ii) in the case of any Lien securing Pari Passu Indebtedness, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to or PARI PASSU with such Lien.
(b) The Company will not permit any Subsidiary Guarantor to, directly or
indirectly, create, incur, assume or suffer to exist any Lien securing Pari
Passu Indebtedness or Subordinated Indebtedness of such Subsidiary Guarantor on
or with respect to such Subsidiary Guarantor's properties or assets, including
any
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shares of stock or Indebtedness of any other Restricted Subsidiary, whether
owned at the date of the Indentures or thereafter acquired, or any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income thereon, unless (i) in the case of any Lien securing Pari Passu
Indebtedness of such Subsidiary Guarantor, each Subsidiary Guarantee of such
Subsidiary Guarantor is secured by a Lien on such property, assets or proceeds
that is senior in priority to or PARI PASSU with such Lien and (ii) in the case
of any Lien securing Subordinated Indebtedness of such Subsidiary Guarantor,
each Subsidiary Guarantee of such Subsidiary Guarantor is secured by a Lien on
such property, assets or proceeds that is senior in priority to such Lien.
DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary or (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of:
(i) any agreement in effect on the Closing Date;
(ii) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary;
(iii) the refinancing or successive refinancing of Indebtedness incurred
under the agreements in effect on the Closing Date, so long as such
encumbrances or restrictions are no more restrictive than those contained in
such original agreement;
(iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person,
so acquired;
(v) purchase money obligations for acquired property permitted under the
covenant entitled "--Incurrence of Indebtedness and Issuance of Disqualified
Stock" that impose restrictions of the nature described in clause (d) above
on the property so acquired;
(vi) any agreement for the sale of a Restricted Subsidiary or an asset
that restricts distributions by that Restricted Subsidiary or transfers of
such asset pending its sale;
(vii) secured Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under the caption "--Liens"
that limits the right of the debtor to dispose of the assets securing such
Indebtedness;
(viii) restrictions on cash or other deposits or net worth imposed by
leases entered into in the ordinary course of business; and
(ix) Non-Recourse Indebtedness of any Permitted Joint Venture permitted
to be incurred under the Indenture.
LIMITATION ON LAYERING DEBT
The Company and each Subsidiary Guarantor will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness or guarantee,
as applicable, that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in any respect in right of payment to the Notes or such
Subsidiary Guarantor's Subsidiary Guarantee, respectively.
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MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or directly and/or indirectly through its
Subsidiaries, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) in one or more
related transactions to, another corporation, Person or entity unless:
(a) either (i) the Company is the surviving corporation or (ii) in the
case of a transaction involving the Company, the entity or the Person formed
by or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (the "Surviving Entity") is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia and assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee;
(b) immediately after giving effect to such transaction and treating any
obligation of the Company in connection with or as a result of such
transaction as having been incurred as of the time of such transaction, no
Default or Event of Default has occurred and is continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, at the time of such
transaction and after giving PRO FORMA effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of "--Incurrence of
Indebtedness and Issuance of Disqualified Stock;"
(d) each Subsidiary Guarantor, unless it is the other party to the
transaction described above, has by supplemental indenture confirmed that
its Subsidiary Guarantee applies to the Surviving Entity's obligations under
the Indenture and the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the covenant described above under the caption "--Liens" are
complied with; and
(f) the Company delivers, or causes to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into any other Person or convey, sell, assign, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any other Person (other than the Company or another Subsidiary Guarantor)
unless: (a) subject to the provisions of the following paragraph, the Person
formed by or surviving such consolidation or merger (if other than such
Subsidiary Guarantor) or to which such properties and assets are transferred
assumes all of the obligations of such Subsidiary Guarantor under the Indenture
and its Subsidiary Guarantee, pursuant to a supplemental indenture in form and
substance satisfactory to the Trustee, (b) immediately after giving effect to
such transaction, no Default or Event of Default has occurred and is continuing
and (c) the Subsidiary Guarantor delivers, or causes to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each stating that such
transaction complies with the requirements of the Indenture.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted to, directly or
indirectly, enter into or suffer to exist any transaction with, or for the
benefit of, any Affiliate of the Company ("Interested Persons"), unless (a) such
transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's-length transaction with third parties who are not
Interested Persons and (b) the Company delivers to the Trustee (i) with respect
to any transaction or series of related transactions entered into after the
Closing Date involving aggregate payments in excess of $1 million, a resolution
of the Board set forth in an officers' certificate certifying that such
transaction or transactions complies with clause (a) above and that such
transaction or transactions have been approved by the Board (including a
majority of the Disinterested Directors) of the Company and (ii) with respect to
a transaction or series of related transactions involving aggregate payments
equal to or greater than $10 million, a written opinion as to the fairness to
the Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by an accounting, appraisal
or investment banking firm, in each case of national standing.
The foregoing covenant does not restrict:
(A) transactions among the Company and/or its Restricted Subsidiaries;
(B) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary;
(C) transactions permitted by the provisions of the covenant described
under the caption "Certain Covenants--Restricted Payments;"
(D) advances to employees for moving, entertainment and travel expenses
and similar expenditures in the ordinary course of business and consistent
with past practice; and
(E) purchases of equipment, supplies and related services made on an
arm's length basis in the ordinary course of business by the Company, any
Restricted Subsidiary or any Permitted Joint Venture from any Affiliate.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company (a) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); PROVIDED, HOWEVER, that this covenant will not prohibit
(i) the sale or other disposition of all, but not less than all, of the issued
and outstanding Capital Stock of a Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries in compliance with the other provisions of the
Indenture, (ii) the sale or other
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disposition of a portion of the issued and outstanding Capital Stock of an
existing Wholly Owned Restricted Subsidiary if (A) as a result of such sale or
disposition, such Wholly Owned Restricted Subsidiary becomes a Permitted Joint
Venture and (B) at the time of such sale or disposition, the Company could make
an Investment in the remaining Capital Stock held by it or one of its Restricted
Subsidiaries in an amount equal to the amount of its remaining Investment in
such existing Restricted Subsidiary pursuant to the covenant entitled
"Restricted Payments," or (iii) the ownership by directors of director's
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
The Company will not permit any Restricted Subsidiary to issue any Preferred
Stock.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or is paid to all Holders that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Indebtedness of the Company or
any Indebtedness of any other Restricted Subsidiary, unless (a) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for a guarantee of payment of the Notes by such Restricted Subsidiary
on a senior subordinated basis and (b) with respect to any guarantee of
Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee is
subordinated to such Restricted Subsidiary's guarantee with respect to the Notes
at least to the same extent as such Subordinated Indebtedness is subordinated to
the Notes, PROVIDED that the foregoing provision will not be applicable to any
guarantee by any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
Any guarantee by a Restricted Subsidiary of the Notes pursuant to the
preceding paragraph may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer
to any Person not an Affiliate of the Company of all of the Company's and the
Restricted Subsidiaries' Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
that resulted in the creation of such guarantee of the Notes, except a discharge
or release by or as a result of payment under such guarantee.
ISSUANCES OF GUARANTEES BY NEW RESTRICTED SUBSIDIARIES
The Company will provide to the Trustee, on the date that any Person (other
than a Foreign Subsidiary or Permitted Joint Ventures) becomes a Restricted
Subsidiary, a supplemental indenture to the Indenture, executed by such new
Restricted Subsidiary, providing for a full and unconditional guarantee on a
senior subordinated basis by such new Restricted Subsidiary of the Company's
obligations under the Notes and the Indenture to the same extent as that set
forth in the Indenture.
UNRESTRICTED SUBSIDIARIES
(a) The Board may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither
the Company nor any Restricted
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Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of the covenant described under the caption
"--Restricted Payments," (iv) neither the Company nor any Restricted Subsidiary
has a contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from Persons who are not Affiliates of the Company, (v)
neither the Company nor any Restricted Subsidiary has any obligation to
subscribe for additional shares of Capital Stock or other equity interest in
such Subsidiary, or to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results, and (vi) such Unrestricted Subsidiary has at least one director on its
board of directors that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries and has at least one executive officer of the
Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing,
the Company may not designate any of its Subsidiaries existing as of the Closing
Date or any successor to any of them as an Unrestricted Subsidiary and may not
sell, transfer or otherwise dispose of any properties or assets of any such
Subsidiary to an Unrestricted Subsidiary, other than in the ordinary course of
business.
(b) The Board may designate any Unrestricted Subsidiary as a Restricted
Subsidiary; PROVIDED that (i) no Default or Event of Default has occurred and is
continuing following such designation and (ii) the Company would, at the time of
making such designation and giving such pro forma effect as if such designation
had been made at the beginning of the applicable four quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Disqualified Stock" (treating any
Indebtedness of such Unrestricted Subsidiary as the incurrence of Indebtedness
by a Restricted Subsidiary).
REPORTS
Whether or not the Company is required to file reports with the Commission,
the Company will file all such annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13(a) or 15(d) under the Exchange Act. The Company will also be required
(a) to supply to the Trustee and each Holder, or supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company were
so required and (b) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Company's cost copies of such reports and documents to any
prospective Holder promptly upon written request.
EVENTS OF DEFAULT AND REMEDIES
The following are "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days
(whether or not prohibited by the subordination provisions of the
Indenture);
(b) default in the payment of the principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the subordination provisions
of the Indenture);
(c) failure to perform or comply with the Indenture provisions described
under the captions "--Repurchase at the Option of Holders--Change of
Control," "--Repurchase at the Option of
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Holders--Asset Sales," "--Certain Covenants--Restricted Payments,"
"Incurrence of Indebtedness and Issuance of Disqualified Stock" or
"--Merger, Consolidation or Sale of Assets;"
(d) default in the performance, or breach, of any covenant or agreement
of the Company or any Subsidiary Guarantor contained in the Indenture or in
any Subsidiary Guarantee (other than a default in the performance, or
breach, of a covenant or agreement that is specifically dealt with elsewhere
herein), and continuance of such default or breach for a period of 60 days
after written notice has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Notes (and Additional Notes, if any) then
outstanding;
(e) (i) an event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue
individually or in the aggregate has an aggregate outstanding principal
amount of not less than $5 million, and such default has resulted in such
Indebtedness becoming, whether by declaration or otherwise, due and payable
prior to the date on which it would otherwise become due and payable or (ii)
a default in any payment when due at final maturity of any such
Indebtedness;
(f) failure by the Company or any of its Restricted Subsidiaries to pay
one or more final judgments the uninsured portion of which exceeds in the
aggregate $5 million, which judgment or judgments are not paid, discharged
or stayed for a period of 60 days;
(g) any Subsidiary Guarantee ceases to be in full force and effect or is
declared null and void or any such Subsidiary Guarantor denies that it has
any further liability under any Subsidiary Guarantee, or gives notice to
such effect (other than by reason of the termination of the Indenture or the
release of any such Subsidiary Guarantee in accordance with the Indenture);
or
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes (and Additional Notes, if any) then outstanding
may, and the Trustee at the request of such Holders will, declare the principal
of, and accrued interest on, all of the outstanding Notes immediately due and
payable and, upon any such declaration, such principal and such interest will
become due and payable immediately.
If an Event of Default specified in clause (h) above occurs and is
continuing, then the principal of and accrued interest on all of the outstanding
Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes (and Additional Notes, if any), by written notice to the
Company and the Trustee, may rescind such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a sum sufficient to pay
(A) all overdue interest on all Notes, (B) all unpaid principal of (and premium,
if any, on) any outstanding Notes that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Notes and (D) all sums
paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and (ii) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
No Holder has any right to institute any proceeding with respect to the
Indenture or any remedy thereunder, unless the Holders of at least 25% in
aggregate principal amount of the outstanding Notes
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(and Additional Notes, if any) have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding, the Trustee has failed
to institute any such proceeding within 60 days after receipt of such notice,
request and offer of indemnity and the Trustee, within such 60-day period, has
not received directions inconsistent with such written request by Holders of a
majority in aggregate principal amount of the outstanding Notes (and Additional
Notes, if any). Such limitations do not apply, however, to a suit instituted by
a Holder for the enforcement of the payment of the principal of, premium, if
any, or interest on such Note on or after the respective due dates expressed in
such Note.
The Holders of not less than a majority in aggregate principal amount of the
outstanding Notes and Additional Notes, if any, may, on behalf of the Holders of
all of the Notes and Additional Notes, if any, waive any past defaults under the
Indenture, except a default in the payment of the principal of (and premium, if
any) or interest on any Note, or in respect of a covenant or provision that
under the Indenture cannot be modified or amended without the consent of the
holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each Holder notice of the Default or Event
of Default within 90 days after the occurrence thereof. Except in the case of a
Default or an Event of Default in payment of principal of (and premium, if any,
on) or interest on any Notes, the Trustee may withhold the notice to the Holders
if a committee of its trust officers in good faith determines that withholding
such notice is in the interests of the Holders.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of any Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or the Subsidiary Guarantors under
the Notes, the Indenture or the Subsidiary Guarantees, as applicable, or any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Subsidiary Guarantors with respect to the outstanding Notes
("legal defeasance"). Such legal defeasance means that the Company will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of (and premium, if any, on) and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold such payments
in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee
and (iv) the legal defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the obligations
of the Company and any Subsidiary Guarantor with respect to certain covenants
set forth in the Indenture and described under "Certain Covenants" above, and
any omission to comply with such obligations would not constitute a Default or
an Event of Default with respect to the Notes ("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance: (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders, money in an amount, or U.S. Government
Obligations (as defined in the Indenture) that through the scheduled payment of
principal and interest thereon will
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provide money in an amount, or a combination thereof, sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay and
discharge the principal of (and premium, if any, on) and interest on the
outstanding Notes at maturity (or upon redemption, if applicable) of such
principal or installment of interest; (b) no Default or Event of Default has
occurred and is continuing on the date of such deposit or, insofar as an event
of bankruptcy under clause (h) of "Events of Default" above is concerned, at any
time during the period ending on the 91st day after the date of such deposit;
(c) such legal defeasance or covenant defeasance may not result in a breach or
violation of, or constitute a default under, the Indenture, the Amended Credit
Agreement or any other material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound; (d) in the case of
legal defeasance, the Company must deliver to the Trustee an opinion of counsel
stating that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the date hereof, there has been a
change in applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such legal defeasance had not occurred; (e) in the case of covenant defeasance,
the Company must have delivered to the Trustee an opinion of counsel to the
effect that the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; and (f) the Company must have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to either the legal defeasance or
the covenant defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer document and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note for a
period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the Holders of a majority in aggregate outstanding principal
amount of the Notes (and Additional Notes, if any); PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the redemption date);
(b) amend, change or modify the obligation of the Company to make and
consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with the covenant described under the covenant entitled
"Repurchase at the Option of the Holders--Asset Sales" or the obligation of
the Company to make and consummate a Change of Control offer in the event of
a Change of Control in
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accordance with the covenant entitled "Repurchase at the Option of the
Holders--Change of Control," including, in each case, amending, changing or
modifying any definition relating thereto;
(c) reduce the percentage in principal amount of outstanding Notes, the
consent of whose Holders is required for any waiver of compliance with
certain provisions of, or certain defaults and their consequences provided
for under, the Indenture;
(d) waive a default in the payment of principal of, or premium, if any,
or interest on the Notes or reduce the percentage or aggregate principal
amount of outstanding Notes the consent of whose Holders is necessary for
waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults;
(e) modify the ranking or priority of the Notes or the Subsidiary
Guarantee of any Subsidiary Guarantor; or
(f) release any Subsidiary Guarantor from any of its obligations under
its Subsidiary Guarantee or the Indenture other than in accordance with the
terms of the Indenture.
The Holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Without the consent of any Holders, the Company and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental to the
Indenture for any of the following purposes: (1) to evidence the succession of
another Person to the Company and the assumption by any such successor of the
covenants of the Company in the Indenture and in the Notes; or (2) to add to the
covenants of the Company for the benefit of the Holders, or to surrender any
right or power herein conferred upon the Company; or (3) to add additional
Events of Defaults; or (4) to provide for uncertificated Notes in addition to or
in place of the certificated Notes; or (5) to evidence and provide for the
acceptance of appointment under the Indenture by a successor Trustee; or (6) to
secure the Notes; or (7) to cure any ambiguity, to correct or supplement any
provision in the Indenture that may be defective or inconsistent with any other
provision in the Indenture, or to make any other provisions with respect to
matters or questions arising under the Indenture, PROVIDED that such actions
pursuant to this clause do not adversely affect the interests of the Holders in
any material respect; or (8) to comply with any requirements of the Commission
in order to effect and maintain the qualification of the Indenture under the
Trust Indenture Act.
Notwithstanding the foregoing, neither the Company nor the Trustee may amend
any provisions of the Indenture or the Notes concerning (i) the subordination of
the Notes and the Subsidiary Guarantees or (ii) legal defeasance or covenant
defeasance without, in either case, the prior written consent of the Agent Bank,
acting on behalf of the Banks under the Amended Credit Agreement.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, N.A., the Trustee under the Indenture,
is the initial paying agent and registrar for the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the Holders of a majority in outstanding
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein, contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain
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payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; PROVIDED, HOWEVER, that, if it
acquires any conflicting interest (as defined), it must eliminate such conflict
upon the occurrence of an Event of Default or else resign.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be issued in the form of
a global note (the "Global Note"). The Global Note will be deposited with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of the Depositary or its nominee. Investors may hold their beneficial
interests in the Global Note directly through the Depositary if they have an
account with the Depositary or indirectly through organizations which have
accounts with the Depositary.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to own, transfer or pledge Notes evidenced
by the Global Note will be limited to such extent.
Investors may hold their interests in the Global Note directly through Cedel
or Euroclear, if they are participants in such systems, or indirectly through
organizations which are participants in such systems. Investors may also hold
such interests through organizations other than Cedel or Euroclear that are
Participants in the DTC system. Cedel and Euroclear will hold such interests in
the Global Note on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositaries, which in turn will hold such interests in the Global Note in
customers' securities accounts in the depositaries' names on the books of DTC.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
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Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Notes in accordance with the normal procedures of DTC and in
accordance with the procedures set forth in the Indenture.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture then, upon surrender by
the Global Note Holder of the Global Notes, Certificated Notes will be issued to
each person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Notes, the Company will make
all payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issues is generally settled in clearinghouse or next-day funds. In
contrast, Notes represented by the Global Note are eligible to trade in the
PORTAL market and to trade in the Depositary's Same-Day Funds Settlement System,
and any permitted secondary market trading activity in such Notes is, therefore,
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in the Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear or Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a
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Global Note by or through a Euroclear or Cedel participant to a Participant in
DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person is merged with or into the Company or becomes a Subsidiary or
(b) assumed in connection with the acquisition of assets from such Person.
"Affiliate" means, with respect to any specified person, (a) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (b) any other person that
owns, directly or indirectly, 5% or more of such specified person's Capital
Stock or any executive officer or director of any such specified person or other
person or, with respect to any natural person, any person having a relationship
with such person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Bank" means NationsBank, N.A. and its successors under the Amended
Credit Agreement, in its capacity as agent.
"Amended Credit Agreement" means the Credit Agreement, dated as of October
14, 1997, as amended as of November 17, 1997, December 19, 1997, March 23, 1998
and June 12, 1998, among the Company, the lenders named therein and NationsBank,
N.A., as agent, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such facility
may be amended, restated, supplemented, refinanced, extended or otherwise
modified from time to time.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of merger, consolidation or
similar arrangement) (collectively, a "transfer") by the Company or any
Restricted Subsidiary other than in the ordinary course of business and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Shares of
Capital Stock of any of the Company's Restricted Subsidiaries (which shall be
deemed to include the sale, grant or conveyance of any interest in the income,
profits or proceeds therefrom), in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (x) that
have a fair market value in excess of $1 million or (y) for Net Cash Proceeds in
excess of $1 million. For the purposes of this definition, the term "Asset Sale"
does not include (a) any transfer of properties or assets (i) that is governed
by the provisions of the Indenture described under "--Certain
Covenants--Consolidation, Merger or Sale of Assets" and "-- Restricted
Payments," (ii) between or among the Company and its Restricted Subsidiaries
pursuant to transactions that do not violate any other provision of the
Indenture or (iii) representing obsolete or permanently retired equipment and
facilities or (b) the sale or exchange of equipment in connection with the
purchase or other acquisition of other equipment, in each case used in the
business of the Company or its Restricted Subsidiaries as in existence on the
Closing Date or any business determined by the Board in its good faith judgment
to be reasonably related thereto.
"Banks" means the banks and other financial institutions that from time to
time are lenders under the Amended Credit Agreement.
"Board" means the Company's Board of Directors.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
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"Capital Stock" of any Person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such Person's equity interest (however designated), whether now
outstanding or issued after the Closing Date.
"Capitalized Lease Obligation" means, with respect to any Person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than Permitted Holders) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the voting power of all classes
of Voting Stock of the Company; PROVIDED, HOWEVER, that upon any purchase
and/or subsequent conversion by any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act) (other than Permitted
Holders), which at the time of such purchase and/or subsequent conversion
neither owns nor is acquiring any shares of common stock of the Company, of
any of the issued and outstanding shares of Series B Preferred Stock or
Series C Preferred Stock, the number of shares of common stock which shall
be deemed to be outstanding for the purpose of computing the percentage of
the voting power of all classes of Voting Stock of the Company acquired by
such "person" or "group" shall be determined on a basis that gives effect to
the conversion of both (A) the shares of Series B Preferred Stock or Series
C Preferred Stock, as applicable, that were purchased by such "person" or
"group" and (B) the shares of Series B Preferred Stock or Series C Preferred
Stock, as applicable, that continue to be owned by Permitted Holders after
such purchase and/or conversion by such "person" or "group" (without
requiring actual conversion of any of such shares of Series B Preferred
Stock or Series C Preferred Stock by the holders thereof);
(b) the Company, either individually or in conjunction with one or more
Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board (together with any new
directors (i) whose election by such Board or whose nomination for election
by the stockholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved or (ii) elected or appointed by any of the Permitted
Holders) cease for any reason to constitute a majority of the Board then in
office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies with
the provisions described under "Certain Covenants-- Consolidation, Merger or
Sale of Assets."
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Net Income for such period, plus (or, in the case of
clause (d) below, plus or minus) the following items to the extent included in
computing Consolidated Net Income for such period (a) Fixed Charges for such
period, plus (b) the provision for federal, state, local and foreign income
taxes of the Company and its Restricted Subsidiaries for such period, plus (c)
the aggregate depreciation and amortization expense of the Company and its
Restricted Subsidiaries for such period, plus (d) any other non-cash charges for
such period, and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets or accrued
liabilities in the ordinary course of business; PROVIDED that fixed charges,
income tax expense, depreciation and amortization expense and non-cash charges
and credits of a Restricted
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Subsidiary will be included in Consolidated EBITDA only to the extent (and in
the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income for such period.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash during such period, (d) the net income (or loss) of any
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination and
(e) the net income (but not the net loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is at the date of determination restricted, directly
or indirectly, except to the extent that such net income is actually paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise; PROVIDED that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated Net Income
will be reduced (to the extent not otherwise reduced in accordance with GAAP) by
an amount equal to (A) the amount of the Consolidated Net Income otherwise
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding common stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding common
stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Tangible Assets" means, as of the date of determination, the
total assets, less goodwill and other intangibles, shown on the balance sheet of
the Company and its Restricted Subsidiaries as of the most recent date for which
such a balance sheet is available, determined on a consolidated basis in
accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank Debt
is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior
Indebtedness permitted under the Indenture the principal amount of which is $25
million or more and that has been specifically designated by the Company, in the
instrument creating or evidencing such Senior Indebtedness or in an officers'
certificate delivered to the Trustee, as "Designated Senior Indebtedness."
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board is required to deliver a resolution
of the Board, to make a finding or otherwise take action under the Indenture, a
member of the Board who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that, either
by its terms, by the terms of any security into which it is convertible or
exchangeable or by contract or otherwise (i) is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes, (ii) is redeemable at the option of the Holder
thereof, at any time prior to such final Stated Maturity or (iii) at the option
of the Holder thereof is convertible into or exchangeable for debt securities at
any time prior to such final Stated Maturity; PROVIDED that any Capital Stock
that would not constitute Disqualified Stock but for provisions therein giving
Holders thereof the right to cause the issuer thereof to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes will not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to
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the Holders of such Capital Stock than the provisions contained in the covenants
described under the captions "Repurchase at the Option of Holders--Change of
Control" and "--Asset Sales" described herein and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the provisions contained in the
covenants described under the captions "Repurchase at the Option of
Holders--Change of Control" and "--Asset Sales."
"Equity Offering" means a public or private offering of Capital Stock (other
than Disqualified Stock) of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means the Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Amended Credit
Agreement) outstanding on the date of the Indenture and listed on a schedule to
the Indenture, until such amounts are repaid.
"Facility" means any premises, together with the diagnostic imaging and
treatment equipment installed therein, used by the Company in the conduct of the
business of providing diagnostic imaging and information, treatment and related
management services.
"Fixed Charges" means, for any period, without duplication, the sum of (a)
the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement of
operations of the Company and its Restricted Subsidiaries for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) amortization of debt
issuance costs, and (v) the interest component of Capitalized Lease Obligations,
plus (b) cash dividends paid on Preferred Stock and Disqualified Stock by the
Company and any Restricted Subsidiary (to any Person other than the Company and
its Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any Person guaranteed by the Company or any of
its Restricted Subsidiaries or secured by a lien on the assets of the Company or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that Fixed Charges will
not include (i) any gain or loss from extinguishment of debt, including the
write-off of debt issuance costs, and (ii) the fixed charges of a Restricted
Subsidiary to the extent (and in the same proportion) that the net income of
such Subsidiary was excluded in calculating Consolidated Net Income pursuant to
clause (e) of the definition thereof for such period.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Fixed Charges for such period.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a state thereof or the District of
Columbia and that has no material operations or assets in the United States.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates, and (ii) forward exchange agreements, currency
swap, currency option and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in foreign currency exchange rates.
"Holder" means the Person in whose name a Note is, at the time of
determination, registered on the Registrar's books.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed, (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services, (e) the
attributable value of every Capitalized Lease Obligation of such Person, (f) all
Disqualified Stock of such Person valued at its maximum fixed repurchase price,
plus accrued and unpaid dividends, (g) all obligations of such Person under or
in respect of Hedging Obligations, and (h) every obligation of the type referred
to in clauses (a) through (g) of another Person and all dividends of another
Person the payment of which, in either case, such Person has guaranteed. For
purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness is required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock, such fair market
value will be determined in good faith by the board of directors of the issuer
of such Disqualified Stock. Notwithstanding the foregoing, trade accounts
payable and accrued liabilities arising in the ordinary course of business and
any liability for federal, state or local taxes or other taxes owed by such
Person will not be considered Indebtedness for purposes of this definition.
"Investment" in any Person means, (i) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to such Person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such Person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such Person, or the making
of any investment in such Person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon, or with respect to, any
property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person will be deemed to own subject to a Lien any
property that such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and
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investment banks) related to such Asset Sale, (b) provisions for all taxes
payable as a result of such Asset Sale, (c) payments made to retire Indebtedness
where such Indebtedness is secured by the assets that are the subject of such
Asset Sale, (d) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the assets
that are subject to the Asset Sale and (e) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the seller after such Asset Sale, including pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Non-Recourse Indebtedness" means Indebtedness of a Permitted Joint Venture
(i) as to which neither the Company nor any of its Restricted Subsidiaries
(other than such Permitted Joint Venture), (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise), and (ii) the obligees of which
will have recourse for repayment of the principal of and interest on such
Indebtedness and any fees, indemnities, expense reimbursements or other amount
of whatsoever nature accrued or payable in connection with such Indebtedness
solely against the assets of such Permitted Joint Venture and not against any of
the assets of the Company or its Restricted Subsidiaries (other than such
Permitted Joint Venture).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
that ranks PARI PASSU in right of payment to the Notes and (b) with respect to
any Subsidiary Guarantee, Indebtedness that ranks PARI PASSU in right of payment
to such Subsidiary Guarantee.
"Permitted Business" means the Business conducted by the Company, its
Restricted Subsidiaries and Permitted Joint Ventures as of the date of the
Indenture and any and all diagnostic imaging and information businesses that in
the good faith judgment of the Board are reasonably related thereto.
"Permitted Holders" means (i) Carlyle Partners II, L.P., a Delaware limited
partnership, Carlyle Partners III, L.P., a Delaware limited partnership, Carlyle
International Partners II, L.P., a Cayman Islands exempted limited partnership,
Carlyle International Partners III, L.P., a Cayman Islands exempted limited
partnership, C/S International Partners, a Cayman Islands general partnership,
State Board of Administration of Florida, a separate account maintained pursuant
to an Investment Management Agreement dated as of September 6, 1996 among the
State Board of Administration of Florida, Carlyle Investment Group, L.P. and
Carlyle Investment Management, L.L.C., Carlyle Investment Group, L.P., a
Delaware limited partnership, Carlyle-InSight International Partners, L.P., a
Cayman Islands exempted limited partnership, and Carlyle-InSight Partners, L.P.,
a Delaware limited partnership, and their Affiliates (collectively, "Carlyle
Affiliates") and (ii) General Electric Company, a New York corporation, and its
Affiliates (collectively, "GE Affiliates").
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (PROVIDED that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit, Euro-dollar time deposits or acceptances with a
maturity of one year or less of any financial institution that is a member
of the Federal Reserve System having combined capital and surplus of not
less than $500,000,000; (iii) any shares of money market mutual or similar
funds having assets in excess of $500,000,000; (iv) repurchase obligations
with a term not exceeding seven days for underlying securities of the types
described in clauses (i) and (ii) above entered into with any financial
institution meeting the qualifications specified in clause (ii) above; and
(v) commercial paper with a maturity of
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one year or less issued by a corporation that is not an Affiliate of the
Company and is organized under the laws of any state of the United States or
the District of Columbia and having a rating (A) from Moody's Investors
Service, Inc. of at least P-1 or (B) from Standard & Poor's Ratings Group of
at least A-1;
(b) Investments by the Company or any Wholly Owned Restricted Subsidiary
in another Person, if as a result of such Investment (i) such other Person
becomes a Restricted Subsidiary that is a Subsidiary Guarantor or (ii) such
other Person is merged or consolidated with or into, or transfers or conveys
all or substantially all of its assets to, the Company or a Restricted
Subsidiary that is a Subsidiary Guarantor;
(c) Investments by the Company or a Restricted Subsidiary in the Company
or a Subsidiary Guarantor;
(d) Investments in existence on the Closing Date;
(e) promissory notes or other evidence of Indebtedness received as a
result of Asset Sales permitted under the covenant entitled "Repurchase at
the Option of Holders--Asset Sales;"
(f) loans or advances to officers, directors and employees of the
Company or any of its Restricted Subsidiaries made in the ordinary course of
business after the date of the Indenture in an amount not to exceed $1
million in the aggregate at any one time outstanding;
(g) any Investment by the Company or any Restricted Subsidiary of the
Company in Permitted Joint Ventures made after the Closing Date having an
aggregate fair market value, when taken together with all other Investments
made pursuant to this clause (g) that are at the time outstanding, not
exceeding in the aggregate 5% of the Consolidated Tangible Assets of the
Company as of the last day of the most recent full fiscal quarter ending
immediately prior to the date of such Investment (with the fair market value
of each Investment being measured at the time made and without giving effect
to subsequent changes in value); and
(h) other Investments that do not exceed $20 million in the aggregate at
any one time outstanding.
"Permitted Joint Venture" means any joint venture, partnership or other
Person designated by the Board, (i) at least 50% of whose Capital Stock with
voting power under ordinary circumstances to elect directors (or Persons having
similar or corresponding powers and responsibilities) is at the time owned
(beneficially or directly) by the Company and/or by one or more Restricted
Subsidiaries of the Company and if the Company owns more than 50% of the Capital
Stock of the Permitted Joint Venture, such Permitted Joint Venture is a
Restricted Subsidiary of the Company, (ii) all of whose Indebtedness is Non-
Recourse Indebtedness, (iii) which is engaged in a Permitted Business, and (iv)
in which any Investment made as a result of designating such Person a Permitted
Joint Venture will not violate the provisions of the covenant described under
the caption "--Restricted Payments"; provided that each of Berwyn Magnetic
Resonance Center, LLC, Garfield Imaging Center, Ltd., MRI Associates, L.P.,
Tom's River Imaging Associates, L.P., St. John's Regional Imaging Center, LLC,
Dublin Diagnostic Imaging, LLC, Buckhead Imaging, LLC, MedFinancial, LLC,
Connecticut Lithotripsy LLC, Northern Indiana Oncology Center of Porter Memorial
Hospital, LLC and Northwest Magnetic Imaging shall be deemed to be a Permitted
Joint Venture. Any such designation (other than with respect to the Persons
identified in the preceding sentence) shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an officer's certificate certifying that such designation
complied with the foregoing provisions.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
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PROVIDED that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded plus the lesser of
the amount of any premium required to be paid in connection with such
refinancings pursuant to the terms of such indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
refinancing (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary of the Company that is the obligor
on the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other equivalents
(however designated) of such Person's preferred or preference stock, whether now
outstanding or issued after the Closing Date, and including, without limitation,
all classes and series of preferred or preference stock of such Person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"Senior Bank Debt" means the Obligations outstanding under the Amended
Credit Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and any Hedging
Obligations in respect thereof and (ii) any other Indebtedness permitted to be
incurred by the Company or any Subsidiary Guarantor under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is subordinated in right of payment to any
Indebtedness for money borrowed. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (i) Indebtedness evidenced by
the Notes, (ii) Indebtedness of the Company that is expressly subordinated in
right of payment to any Senior Indebtedness of the Company or the Notes, (iii)
Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligations of the Company, (iv) Indebtedness of the Company
to the extent incurred in violation of the Indenture, (v) any liability for
federal, state or local taxes or other taxes, owed or owing by the Company, (vi)
trade account payables owed or owing by the Company, (vii) amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(viii) Indebtedness of the Company to any Restricted Subsidiary or any other
Affiliate of the Company, (ix) Disqualified Stock of the Company and (x)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to the
Company or any Restricted Subsidiary.
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"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Subsidiaries, (b) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year or (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during such entire fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Subsidiary Guarantees issued by such Subsidiary Guarantor, as the case may
be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantors" means, collectively, all Restricted Subsidiaries
that are incorporated in the United States or a State thereof or the District of
Columbia (other than Permitted Joint Ventures); PROVIDED that any Person that
becomes an Unrestricted Subsidiary in compliance with the "Restricted Payments"
covenant shall not be included in "Subsidiary Guarantors" after becoming an
Unrestricted Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the
Board as an Unrestricted Subsidiary in accordance with the "Unrestricted
Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the Holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes has, or might have, voting power by reason of the happening of
any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Indebtedness or Disqualified Stock, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Indebtedness or Disqualified Stock,
respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding voting securities (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned, directly or
indirectly, by the Company.
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DESCRIPTION OF PREFERRED STOCK
Pursuant to the Recapitalization, the Company issued (i) to Carlyle, 25,000
shares of the Company's Convertible Preferred Stock, Series B (the "Series B
Preferred Stock") and warrants to purchase 250,000 shares of the Company's
common stock at the current exercise price of $10.00 per share and (ii) to GE,
7,000 shares of Series C Preferred Stock and an additional 20,953 shares of the
Company's Convertible Preferred Stock, Series C (the "Series C Preferred Stock")
in exchange for all of GE's shares of the Company's Convertible Preferred Stock,
Series A.
The Series B Preferred Stock and the Series C Preferred Stock (collectively,
"Preferred Stock") rank equally and their terms are substantially the same. The
Preferred Stock has a liquidation preference of $1,000 per share and ranks
senior to all other classes of outstanding capital stock with respect to
dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Company. It will participate in any dividends paid with
respect to the Company's common stock. There is no mandatory or optional
redemption provision for the Preferred Stock. The 25,000 shares of Series B
Preferred Stock is initially convertible, at the option of the holders thereof,
into an aggregate of 2,985,075 shares of the Company's common stock, and the
27,953 shares of Series C Preferred Stock are initially convertible, at the
option of the holders thereof, into an aggregate of 3,337,581 shares of the
Company's common stock, in each case at an initial conversion price of $8.375
per share. The Preferred Stock may be converted in whole at any time, and may be
converted in part substantially contemporaneously with the Board-approved sale
of a holder's Preferred Stock to a third party, the consummation of a public
offering of the Company's common stock and the consummation of a private sale of
the Company's common stock after April 14, 1999. The Series B Preferred Stock
and the Series C Preferred Stock may together be converted into the Company's
Convertible Preferred Stock, Series D (the "Series D Preferred Stock") on or
after October 22, 1998.
As long as Carlyle and its affiliates own at least 33% of the Series B
Preferred Stock or GE and its affiliates own at least 33% of the Series C
Preferred Stock, respectively, the approval of at least 67% of the holders of
each series of Preferred Stock is required before the Company may take certain
actions including, but not limited to, amending its certificate of incorporation
or bylaws, changing the number of directors or the manner in which directors are
selected, incurring indebtedness in excess of $15 million in any fiscal year,
issuing certain equity securities below the then current market price or the
then applicable conversion price, acquiring equity interests or assets of
entities for consideration equal to or greater than $15 million, and engaging in
mergers for consideration equal to or greater than $15 million. The Preferred
Stock votes with the Company's common stock on an as-if-converted basis on all
matters except the election of directors, provided that the aggregate number of
votes cast by GE and Carlyle does not exceed 37% of all votes entitled to be
cast on such matters.
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Board is currently fixed at nine. Six directors ("Common Stock
Directors") are elected by the Company's common stockholders, one of whom (the
"Joint Director") is to be proposed by Carlyle and GE and approved by a majority
of the Board in its sole discretion. Of the three remaining directors
("Preferred Stock Directors"), two are to be elected by the holders of the
Series B Preferred Stock and one is to be elected by the holders of the Series C
Preferred Stock, in each case acting by written consent and without a meeting of
the Company's common stockholders. As long as Carlyle and certain affiliates
thereof own an aggregate of at least 50% of the Series B Preferred Stock, the
holders of the Series B Preferred Stock will have the right to elect two
Preferred Stock Directors and as long as Carlyle and certain affiliates thereof
own an aggregate of at least 25% of such stock, such holders will have the right
to elect one Preferred Stock Director. As long as GE and its affiliates own an
aggregate of at least 25% of the Series C Preferred Stock it will have the right
to elect one Preferred Stock Director. If any such ownership percentage falls
below the applicable threshold, the Preferred Stock Director(s) formerly
entitled to be elected by Carlyle or GE, as the case may be, will thereafter be
elected by the Company's common stockholders. As of June 1, 1998, the Board
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consisted of eight directors, five of whom are Common Stock Directors and three
of whom are Preferred Stock Directors. The Joint Director vacancy has not yet
been filled.
All of the Series B Preferred Stock and the Series C Preferred Stock may be
converted at any time into Series D Preferred Stock. The Series D Preferred
Stock allows the number of directors to be automatically increased to a number
which would permit each of Carlyle and GE, by filling the newly created
vacancies, to achieve representation on the Board proportionate to their
respective common stock ownership percentages on an as-if-converted basis, but
would limit such representation to less than two thirds of the Board for a
certain period of time, as further described below. The Series D Preferred Stock
has a liquidation preference of $0.001 per share but no mandatory or optional
redemption provision. It will participate in any dividends paid with respect to
the Company's common stock and will be convertible into 6,322,660 shares of the
Company's common stock.
Holders of the Preferred Stock have a right of first offer with respect to
future sales in certain transactions or proposed transactions not involving a
public offering by the Company of its common stock or securities convertible
into its common stock. Holders of the Preferred Stock are also entitled to
certain demand and "piggyback" registration rights.
Each of Carlyle and GE has agreed (i) not to transfer, sell, assign or
pledge to any person other than an affiliate, or dispose of, any interest in any
shares of Series B Preferred Stock or Series C Preferred Stock without the prior
approval of the Board, in its sole discretion, and (ii) not to transfer, sell or
assign to an affiliate any interest in any shares of Series B Preferred Stock or
Series C Preferred Stock if such affiliate is engaged in the provision of
diagnostic services to the health care industry. In addition, until the earlier
to occur of April 14, 1999 or the conversion of the Preferred Stock into Series
D Preferred Stock, each of Carlyle and GE has agreed not to transfer, sell or
assign to any person any of the Company's common stock issuable upon conversion
of the Preferred Stock (the "Conversion Shares") without the prior approval of a
majority of the Board in its sole discretion, other than a transfer (i) to an
affiliate, (ii) permitted under Rule 144 of the Securities Act, (iii) pursuant
to a registered offering pursuant to the registration rights agreements with
Carlyle and GE or (iv) pursuant to a transaction available to all stockholders
of the Company on the same terms as to Carlyle or GE, as applicable, which has
been approved by a majority of the Board. If the Preferred Stock is converted
into Series D Preferred Stock prior to April 14, 1999, then until the second
annual stockholders meeting after such conversion date, additional restrictions
apply to the ability of GE or Carlyle to transfer Series D Preferred Stock or
the common stock issuable upon the conversion thereof or to cause the Company to
engage in certain transactions.
The foregoing description of the rights, preferences and privileges of the
Series B Preferred Stock as set forth in the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock, Series B (the "Series B
Certificate of Designation"), the Series C Preferred Stock as set forth in the
Certificate of Designation, Preferences and Rights of Convertible Preferred
Stock, Series C (the "Series C Certificate of Designation") and the Series D
Preferred Stock as set forth in the Certificate of Designation, Preferences and
Rights of Convertible Preferred Stock, Series D (the "Series D Certificate of
Designation") does not purport to be complete and is subject to and qualified in
its entirety by reference to the Series B Certificate of Designation, the Series
C Certificate of Designation and the Series D Certificate of Designation, copies
of which are filed with the Commission as Exhibits 3.2, 3.3 and 3.4,
respectively, to the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations to persons who acquired the Outstanding Notes on original
issuance for cash and who hold the Exchange Notes subsequent to the Exchange
Offer. It does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This summary is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, financial institutions, insurance companies and tax-exempt
organizations, may be subject to special rules. In addition, this summary is
limited to persons that will hold the Notes as a "capital asset" within the
meaning of Section 1221 of the Code. Further, this summary does not address the
effect of any applicable United States federal estate tax or any state, local or
other tax laws. ACCORDINGLY, INVESTORS CONSIDERING THE PURCHASE OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL, OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
The exchange of an Outstanding Note by a holder for an Exchange Note should
not constitute a taxable exchange and thus should not result in income, gain or
loss to holders of Notes who participate in the Exchange Offer or to the
Company. Such holders should have the same adjusted basis and holding period in
the Exchange Notes immediately after the exchange as the holders had in the
Outstanding Notes immediately prior to the exchange. As used herein, the term
"United States Holder" means a beneficial owner of the Outstanding Notes or
Exchange Notes that is, for United States federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation or other entity
created or organized under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which its subject to federal
income taxation regardless of its source, or (iv) a trust subject to the primary
supervision of a U.S. court and the control of one or more U.S. fiduciaries. A
"Foreign Holder" is any holder of Outstanding Notes or Exchange Notes that is
not a United States Holder.
UNITED STATES HOLDERS
STATED INTEREST. A United States Holder of a Note will be required to
include interest on a Note in gross income for Federal income tax purposes in
accordance with the holder's method of tax accounting.
SALE, EXCHANGE OR REDEMPTION OF A NOTE. Upon a taxable sale, exchange or
redemption of a Note, a United States Holder generally will recognize capital
gain or loss equal to the difference between the amount realized (other than any
amount received attributable to accrued interest on a Note that was not
previously included in gross income, which amount will be treated as interest
income) and the holder's tax basis in the Note. Such capital gain or loss will
be long-term capital gain or loss if the Holder's holding period in the Note is
more than one year at the time of such disposition. In general, in the case of a
non-corporate United States Holder, capital gains recognized on Notes held (i)
one year or less will be taxed at ordinary income tax rates, (ii) more than one
year but 18 months or less will be taxed at a maximum rate of 28% and (iii) more
than 18 months will be taxed at a maximum rate of 20%. In addition, holders
should consult their own tax advisers regarding the availability and effect of a
certain tax election to mark-to-market Notes held on January 1, 2001.
FOREIGN HOLDERS
Payments of principal and interest on the Notes to a Foreign Holder
generally will not be subject to United States Federal withholding tax provided
that (a) the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the holder is not a controlled foreign corporation that is related to
the Company through stock
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ownership and (c) either (1) the beneficial owner of the Note, under penalties
of perjury, provides the Company or its agent with its name and address and
certifies that it is not a United States person or (2) a securities clearing
organization, bank, or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") certifies to the Company or its agent, under penalties of perjury,
that such a statement has been received from the beneficial owner by it or
another financial institution and furnishes to the Company or its agent a copy
thereof.
A Foreign Holder that does not qualify for the exception from withholding
tax described above would generally be subject to the United States withholding
tax at a flat rate of 30% (or a lower applicable treaty rate) on payments of
interest, unless the Foreign Holder's income from the Notes is effectively
connected with a U.S. trade or business of the holder. A Foreign Holder
generally will be taxed in the same manner as a United States corporation or
resident with respect to such income if it is effectively connected with the
conduct of a trade or business in the United States. Such effectively connected
income received by a Foreign Holder which is a corporation may in certain
circumstances be subject to an additional "branch profits tax" at a 30% rate or,
if applicable, a lower treaty rate.
A Foreign Holder generally will not be subject to United States Federal
income or withholding tax on gain realized on the sale, exchange or redemption
of the Notes unless (i) the holder is an individual who was present in the
United States for 183 days or more during the taxable year and certain other
requirements are met, or (ii) the gain is effectively connected with the conduct
of a trade or business of the holder in the United States.
The IRS recently issued Treasury Regulations, generally effective for
payments made after December 31, 1998, concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. Among other things, these Treasury Regulations may require Foreign
Holders to furnish new certification of their foreign status after December 31,
1998. Prospective purchasers of Notes should consult their tax advisors
concerning the applicability and effect of such Treasury Regulations on an
investment in the Notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate United States Holders, and a 31%
backup withholding tax may apply to such payment if the United States Holder (i)
fails to furnish or certify his correct taxpayer identification number ("TIN")
to the payor in the manner required, (ii) is notified by the IRS that he has
failed to report payments of interest or dividends properly or (iii) under
certain circumstances, fails to certify that he has not been notified by the IRS
that he is subject to backup withholding for failure to report interest or
dividend payments.
The payment of interest on the Notes to Foreign Holders (or purported
Foreign Holders) generally will not be subject to information reporting and
backup withholding if the Company (or its paying agent) has received the
certification described in (c) above under the caption "Foreign Holders" and
neither the Company nor its paying agent has actual knowledge that the holder is
a United States person. The proceeds paid to a Foreign Holder upon the sale of a
Note by or through a United States office of a broker will be subject to
information reporting and backup withholding unless the holder provides the
certification described in (c) above or otherwise establishes an exception. The
proceeds paid to a Foreign Holder upon the sale of a Note by or through a
foreign office of a broker generally will not be subject to a backup withholding
tax. However, such proceeds will be subject to information reporting if the
broker is (i) a United States person, (ii) a "controlled foreign corporation"
for United States federal income tax purposes, or (iii) a foreign person 50% or
more of whose gross income for certain periods is effectively connected with the
conduct of a trade or business in the United States, unless the broker has
documentary evidence in its files that the holder is not a United States person
and the broker has no knowledge to the contrary.
123
<PAGE>
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States Federal income tax
liability provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Outstanding Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver this Prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer who
holds Outstanding Notes acquired for its own account as a result of
market-making activities or other trading activities (an "Exchanging Dealer") in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes. For a period (the "Exchange Offer Registration Period") the longer of (A)
the period until consummation of the Exchange Offer and (B) two years after the
effectiveness of the Registration Statement (unless, in the case of (B), all
resales of Exchange Notes covered by the Registration Statement have been made),
the Company will make this Prospectus, as amended or supplemented, available to
any Exchanging Dealer for use in connection with any such resale; provided,
however, that the Company shall not be required to maintain the effectiveness of
the Registration Statement for more than 60 days following the consummation of
the Exchange Offer unless the Company has been notified in writing on or prior
to the 60th day following the consummation of the Exchange Offer by one or more
broker-dealers that such holder has received Exchange Notes as to which it will
be required to deliver this Prospectus upon resale. In addition, until ,
1998, (90 days after the date of this Prospectus),all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from the exchange of Outstanding
Notes for Exchange Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, or at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through broker-dealers who may receive compensation in the form of commissions
or concessions from any such broker-dealer and/or the purchasers of any Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any person that
participates in the distribution of such Exchange Notes may be deemed an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such broker-dealers may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions or concessions of any broker-dealers and will indemnify
the holders of the Outstanding Notes (including Exchanging Dealers)
participating in the Exchange Offer against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of (i) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (ii) the receipt by the Company of any
notification with respect to the suspension of the qualification of the Notes
included therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; or (iii) the happening of any event that
requires the
124
<PAGE>
making of any changes in the Registration Statement or this Prospectus so that,
as of such date, the Registration Statement or this Prospectus does not include
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein (in the case of this Prospectus, in
light of the circumstances under which they were made) not misleading (which
notice the Company agrees to advise to any broker-dealer that has provided in
writing to the Company a telephone or facsimile number and address for notices),
such broker-dealer will suspend the use of this Prospectus until the Company has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
broker-dealer or until it is advised is writing by the Company that the use of
this Prospectus may be resumed and has received copies of any amendments or
supplements thereto. If the Company gives any such notice to suspend the use of
the Prospectus, it will extend the Exchange Offer Registration Period by the
number of days during the period from and including the date of the giving of
such notice to and including the date when broker-dealers shall have received
(x) copies of the supplemented or amended Prospectus necessary to permit resales
of Exchange Notes or (y) such advice in writing.
LEGAL MATTERS
Certain legal matters will be passed upon on behalf of the Company by Arent
Fox Kintner Plotkin & Kahn, PLLC, Washington, D.C.
EXPERTS
The financial statements of InSight Health Services Corp. and subsidiaries
as of June 30, 1997 and 1996, and for the year ended June 30, 1997 and for the
six months ended June 30, 1996, included in this Registration Statement, have
been audited by Arthur Andersen LLP, independent certified public accountants,
as stated in their report appearing herein and have been so included in reliance
upon the report of such firm upon their authority as experts in accounting and
auditing.
The consolidated statements of operations, stockholders' equity (deficit)
and cash flows of Maxum Health Corp. and subsidiaries for each of the two years
in the period ended December 31, 1995, included in this Registration Statement,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm upon their authority as experts in accounting and auditing.
The financial statements of Signal Medical Services, Inc. as of December 31,
1997 and 1996 and for each of the years in the two-year period ended December
31, 1997, included in this Registration Statement, have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, as stated in their
report appearing herein and have been so included in reliance upon the report of
such firm upon their authority as experts in accounting and auditing.
The financial statements of Mobile Imaging Consortium as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996, included in this Registration Statement, have been audited by Baker
Newman & Noyes LLC, independent certified public accountants, as stated in their
report appearing herein and have been so included in reliance upon the report of
such firm upon their authority as experts in accounting and auditing.
125
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
-----------
<S> <C>
Report of Independent Public Accountants............................................................ F-2
Report of Independent Public Accountants............................................................ F-3
Consolidated Balance Sheets as of June 30, 1997 and 1996............................................ F-4
Consolidated Statements of Operations for the Year Ended June 30, 1997, the Six Months Ended June
30, 1996 and the Years Ended December 31, 1995 and 1994........................................... F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995, the
Six Months Ended June 30, 1996 and the Year Ended June 30, 1997................................... F-7
Consolidated Statements of Cash Flows for the Year Ended June 30, 1997, the Six Months Ended June
30, 1996 and the Years Ended December 31, 1995 and 1994........................................... F-8
Notes to Consolidated Financial Statements.......................................................... F-9
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited) and June 30, 1997............ F-31
Condensed Consolidated Statements of Operations (unaudited) for the Nine Months Ended March 31, 1998
and 1997.......................................................................................... F-33
Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31,
1998 and 1997..................................................................................... F-34
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended March 31, 1998
and 1997.......................................................................................... F-35
Notes to Condensed Consolidated Financial Statements (unaudited).................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InSight Health Services Corp.:
We have audited the accompanying consolidated balance sheets of INSIGHT
HEALTH SERVICES CORP. (a Delaware corporation) and subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1997 and for the
six months ended June 30, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of InSight
Health Services Corp. and subsidiaries as of June 30, 1997 and 1996, and results
of their operations and their cash flows for the year ended June 30, 1997 and
for the six months ended June 30, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
October 14, 1997 (except
with respect to the
matter discussed in Note
15, as to which the date
is July 29, 1998).
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Maxum Health Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Maxum Health Corp. and
Subsidiaries (MHC) for each of the two years in the period ended December 31,
1995. Our audits also include the related financial statement schedule of
valuation and qualifying accounts. These financial statements and schedule are
the responsibility of MHC's management. Our responsibility is to express an
opinion on these financial statements and schedule 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, such consolidated financial statements present fairly, in
all material respects, the results of MHC's operations and its cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The accompanying 1995 and 1994 financial statements have been prepared
assuming that MHC will continue as a going concern. As discussed in Note 3 to
the financial statements, MHC is experiencing difficulty in generating
sufficient cash flow to meet its obligations and sustain its operations. These
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in Notes 1
and 3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 1, 1996
F-3
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 7,135 $ 6,864
Trade accounts receivable, net............................................................ 15,645 12,916
Other receivables, net.................................................................... 358 973
Other current assets...................................................................... 1,554 1,708
--------- ---------
Total current assets.................................................................... 24,692 22,461
--------- ---------
PROPERTY AND EQUIPMENT:
Vehicles.................................................................................. 968 978
Land, building and leasehold improvements................................................. 9,589 8,602
Computer and office equipment............................................................. 3,855 3,638
Diagnostic and related equipment.......................................................... 28,193 18,113
Equipment and vehicles under capital leases............................................... 8,086 10,479
--------- ---------
50,691 41,810
Less: Accumulated depreciation and amortization......................................... 16,203 11,958
--------- ---------
Property and equipment, net............................................................. 34,488 29,852
--------- ---------
INVESTMENT IN PARTNERSHIPS.................................................................. 402 359
--------- ---------
OTHER ASSETS................................................................................ 5,468 749
--------- ---------
INTANGIBLE ASSETS, net...................................................................... 33,272 16,965
--------- ---------
$ 98,322 $ 70,386
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of equipment and other notes............................................ $ 11,901 $ 6,585
Current portion of capital lease obligations............................................ 3,561 2,638
Accrued equipment related costs......................................................... 2,882 3,249
Accounts payable and other accrued expenses............................................. 8,822 8,328
Accrued payroll and related costs....................................................... 2,521 1,775
Current portion of deferred gain on debt restructure.................................... 745 1,053
---------- ----------
Total current liabilities............................................................. 30,432 23,628
---------- ----------
LONG-TERM LIABILITIES:
Equipment and other notes, less current portion......................................... 54,421 31,653
Capital lease obligations, less current portion......................................... 3,312 3,988
Accrued securities litigation settlement................................................ -- 1,900
Deferred gain on debt restructure, less current portion................................. 728 1,467
Other long-term liabilities............................................................. 744 831
---------- ----------
Total long-term liabilities........................................................... 59,205 39,839
---------- ----------
COMMITMENTS (Note 8)
MINORITY INTEREST......................................................................... 2,000 1,515
---------- ----------
STOCKHOLDERS' EQUITY:
Convertible Series A preferred stock, $.001 par value, 3,500,000 shares authorized;
2,501,760 outstanding at June 30, 1997 and 1996, respectively, with a liquidation
preference of $24,000 ................................................................ 6,750 6,750
Common stock, $.001 par value, 25,000,000 shares authorized, 2,714,725 and 2,710,240
shares outstanding at June 30, 1997 and 1996, respectively............................ 3 3
Additional paid-in capital.............................................................. 23,100 23,100
Accumulated deficit..................................................................... (23,168) (24,449)
---------- ----------
Total stockholders' equity............................................................ 6,685 5,404
---------- ----------
$ 98,322 $ 70,386
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Contract services........................................ $ 47,827 $ 20,045 $ 38,976 $ 36,393
Patient services......................................... 42,706 5,853 10,605 8,228
Other.................................................... 2,530 562 1,028 1,247
----------- ----------- ------------ ------------
Total revenues......................................... 93,063 26,460 50,609 45,868
----------- ----------- ------------ ------------
COSTS OF OPERATIONS:
Costs of services........................................ 50,564 15,899 28,772 26,067
Provision for doubtful accounts.......................... 1,506 617 1,669 1,124
Equipment leases......................................... 18,396 6,957 14,464 14,581
Depreciation and amortization............................ 9,871 3,947 3,873 3,667
----------- ----------- ------------ ------------
Total costs of operations.............................. 80,337 27,420 48,778 45,439
----------- ----------- ------------ ------------
GROSS PROFIT (LOSS)........................................ 12,726 (960) 1,831 429
CORPORATE OPERATING EXPENSES............................... 7,431 2,127 3,372 4,040
----------- ----------- ------------ ------------
INCOME (LOSS) FROM COMPANY OPERATIONS...................... 5,295 (3,087) (1,541) (3,611)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS.......... 468 138 348 834
----------- ----------- ------------ ------------
OPERATING INCOME (LOSS).................................... 5,763 (2,949) (1,193) (2,777)
OTHER INCOME (EXPENSE):
Interest expense, net.................................... (4,055) (1,144) (1,626) (1,206)
Provision for securities litigation settlement........... -- -- (1,500) --
Gain on sale of partnership interests.................... -- -- -- 4,957
----------- ----------- ------------ ------------
(4,055) (1,144) (3,126) 3,751
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.......................... 1,708 (4,093) (4,319) 974
PROVISION FOR INCOME TAXES................................. 427 65 -- 160
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 1,281 (4,158) (4,319) 814
EXTRAORDINARY ITEM--Net gain on debt extinguishment........ -- 3,179 -- 3,342
----------- ----------- ------------ ------------
NET INCOME (LOSS).......................................... $ 1,281 $ (979) $ (4,319) $ 4,156
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item.................. $ 0.24 $ (2.99) $ (3.21) $ 0.58
----------- ----------- ------------ ------------
Net income (loss)........................................ $ 0.24 $ (0.70) $ (3.21) $ 2.96
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average number of common shares outstanding..... 5,440,315 1,389,271 1,344,832 1,402,435
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- -------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT WARRANT CAPITAL
--------- ------ ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993............ -- $-- 2,949,488 $ 29 $ 7 $19,679
Stock issued under employee purchase
plan.................................. -- -- 3,927 -- -- 1
Surrender of 132,750 shares of treasury
stock in settlement of stockholder
note receivable....................... -- -- -- -- -- --
Net income.............................. -- -- -- -- -- --
--------- ------ ---------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1994............ -- -- 2,953,415 29 7 19,680
Stock issued under employee purchase
plan.................................. -- -- 51,640 1 -- 13
Net loss................................ -- -- -- -- -- --
--------- ------ ---------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1995............ -- -- 3,005,055 30 7 19,693
Issuance of Series A Preferred Stock and
cancellation of common stock
warrant............................... 1,250,880 3,375 -- -- (7) --
Acquisition of IHC...................... 1,250,880 3,375 1,349,908 1 -- 3,644
Retirement of MHC's treasury stock...... -- -- -- -- -- (265)
Reset the par value of InSight common
stock issued in exchange for MHC'S
common stock.......................... -- -- (1,644,723) (28) -- 28
Net loss................................ -- -- -- -- -- --
--------- ------ ---------- --------- --------- ----------
BALANCE AT JUNE 30, 1996................ 2,501,760 6,750 2,710,240 3 -- 23,100
Stock options exercised................. -- -- 4,485 -- -- --
Net income.............................. -- -- -- -- -- --
--------- ------ ---------- --------- --------- ----------
BALANCE AT JUNE 30, 1997................ 2,501,760 $6,750 2,714,725 $ 3 $ -- $23,100
--------- ------ ---------- --------- --------- ----------
--------- ------ ---------- --------- --------- ----------
<CAPTION>
STOCKHOLDER
ACCUMULATED NOTE TREASURY
DEFICIT RECEIVABLE STOCK TOTAL
----------- ----------- -------- -------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993............ $(23,307) $ (110) $ (155) $(3,857)
Stock issued under employee purchase
plan.................................. -- -- -- 1
Surrender of 132,750 shares of treasury
stock in settlement of stockholder
note receivable....................... -- 110 (110) --
Net income.............................. 4,156 -- -- 4,156
----------- ----------- -------- -------
BALANCE AT DECEMBER 31, 1994............ (19,151) -- (265) 300
Stock issued under employee purchase
plan.................................. -- -- -- 14
Net loss................................ (4,319) -- -- (4,319)
----------- ----------- -------- -------
BALANCE AT DECEMBER 31, 1995............ (23,470) -- (265) (4,005)
Issuance of Series A Preferred Stock and
cancellation of common stock
warrant............................... -- -- -- 3,368
Acquisition of IHC...................... -- -- -- 7,020
Retirement of MHC's treasury stock...... -- -- 265 --
Reset the par value of InSight common
stock issued in exchange for MHC'S
common stock.......................... -- -- -- --
Net loss................................ (979) -- -- (979)
----------- ----------- -------- -------
BALANCE AT JUNE 30, 1996................ (24,449) -- -- 5,404
Stock options exercised................. -- -- -- --
Net income.............................. 1,281 -- -- 1,281
----------- ----------- -------- -------
BALANCE AT JUNE 30, 1997................ $(23,168) $ -- $ -- $ 6,685
----------- ----------- -------- -------
----------- ----------- -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................... $ 1,281 $ (979) $ (4,319) $ 4,156
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization...................................... 9,871 4,022 4,060 3,913
Amortization of deferred gain on debt restructure.................. (1,047) -- -- --
Gain on disposal of assets......................................... (113) (133) (35) (112)
Provision for securities litigation settlement..................... -- -- 1,500 --
Gain on sale of partnership interests.............................. -- -- -- (4,957)
Operating expenses financed by issuance of debt.................... -- 1,015 2,330 2,672
Extraordinary gain on debt extinguishments......................... -- (3,179) -- (3,342)
Cash provided by (used in) changes in operating assets and
liabilities:
Payments for restructure costs..................................... -- -- -- (700)
Receivables........................................................ (1,664) (174) (524) (38)
Other current assets............................................... 157 (851) (110) 782
Accounts payable and other current liabilities..................... (1,143) 975 (1,089) 1,088
----------- ----------- ------------ ------------
Net cash provided by operating activities.......................... 7,342 696 1,813 3,462
----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Cash acquired in acquisition of IHC.................................. -- 5,489 -- --
Acquisition of Centers and Mobile Facilities......................... (18,566) -- (1,855) (510)
Acquisition of customer contracts and intangibles.................... -- -- (2,108) --
Proceeds from sales of assets........................................ 347 369 745 1,358
Proceeds from sale of partnership interests.......................... -- -- -- 5,007
Additions to property and equipment.................................. (7,102) (960) (548) (349)
(Increase) decrease in other assets................................ (4,937) 195 190 582
----------- ----------- ------------ ------------
Net cash provided by (used in) investing activities................ (30,258) 5,093 (3,576) 6,088
----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Principal payments of debt and capital lease obligations............. (11,026) (2,302) (6,020) (4,752)
Proceeds from issuance of debt....................................... 33,728 1,507 2,689 268
Net repayments on revolving note payable............................. -- -- -- (250)
Other................................................................ 485 -- 14 1
----------- ----------- ------------ ------------
Net cash provided by (used in) financing activities................ 23,187 (795) (3,317) (4,733)
----------- ----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:...................... 271 4,994 (5,080) 4,817
Cash, beginning of period............................................ 6,864 1,870 6,950 2,133
----------- ----------- ------------ ------------
Cash, end of period.................................................. $ 7,135 $ 6,864 $ 1,870 $ 6,950
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
SUPPLEMENTAL INFORMATION (Note 13)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER
InSight Health Services Corp. (InSight or the Company) is a Delaware
corporation formed on February 23, 1996 in connection with the Agreement and
Plan of Merger, dated as of February 26, 1996 (Merger Agreement), among American
Health Services Corp., a Delaware corporation (AHS), Maxum Health Corp., a
Delaware corporation (MHC or Maxum), InSight and two wholly owned subsidiaries
of InSight, AHSC Acquisition Company, a Delaware corporation (AHSC Acquisition),
and MXHC Acquisition Company, a Delaware corporation (MXHC Acquisition).
Pursuant to the terms of the Merger Agreement, (i) AHSC Acquisition merged with
and into AHS and MXHC Acquisition merged with and into Maxum (collectively, the
Merger), (ii) each outstanding share of common stock, par value $.03 per share,
of AHS (AHS Common Stock) was converted into the right to receive one-tenth of a
share of common stock, par value $.001 per share, of InSight (InSight Common
Stock), (iii) each outstanding share of Series B Senior Convertible Preferred
Stock, par value $.03 per share, of AHS (AHS Series B Preferred Stock) which was
convertible into 100 shares of AHS Common Stock was converted into the right to
receive 10 shares of InSight Common Stock, (iv) each outstanding share of Series
C Preferred Stock, par value $.03 per share, of AHS (AHS Series C Preferred
Stock), which was issued immediately prior to the consummation of the Merger,
was converted into the right to receive 1.25088 shares of Series A Preferred
Stock, par value $.001 per share, of InSight (InSight Series A Preferred Stock),
(v) each outstanding share of common stock, par value $.01 per share, of Maxum
(Maxum Common Stock) was converted into the right to receive .598 of a share of
InSight Common Stock, (vi) each outstanding share of Series B Preferred Stock,
par value $.01 per share, of Maxum (Maxum Series B Preferred Stock), which was
issued immediately prior to the consummation of the Merger, was converted into
the right to receive 83.392 shares of InSight Series A Preferred Stock, and
(vii) each outstanding option, warrant or other right to purchase AHS Common
Stock and Maxum Common Stock was converted into the right to acquire, on the
same terms and conditions, shares of InSight Common Stock, with the number of
shares and exercise price applicable to such option, warrant or other right
adjusted based on the applicable exchange ratio for the underlying AHS Common
Stock or Maxum Common Stock.
Concurrent with the consummation of the Merger, AHS and MHC completed a debt
restructuring with General Electric Company (GE), the primary creditor of MHC
and AHS. This restructuring resulted in the reduction of certain debt and
operating lease obligations and cancellation of certain stock warrants of MHC
and AHS in exchange for, among other things, the issuance to GE, immediately
prior to the consummation of the Merger, of Maxum Series B Preferred Stock and
AHS Series C Preferred Stock. In connection with this restructuring, MHC
recorded the extinguishment of $9.0 million of long-term debt obligations and an
extraordinary gain representing the difference in the carrying value ($9.0
million) of the debt obligations settled over the fair value ($3.4 million) of
the Maxum Series B Preferred Stock issued to GE. In accordance with the
provisions of troubled debt accounting, a portion of the extraordinary gain,
equal to the sum of the current and long-term portions of future interest
payable on all remaining GE debt and capital lease obligations of $1.0 million
and $1.5 million, respectively, was deferred and will be reduced by future
interest payments over the terms of the respective debt instruments.
At the effective time of the Merger, MHC Series B Preferred Stock and AHS
Series C Preferred Stock issued to GE was converted into the right to receive
such number of shares of InSight Series A Preferred Stock that is convertible
into such number of shares of InSight Common Stock representing approximately
48% of InSight Common Stock outstanding at the effective time of the Merger
(after giving effect to such conversion). Under an amended equipment maintenance
service agreement, GE will also be entitled to receive certain supplemental
service fee payments based on future pretax income of InSight.
On September 13, 1996, AHS changed its name to InSight Health Corp. (IHC).
F-9
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. MERGER (CONTINUED)
The Merger was accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. MHC is treated as the
acquiror for accounting purposes, based upon the relative revenues, book values
and other factors. The Consolidated Financial Statements presented herein for
the six months ended June 30, 1996 and for the years ended December 31, 1995 and
1994, respectively, represent the operating results of MHC only.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
The Company provides diagnostic imaging, treatment and related services to
hospitals, physicians and their patients through its imaging network in 26
states throughout the United States, with a substantial presence in California,
primarily Los Angeles County, and northern Texas, primarily the Dallas/Ft. Worth
metroplex. The Company's services are provided through a network of 35 mobile
magnetic resonance imaging (MRI) facilities (Mobile Facilities), 28 fixed-site
MRI facilities (Fixed Facilities), 10 multi-modality imaging centers (Centers),
two Leksell Stereotactic Gamma Unit treatment centers (Gamma Knife), and one
radiation oncology center. An additional radiation oncology center is operated
by the Company as a part of one of its Centers.
B. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of InSight and
its wholly owned subsidiaries, MHC and IHC (Note 1). The Company's investment
interests in partnerships (the Partnerships) are accounted for under the equity
method of accounting for ownership of 50 percent or less when the Company does
not exercise significant control over the operations of the Partnership and does
not have primary responsibility for the Partnership's long-term debt. The
Company's consolidated financial statements include two Partnerships which have
been accounted for under the equity method (Note 12).
At June 30, 1997 and 1996, respectively, the Company has consolidated two 50
percent owned Partnerships and one less than 50 percent owned limited liability
company. Since the Company controls the operations of these 50 percent or less
owned entities and is primarily responsible for the associated long-term debt,
management believes that consolidation of these entities is the most meaningful
financial statement presentation (Note 12).
Significant intercompany balances have been eliminated.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
D. REVENUE RECOGNITION
Revenues from contract services (primarily Mobile Facilities) and from
patient services (primarily Centers) are recognized when services are provided.
Patient services revenues are presented net of related contractual adjustments.
Equipment rental revenues, management fees and other revenues are recognized
over the applicable contract period. Revenues collected in advance are recorded
as unearned revenue.
F-10
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. CASH EQUIVALENTS
Cash equivalents are generally composed of highly liquid investments with
original maturities of three months or less, such as certificates of deposit and
commercial paper.
F. PROPERTY AND EQUIPMENT
Property and equipment are depreciated and amortized on the straight-line
method using the following estimated useful lives:
<TABLE>
<S> <C>
Vehicles..................................................... 3 to 8 years
7 to 19
Buildings.................................................... years
Term of
Leasehold improvements....................................... lease
Computer and office equipment................................ 3 to 5 years
Diagnostic and related equipment............................. 5 to 8 years
Term of
Equipment and vehicles under capital leases.................. lease
</TABLE>
The Company capitalizes expenditures for improvements and major renewals.
Maintenance, repairs and minor replacements are charged to operations as
incurred. When assets are sold or otherwise disposed of, the cost and related
reserves are removed from the accounts and any resulting gain or loss is
included in the results of operations.
G. INTANGIBLE ASSETS
The Company assesses the recoverability of its intangible assets (including
goodwill) by determining whether the intangible asset balance can be recovered
over the remaining amortization period through projected nondiscounted future
cash flows. If projected future cash flows indicate that the unamortized
intangible asset balances will not be recovered, an adjustment is made to reduce
the net intangible asset to an amount consistent with projected future cash
flows discounted at the Company's incremental borrowing rate. Cash flow
projections, although subject to a degree of uncertainty, are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
The Company has classified as goodwill the cost in excess of fair value of
the net assets acquired in purchase transactions. Intangible assets are
amortized on the straight-line basis over the following periods (See Note 6):
<TABLE>
<S> <C>
6 to 20
Goodwill...................................................... years
Non-compete agreements........................................ 5 to 7 years
Certificates of need.......................................... 6 years
</TABLE>
H. INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", which requires the asset and liability method of
accounting for income taxes.
F-11
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. INCOME (LOSS) PER COMMON SHARE
The number of shares used in computing income (loss) per common share is
equal to the weighted average number of common and common equivalent shares
outstanding during the respective period, adjusted retroactively for the
conversion of Maxum Common Stock into InSight Common Stock as a result of the
Merger. Common stock equivalents relating to options, warrants and convertible
preferred stock are excluded for all periods prior to June 30, 1997 because they
are antidilutive.
J. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of financial instruments are estimated using available market
information and other valuation methodologies. The fair value of the Company's
financial instruments is estimated to approximate the related book value, unless
otherwise indicated.
K. NEW PRONOUNCEMENTS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock Based Compensation". As permitted
under the standard, the Company continued to account for employee stock options
in accordance with APB Opinion No. 25 and made necessary pro forma disclosures
mandated by SFAS No. 123. The adoption of this standard had no impact on the
Company's results of operations.
In fiscal 1998, the Company will be required to adopt SFAS No. 129,
"Disclosure of Information about Capital Structure", which continues the
existing requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of companies
subject to portions of its requirements. The adoption of this standard will have
no effect on the Company's results of operations.
The Financial Accounting Standards Board (FASB) has issued SFAS No. 128,
"Earnings per Share (EPS)". This standard is effective for both interim and
annual reporting periods ending after December 15, 1997. SFAS No. 128 replaces
primary EPS with basic EPS and fully diluted EPS with diluted EPS. Basic EPS is
computed by dividing reported earnings by weighted average shares outstanding.
Diluted EPS is computed in the same way as fully diluted EPS, except that the
calculation now uses the average share price for the reporting period to compute
dilution from options under the treasury stock method. Management believes that
adoption of this standard will not have a significant impact on earnings per
share.
In June 1997, the FASB issued SFAS Nos. 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information." FASB Nos. 130 and 131 are effective for fiscal years
beginning after December 15, 1997, with earlier adoption permitted. The Company
believes that adoption of these standards will not have a material impact on the
Company.
L. RECLASSIFICATIONS
Reclassifications have been made to certain 1996, 1995 and 1994 amounts to
conform to the 1997 presentation.
F-12
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PRIOR RESTRUCTURE OF MHC'S OPERATIONS AND FINANCIAL OBLIGATIONS
As of December 31, 1995, MHC did not have the resources to support its
existing debt service and lease requirements and an obligation to settle pending
securities litigation. The accompanying 1995 and 1994 financial statements were
prepared on a going concern basis, and accordingly did not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities had MHC been unable to
continue as a going concern. In June 1996, the financial accommodation
transactions with GE were closed and the Merger was consummated (Note 1).
4. ACQUISITIONS
In June 1996, InSight, MHC and IHC completed the Merger (Note 1). The Merger
was accounted for under the purchase method with MHC being treated as the
acquiror for accounting purposes.
In September 1996, InSight purchased certain assets of a Fixed Facility in
California for approximately $2.8 million in cash.
In May 1997, InSight purchased certain assets, primarily Mobile Facilities
in Maine and New Hampshire. InSight paid approximately $6.8 million in cash and
assumed certain equipment related liabilities of approximately $1.9 million.
In June 1997, InSight purchased certain assets of a Center in Tennessee.
InSight paid approximately $9.0 million in cash and assumed certain equipment
related liabilities of approximately $1.9 million.
In May 1997, the Company entered into a definitive agreement to purchase
certain assets of a Center in Ohio. As part of the definitive agreement, the
Company deposited approximately $5.5 million into an escrow account. At June 30,
1997 this deposit is included in other assets.
These acquisitions were accounted for under the purchase method.
Accordingly, the results of related operations have been included in the
consolidated financial statements since the applicable acquisition dates. The
pro forma effects of these acquisitions, as if they had occurred as of January
1, 1996, are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................................................ $ 104,370 $ 50,092
Expenses............................................................................ 102,285 54,286
------------- -------------
Income (loss) before extraordinary item............................................. 2,085 (4,194)
Extraordinary item.................................................................. -- 3,179
------------- -------------
Net income (loss)................................................................... $ 2,085 $ (1,015)
------------- -------------
------------- -------------
Income (loss) per share before extraordinary item................................... $ 0.38 $ (1.55)
------------- -------------
------------- -------------
Net income (loss) per share......................................................... $ 0.38 $ (0.37)
------------- -------------
------------- -------------
</TABLE>
The pro forma results for 1997 and 1996 include $0.8 million and $0.7
million of amortization of intangibles, respectively, and $1.7 million and $0.8
million of interest expense, respectively, related to these acquisitions. The
pro forma results in 1996 do not include the interest and lease savings
resulting from the Merger.
F-13
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. TRADE RECEIVABLES
Trade receivables are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Trade receivables........................................................................... $ 26,271 $ 23,004
Less: Allowances for doubtful accounts and contractual adjustments.......................... 7,491 7,808
Allowances for professional fees....................................................... 3,135 2,280
--------- ---------
Net trade receivables..................................................................... $ 15,645 $ 12,916
--------- ---------
--------- ---------
Net trade receivables arise from revenue generated by:
Patient services............................................................................ $ 9,199 $ 7,362
Contract services........................................................................... 5,431 4,693
Other....................................................................................... 1,015 861
--------- ---------
Net trade receivables..................................................................... $ 15,645 $ 12,916
--------- ---------
--------- ---------
</TABLE>
Receivables related to patient services revenues are due primarily from
managed care organizations, patients' private insurance companies and government
payors. Receivables arising from contract service revenues are due primarily
from hospitals.
The allowance for doubtful accounts and contractual adjustments include
management's estimate of the amounts expected to be written off on specific
accounts and for write offs on other as yet unidentified accounts included in
accounts receivable. In estimating the write offs and adjustments on specific
accounts, management relies on a combination of in-house analysis and a review
of contractual payment rates from private health insurance programs or under the
federal Medicare program. In estimating the allowance for unidentified write
offs and adjustments, management relies on historical experience. The amounts
the Company will ultimately realize could differ materially in the near term
from the amounts assumed in arriving at the allowance for doubtful accounts and
contractual adjustments in the financial statements at June 30, 1997.
The Company reserves a contractually agreed upon percentage at several of
its Centers, averaging 20 percent of the accounts receivable balance from
patients, for payments to radiologists for interpreting the results of the
diagnostic imaging procedures. Payments to radiologists are only due when
amounts are received. At that time, the balance is transferred from the
allowance account to a professional fees payable account.
F-14
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Intangible assets....................................................... $ 35,290 $ 17,861
Less: Accumulated amortization.......................................... 2,018 896
--------- ---------
$ 33,272 $ 16,965
--------- ---------
--------- ---------
Goodwill................................................................ $ 32,804 $ 16,382
Non-compete agreements.................................................. 175 245
Customer service contracts.............................................. -- 113
Certificates of need.................................................... 125 158
Other................................................................... 168 67
--------- ---------
$ 33,272 $ 16,965
--------- ---------
--------- ---------
</TABLE>
In connection with the Company's acquisitions in 1997 and the Merger in 1996
(Note 1), the Company recorded $17.6 million and $13.6 million of intangible
assets, respectively. Projected future cash flows for two of MHC's Centers at
June 30, 1996 indicated that the unamortized goodwill of $1.4 million and the
unamortized deferred organizational costs of $0.1 million related to these two
Centers were not recoverable. Therefore, in accordance with the Company's
policy, the intangible assets related to these Centers were written down during
the six months ended June 30, 1996. Amortization of intangible assets was $1.4
million, $1.9 million (including the $1.5 million discussed above), $0.6 million
and $0.2 million for the year ended June 30, 1997, for the six months ended June
30, 1996 and for the years ended December 31, 1995, and 1994, respectively.
7. EQUIPMENT AND OTHER NOTES PAYABLE
Equipment and other notes payable consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Notes payable to GE, bearing interest at rates which range from 9.16 percent to 12.5
percent, maturing at various dates through August 2004. The notes are secured by
substantially all of the Company's assets............................................. $ 62,329 $ 36,072
Notes payable to banks and third parties bearing interest rates which range from 8.13
percent to 11 percent, maturing at various dates through September 2000. The notes are
primarily secured by certain buildings and diagnostic equipment....................... 3,993 2,166
--------- ---------
Total equipment and other notes payable................................................ 66,322 38,238
Less: Current portion.................................................................. 11,901 6,585
--------- ---------
Long-term equipment and other notes payable............................................ $ 54,421 $ 31,653
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EQUIPMENT AND OTHER NOTES PAYABLE (CONTINUED)
Scheduled maturities of equipment and other notes payable at June 30, 1997,
are as follows (amounts in thousands):
<TABLE>
<S> <C>
1998............................................................... $ 11,901
1999............................................................... 13,574
2000............................................................... 12,472
2001............................................................... 8,095
2002............................................................... 6,840
Thereafter......................................................... 13,440
---------
$ 66,322
---------
---------
</TABLE>
The terms of the notes payable to GE include certain restrictive covenants
which, among others, limit capital expenditures and restrict payment of
dividends. As of June 30, 1997, the Company was in compliance with these
covenants.
Interest paid, including amounts deferred as part of the debt restructuring,
on debt related to GE for the year ended June 30, 1997, for the six months ended
June 30, 1996 and the years ended December 31, 1995 and 1994, was $4.0 million,
$0.8 million, $1.0 million and $0.6 million, respectively.
8. LEASE OBLIGATIONS AND COMMITMENTS
The Company is leasing diagnostic equipment, certain other equipment and its
office facilities under various capital and operating leases. Future minimum
scheduled rental payments required under these noncancelable leases at June 30,
1997, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- -----------
<S> <C> <C>
1998............................................................. $ 4,107 $ 16,148
1999............................................................. 2,258 11,282
2000............................................................. 1,256 5,831
2001............................................................. 98 3,346
2002............................................................. -- 1,230
Thereafter....................................................... -- 2,062
--------- -----------
Total minimum lease payments............................................. 7,719 $ 39,899
-----------
-----------
Less: Amounts representing interest...................................... 846
---------
Present value of capital lease obligations............................... 6,873
Less: Current portion.................................................... 3,561
---------
Long term capital lease obligations...................................... $ 3,312
---------
---------
</TABLE>
As of June 30, 1997, a substantial amount of equipment leased by the Company
is subject to contingent rental adjustments dependent on certain operational
factors through 1999. The Company's future operating and capital lease
obligations to GE were approximately $24.8 million and $2.6 million,
respectively.
Rental expense for diagnostic equipment and other equipment for the year
ended June 30, 1997, for the six months ended June 30, 1996 and for the years
ended December 31, 1995 and 1994, was
F-16
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LEASE OBLIGATIONS AND COMMITMENTS (CONTINUED)
$18.3 million, $7.0 million, $14.5 million and $14.6 million, respectively.
These amounts include contingent rental expense of $0.3 million, $0.2 million,
$0.5 million and $0.8 million for the year ended June 30, 1997, for the six
months ended June 30, 1996 and for the years ended December 31, 1995 and 1994,
respectively.
The Company occupies office facilities under lease agreements expiring
through June 2007. Rental expense for these facilities for the year ended June
30, 1997, for the six months ended June 30, 1996 and for the years ended
December 31, 1995 and 1994, was $1.9 million, $0.3 million, $0.6 million and
$0.6 million, respectively.
Under the terms of the amended equipment service agreement with GE (Note 1),
GE is entitled to receive a supplemental service fee equal to 14% of pretax
income, subject to certain adjustments. During the year ended June 30, 1997 the
Company recorded a provision of approximately $0.3 million in connection with
this agreement.
InSight is engaged, from time to time, in the defense of lawsuits arising
out of the ordinary course and conduct of its business and has insurance
policies covering such potential insurable losses where such coverage is
cost-effective. InSight believes that the outcome of any such lawsuits will not
have a material adverse impact on InSight's business.
9. CAPITAL STOCK
WARRANTS--During 1997, InSight issued warrants to purchase 50,000 shares of
its common stock at an exercise price of $5.64 per share to the previous
preferred stockholders of IHC. InSight also issued a warrant to purchase 35,000
shares of its common stock at an exercise price of $5.50 per share to an
investment banking firm. InSight also issued a warrant to purchase 15,000 shares
of its common stock at an exercise price of $5.50 per share to a consultant. In
connection with the Merger, InSight assumed a warrant to purchase 20,000 shares
of its common stock at an exercise price of $2.50 per share issued to the estate
of Cal Kovens, a former director of IHC.
STOCK OPTIONS--The Company has two stock option plans which provide for the
granting of incentive and nonstatutory stock options to key employees,
independent contractors and non-employee directors. Incentive stock options must
have an exercise price of at least the fair market value of its common stock on
the grant date. Options become vested cumulatively over various periods up to
four years from the grant date, are exercisable in whole or in installments, and
expire five or ten years from the grant date. In addition, MHC has a stock
option plan and IHC has two stock option plans which provided for the granting
of incentive or nonstatutory stock options to key employees, non-employee
directors and independent contractors. Pursuant to the Merger, the Company
assumed all of MHC's and IHC's outstanding options at June 26, 1996. No shares
are available for future grants under the MHC and IHC plans.
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. SFAS No. 123 was issued in 1995 and,
if fully adopted, changes the methods for recognition of cost on plans similar
to those of the Company. Adoption of SFAS No. 123 is optional, however pro forma
disclosures as if the Company had adopted the cost recognition method are
required. Had compensation cost for stock options awarded under this plan been
determined consistent with SFAS
F-17
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK (CONTINUED)
No. 123, the Company's net income and earnings per share would have reflected
the following pro forma amounts:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C> <C>
Net Income (Loss): As Reported............................... $ 1,281,000 $ (979,000)
Pro Forma................................. 966,000 (1,055,000)
Primary EPS: As Reported............................... 0.24 (0.70)
Pro Forma................................. 0.18 (0.76)
</TABLE>
The Company may grant options for up to 446,433 shares under one plan and
158,000 shares under the second plan. A summary of the status of the Company's
two stock option plans at June 30, 1997 and 1996 and changes during the periods
then ended is presented below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period..................... 369,918 $ 2.37 204,068 $ 3.04
Granted................................................ 233,000 6.19 195,850 3.23
Exercised.............................................. 4,485 2.50 30,000 0.25
Forfeited.............................................. -- -- -- --
Expired................................................ 25,000 13.85 -- --
--------- ------ --------- ------
Outstanding at end of period........................... 573,433 $ 3.98 369,918 $ 3.15
--------- ------ --------- ------
--------- ------ --------- ------
Exercisable at end of period........................... 296,416 $ 2.12 263,378 $ 4.25
--------- ------ --------- ------
--------- ------ --------- ------
Weighted average fair value of options granted......... $ 5.04 $ 2.61
</TABLE>
272,230 of the options outstanding at June 30, 1997 have exercise prices of
$0.10 to $2.50, a weighted average exercise price of $0.86 and a weighted
average remaining contractual life of 6.35 years. 255,430 of these options are
exercisable. 58,000 of the options outstanding at June 30, 1997 have exercise
prices of $3.75 to $5.50, a weighted average exercise price of $5.25 and a
weighted average remaining contractual life of 8.98 years. 16,200 of these
options are exercisable. 223,000 of the options outstanding at June 30, 1997
have exercise prices of $6.25 to $7.00, a weighted average exercise price of
$6.30 and a weighted average remaining contractual life of 9.25 years. 4,583 of
these options are exercisable. 20,203 of the options outstanding at June 30,
1997 have exercise prices of $15.64 to $16.20, a weighted average exercise price
of $15.80 and a weighted average remaining contractual life of 4.19 years.
20,203 of these options are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black Scholles pricing model with the following assumptions used for the
grants in fiscal periods 1997 and 1996; weighted average risk-free interest rate
of 7.02 percent and 6.75 percent; expected dividend yields of 0.00 percent; and
a weighted average contractual life of 8.08 and 9.29 years, respectively.
F-18
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The provision for income taxes for the year ended June 30, 1997 was computed
using effective tax rates calculated as follows:
<TABLE>
<S> <C>
Federal statutory tax rate........................................... 34.0%
State income taxes, net of federal benefit........................... 1.2
Permanent items, including goodwill, non-deductible merger costs..... 41.8
Utilization of deferred tax assets................................... (52.0)
---------
Net effective tax rate............................................... 25.0%
---------
---------
</TABLE>
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statements
and tax bases of assets and liabilities. The provision for income taxes for the
year ended June 30, 1997 consisted of the following (amounts in thousands):
<TABLE>
<S> <C>
Current provision
Federal........................................................... $ 1,268
State............................................................. 47
---------
1,315
---------
Deferred taxes arising from temporary differences:
State income taxes................................................ (31)
Accrued expenses.................................................. (629)
Deferred gain on debt restructure................................. (368)
Reserves.......................................................... 31
Other............................................................. 109
---------
(888)
---------
Total provision................................................... $ 427
---------
---------
</TABLE>
The components of the Company's deferred tax asset as of June 30, 1997 and
1996, respectively, which arise due to timing differences between financial and
tax reporting and net operating loss (NOL) carryforwards are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Reserves.............................................................. $ 1,714 $ 1,683
Accrued expenses (not currently deductible)........................... 604 1,233
Deferred gain on debt restructure..................................... 519 887
Depreciation and amortization......................................... (139) 77
Other................................................................. 550 157
NOL carryforwards..................................................... 15,748 15,601
Valuation allowances.................................................. (18,996) (19,638)
---------- ----------
$ -- $ --
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
As of June 30, 1997, the Company had NOL carryforwards of approximately
$38.5 million, expiring in 2004 through 2010. As a result of the Merger, there
will be a substantial limitation on the use of these NOL carryforwards.
A valuation allowance is provided against the deferred tax asset when it is
more likely than not that the deferred tax asset will not be realized. The
Company has established a valuation allowance for the deferred tax allowance for
the deferred tax asset as, in management's best estimate, it is not likely to be
realized in the near term.
11. RETIREMENT SAVINGS PLANS
The Company has a 401(k) profit sharing plan (Company Plan), which is
available to all eligible employees, pursuant to which the Company matches a
percentage of employee contributions to the Company Plan. Company contributions
of $335,000 were made for the year ended June 30, 1997.
The Company, through MHC, had a 401(k) profit sharing plan (MHC Plan) for
all MHC employees, pursuant to which MHC matched a percentage of employee
contributions to the Plan and made additional contributions on behalf of the
employees at the discretion of its Board of Directors. Contributions of $50,000,
$100,000 and $62,000 were made during the six months ended June 30, 1996 and the
years ended December 31, 1995 and 1994, respectively. MHC contributions of
$12,000 in 1994 were funded with forfeitures.
The Company, through IHC, had a 401(k) profit sharing plan (IHC Plan) for
all IHC employees, pursuant to which IHC matched a percentage of employee
contributions to the IHC Plan. In 1997, the Company combined the MHC Plan and
the IHC Plan into the Company Plan.
12. INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS
The Company, through MHC, has direct ownership in two Partnerships at June
30, 1997, both of which operate Centers. In June 1996, the MHC closed one of the
Centers and is currently in the process of dissolving the Partnership. MHC owns
43.75% and 50% of these Partnerships, serves as the managing general partner and
provides certain management services under agreements expiring in 2007. These
Partnerships are accounted for under the equity method since the Company does
not exercise significant control over the operations of these Partnerships or
does not have primary responsibility for the
F-20
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS (CONTINUED)
Partnership's long-term debt. Set forth below is certain financial data of these
Partnerships (amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Combined Financial Position:
Current assets:
Cash..................................................................... $ 444 $ 549
Trade receivables, less allowances....................................... 729 721
Other.................................................................... 21 31
Property and equipment, net................................................ 143 442
--------- ---------
Total assets............................................................... 1,337 1,743
Current liabilities........................................................ (141) (358)
Due to MHC................................................................. (49) (269)
Long-term liabilities...................................................... (40) (226)
--------- ---------
Net assets................................................................. $ 1,107 $ 890
--------- ---------
--------- ---------
</TABLE>
Set forth below are the combined operating results of the Partnerships and
the Company's equity in earnings of the Partnerships (amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
YEAR ENDED ENDED DECEMBER 31,
JUNE 30, JUNE 30, --------------------
1997 1996 1995 1994
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Operating Results:
Net revenues....................................................... $ 4,353 $ 2,346 $ 4,455 $ 13,456
Expenses........................................................... 3,284 2,002 3,636 9,217
----------- ----------- --------- ---------
Net income......................................................... $ 1,069 $ 344 $ 819 $ 4,239
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Equity in Earnings:
Share of net income of Partnerships................................ $ 468 $ 138 $ 348 $ 876
Minority interest.................................................. -- -- -- (42)
----------- ----------- --------- ---------
Equity in earnings of Partnerships................................. $ 468 $ 138 $ 348 $ 834
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
Revenues of the Partnerships are recognized when services are provided to
patients at established billing rates or at the amount realizable under
agreements with third party payors, with the provision for contractual
adjustments deducted to report net patient services revenues. The Partnerships'
patient receivables are generally reimbursed by managed care organizations,
and/or patient's private insurance companies, with the remainder of the patient
receivables reimbursed by health care plans and government payors.
F-21
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS (CONTINUED)
Lease Commitments of the Partnerships exist under various operating leases
for equipment and office space. Future minimum lease payments for the
Partnerships' noncancelable leases as of June 30, 1997, are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
OPERATING
-----------
<S> <C>
1998............................................................................... $ 570
1999............................................................................... 142
-----
$ 712
-----
-----
</TABLE>
The Company, through IHC, has direct ownership in two Partnerships and one
limited liability company, all of which operate Centers. IHC owns 50% of each of
the Partnerships and 35% of the limited liability company. Since the Company
controls the operations and is primarily responsible for the associated
long-term debt, the Centers have been included in the Company's consolidated
balance sheet at June 30, 1997 and 1996. Set forth below is the summarized
combined financial data of the Company's 50% or less owned and controlled
entities which are consolidated (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
-----------
<S> <C>
Condensed Combined Statement of Operations Data:
Net revenues................................................................... $ 7,106
Expenses....................................................................... 5,151
Provision for center profit distribution....................................... 1,019
-----------
Net income..................................................................... $ 936
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Condensed Combined Balance Sheet Data:
Current assets........................................................... $ 2,596 $ 2,327
Total assets............................................................. 4,288 3,955
Current liabilities...................................................... 727 1,019
Long-term debt........................................................... 424 416
Minority interest equity................................................. 1,702 1,391
</TABLE>
In December 1994, MHC sold the common stock of three wholly owned
subsidiaries, whose primary operations were equity interests of approximately
20% in each of three Partnerships that provided lithotripsy services, for
approximately $5.0 million in cash. MHC's investment in and share of earnings of
these Partnerships had been reported in MHC's financial statements using the
equity method of accounting. This transaction resulted in a pretax gain of
approximately $5.0 million in 1994. In addition, two other Partnerships which
provided services through mobile MRI and CT facilities were terminated in 1994.
MHC leased equipment to certain Partnerships under direct financing leases
and operating leases, and arranged for equipment maintenance services. In
connection with providing these and other services, MHC received management fees
related to certain Partnerships. Revenues related to these Partnership
F-22
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS (CONTINUED)
activities included in MHC's financial statements for the year ended December
31, 1994 were $1.3 million. Substantially all of these revenues relate to
Partnerships that were sold or terminated in 1994.
At June 30, 1996, the Company had a receivable of $0.3 million related to
certain lease and operating expenses of the two existing Partnerships that are
accounted for under the equity method of accounting.
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
YEAR ENDED ENDED DECEMBER 31,
JUNE 30, JUNE 30, --------------------
1997 1996 1995 1994
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Interest paid........................................................ $ 5,114 $ 1,011 $ 1,411 $ 879
Equipment additions under capital leases............................. 1,779 238 8,117 2,779
Prepaid insurance premiums financed.................................. 208 555 430
Debt and accrued interest extinguished with issuance of preferred
stock.............................................................. -- (9,066) -- --
Deferred and accrued interest gain on debt restructure............... -- 2,519 -- --
Preferred stock issued............................................... -- 3,375 -- --
Cancellation of common stock warrant................................. -- (7) -- --
</TABLE>
14. SUBSEQUENT EVENT
On October 14, 1997, InSight consummated a recapitalization
(Recapitalization) pursuant to which (a) certain investors affiliated with TC
Group, LLC and its affiliates (collectively, Carlyle), a private merchant bank
headquartered in Washington, D.C., made a cash investment of $25 million in the
Company and received therefor (i) 25,000 shares of newly issued Convertible
Preferred Stock, Series B, par value $0.001 per share (Series B Preferred
Stock), initially convertible, at the option of the holders thereof, in the
aggregate into 2,985,075 shares of common stock, and (ii) warrants (Carlyle
Warrants) to purchase up to 250,000 shares of common stock at the current
exercise price of $10.00 per share; (b) General Electric Company (GE) (i)
surrendered its rights under the amended equipment service agreement to receive
supplemental service fee payments equal to 14% of pretax income (see Note 8,
above) in exchange for (i) the issuance of 7,000 shares of newly issued
Convertible Preferred Stock, Series C, par value $0.001 per share (Series C
Preferred Stock) initially convertible, at the option of the holders thereof, in
the aggregate into 835,821 shares of common stock, and (ii) warrants (the GE
Warrants) to purchase up to 250,000 shares of common stock at the current
exercise price of $10.00 per share, (for which the Company will record a
non-recurring expense of approximately $6.7 million in the second quarter of
fiscal 1998), and (ii) agreed to exchange all of its InSight Series A Preferred
Stock, on the business day (Second Closing) after all waiting periods with
respect to GE's filing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, have expired or been terminated, for an additional 20,953
shares of Series C Preferred Stock, initially convertible, at the option of the
holders thereof, in the aggregate into 2,501,760 shares of common stock; and (c)
the Company executed a Credit Agreement with NationsBank, N.A. pursuant to which
NationsBank, as agent, committed to provide, subject to the satisfaction of
customary conditions, a total of $125 million in senior secured credit,
F-23
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENT (CONTINUED)
including (i) a $50 million term loan facility consisting of a $20 million
tranche with increasing amortization over a five year period and a $30 million
tranche principally repayable in years 6 and 7, (ii) a $25 million revolving
working capital facility with a five-year maturity, and (iii) a $50 million
acquisition facility, which may be increased by up to an additional $25 million
upon the satisfaction of certain conditions, including commitments from
participating lenders (Bank Financing).
The terms of the Series B Preferred Stock and the Series C Preferred Stock
(collectively, Preferred Stock) are substantially the same. The Preferred Stock
has a liquidation preference of $1,000 per share. It will participate in any
dividends paid with respect to the common stock. There is no mandatory or
optional redemption provision for the Preferred Stock. The Series B Preferred
Stock is initially convertible, at the option of the holders thereof, into
2,985,075 shares of common stock, and the Series C Preferred Stock will, as of
the Second Closing, be initially convertible, at the option of the holders
thereof, into 3,337,581 shares of common stock, in each case at an initial
conversion price of $8.375 per share.
For so long as Carlyle and its affiliates own at least 33% of the Series B
Preferred Stock or GE and its affiliates own at least 33% of the Series C
Preferred Stock, respectively, the approval of at least 67% of the holders of
such series of Preferred Stock is required before the Company may take certain
actions including, but not limited to, amending its certificate of incorporation
or bylaws, changing the number of directors or the manner in which directors are
selected, incurring indebtedness in excess of $15 million in any fiscal year,
issuing certain equity securities below the then current market price or the
then applicable conversion price, acquiring equity interests or assets of
entities for consideration equal to or greater than $15 million, and engaging in
mergers for consideration equal to or greater than $15 million. The Preferred
Stock will vote with the common stock on an as-if-converted basis on all matters
except the election of directors, subject to an aggregate maximum Preferred
Stock percentage of 37% of all votes entitled to be cast on such matters.
Assuming the conversion of all of the Series B Preferred Stock into common stock
and the exercise of all of the Carlyle Warrants, Carlyle would own approximately
31% of the common stock of the Company, on a fully diluted basis. Assuming the
conversion of all of the Series C Preferred Stock after the Second Closing and
the exercise of the GE Warrants, GE would own approximately 34% of the common
stock of the Company, on a fully diluted basis.
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Company's Board of Directors (the Board) is currently fixed at
nine. Six directors (Common Stock Directors) are to be elected by the common
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and GE
and approved by a majority of the Board in its sole discretion. Of the three
remaining directors (Preferred Stock Directors), two are to be elected by the
holders of the Series B Preferred Stock and one is to be elected by the holders
of the Series C Preferred Stock, in each case acting by written consent and
without a meeting of the common stockholders. As long as Carlyle and certain
affiliates thereof own an aggregate of at least 50% of the Series B Preferred
Stock, the holders of the Series B Preferred Stock will have the right to elect
two Preferred Stock Directors and as long as Carlyle and certain affiliates
thereof own an aggregate of at least 25% of such stock, such holders will have
the right to elect one Preferred Stock Director. As long as GE and its
affiliates own an aggregate of at least 25% of the Series C Preferred Stock it
will have the right to elect one Preferred Stock Director. If any such ownership
percentage falls below the applicable threshold, the Preferred Stock Director(s)
formerly entitled to be elected by Carlyle or GE, as the case may be, will
thereafter be elected by the common stockholders.
At any time after the first anniversary of the initial funding of the Bank
Financing, all of the Series B Preferred Stock and the Series C Preferred Stock
may be converted into a newly created Convertible
F-24
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENT (CONTINUED)
Preferred Stock, Series D, par value $0.001 per share (Series D Preferred
Stock). The Series D Preferred Stock allows the number of directors to be
automatically increased to a number which would permit each of Carlyle and GE,
by filling the newly created vacancies, to achieve representation on the Board
proportionate to their respective common stock ownership percentages on an
as-if-converted basis but would limit such representation to less than two
thirds of the Board of Directors for a certain period of time. The Series D
Preferred Stock has a liquidation preference of $0.001 per share but no
mandatory or optional redemption provision. It will participate in any dividends
paid with respect to the common stock and will be convertible into 6,322,660
shares of common stock. Presently, the Board consists of seven directors, five
of whom are Common Stock Directors and two of whom are Preferred Stock
Directors. GE intends to wait until the Second Closing to elect its Preferred
Stock Director. The vacancy created for the Joint Director has not yet been
filled.
Holders of the Preferred Stock also have a right of first offer with respect
to future sales in certain transactions or proposed transactions not involving a
public offering by the Company of its common stock or securities convertible
into common stock. Holders of the Preferred Stock are also entitled to certain
demand and "piggyback" registration rights.
Set forth below is an unaudited pro forma condensed consolidated balance
sheet as of June 30, 1997, as if the transaction described above had occurred on
June 30, 1997 (amounts in thousands):
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
AS REPORTED ADJUSTMENTS TOTAL
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets........................................ $ 24,692 $ 1,477 $ 26,169
Property and equipment, net........................... 34,488 -- 34,488
Investment in partnerships............................ 402 -- 402
Other assets.......................................... 5,468 3,100 8,568
Intangible assets..................................... 33,272 -- 33,272
----------- ----------- ----------
$ 98,322 $ 4,577 $ 102,899
----------- ----------- ----------
----------- ----------- ----------
Current liabilities................................... $ 30,432 $ (10,054) $ 20,378
Long-term liabilities................................. 59,205 (9,276) 49,929
Minority interest..................................... 2,000 -- 2,000
Stockholders' equity.................................. 6,685 23,907 30,592
----------- ----------- ----------
$ 98,322 $ 4,577 $ 102,899
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The unaudited pro forma condensed consolidated balance sheet as of June 30,
1997 gives effect to the issuance of $25 million of Series B Preferred Stock and
the draw down of the $50 million term loan Bank Financing, which was used to
repay approximately $70 million in outstanding notes payable and to pay
approximately $5 million in transaction costs.
15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Notes are guaranteed by certain
of the Company's wholly-owned subsidiaries (the "Guarantor Subsidiaries"). Such
guarantees are full, unconditional and joint and several. Separate financial
statements of the Guarantor Subsidiaries are not presented because the Company's
management has determined that they would not be material to investors. The
following
F-25
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
supplemental financial information sets forth, on an unconsolidated basis,
balance sheets, statement of operations, and statement of cash flows information
for the Company ("Parent Company Only"), for the Guarantor Subsidiaries and for
the Company's other subsidiaries (the "Non-Guarantor Subsidiaries"). The
supplemental financial information reflects the investments of the Company and
the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using
the equity method of accounting. The supplemental financial information is
presented for the periods as of June 30, 1996 and 1997, and for the year ended
June 30, 1997 only, as the Non-Guarantor Subsidiaries are not included in the
consolidated financial statements prior to that date.
F-26
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
(AMOUNTS IN THOUSANDS) ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------- ----------- --------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ 5,845 $ 1,290 $ -- $ 7,135
Trade accounts receivable,
net........................... -- 12,888 2,757 -- 15,645
Other receivables, net.......... -- 148 210 -- 358
Intercompany accounts
receivable.................... 29,852 1,166 507 (31,525) --
Other current assets............ -- 1,485 69 -- 1,554
----------- ------- ------ --------------- -------
Total current assets........ 29,852 21,532 4,833 (31,525) 24,692
Property and equipment, net....... -- 32,435 2,053 -- 34,488
Investment in partnerships........ -- 402 -- -- 402
Investment in consolidated
subsidiaries.................... (23,167) 2,675 -- 20,492 --
Other assets...................... -- 5,468 -- -- 5,468
Intangible assets, net............ -- 32,527 745 -- 33,272
----------- ------- ------ --------------- -------
$ 6,685 $ 95,039 $ 7,631 $ (11,033) $ 98,322
----------- ------- ------ --------------- -------
----------- ------- ------ --------------- -------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of equipment and
other notes..................... $ -- $ 15,149 $ 313 $ -- $ 15,462
Accounts payable and other accrued
expenses........................ -- 14,321 649 -- 14,970
Intercompany accounts payable..... -- 30,359 1,166 (31,525) --
----------- ------- ------ --------------- -------
Total current liabilities... -- 59,829 2,128 (31,525) 30,432
Equipment and other notes, less
current portion................. -- 56,904 829 -- 57,733
Other long-term liabilities....... -- 1,472 -- -- 1,472
Minority interest................. -- -- 2,000 -- 2,000
Stockholders' equity (deficit).... 6,685 (23,166) 2,674 20,492 6,685
----------- ------- ------ --------------- -------
$ 6,685 $ 95,039 $ 7,631 $ (11,033) $ 98,322
----------- ------- ------ --------------- -------
----------- ------- ------ --------------- -------
</TABLE>
F-27
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
(AMOUNTS IN THOUSANDS) ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- -------------------------------------- ----------- --------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ -- $ 5,554 $ 1,310 $ -- $ 6,864
Trade accounts receivable, net...... -- 10,491 2,425 -- 12,916
Other receivables, net.............. -- 693 280 -- 973
Intercompany accounts receivable.... 29,852 1,699 51 (31,602) --
Other current assets................ -- 1,623 85 -- 1,708
----------- ------- ------ ------- -------
Total current assets............ 29,852 20,060 4,151 (31,602) 22,461
Property and equipment, net........... -- 27,918 1,934 -- 29,852
Investment in partnerships............ -- 359 -- -- 359
Investment in consolidated
subsidiaries........................ (24,448) 1,767 -- 22,681 --
Other assets.......................... -- 749 -- -- 749
Intangible assets, net................ -- 16,140 825 -- 16,965
----------- ------- ------ ------- -------
$ 5,404 $ 66,993 $ 6,910 $ (8,921) $ 70,386
----------- ------- ------ ------- -------
----------- ------- ------ ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment and other
notes............................... $ -- $ 8,920 $ 303 $ -- $ 9,223
Accounts payable and other accrued
expenses............................ -- 13,731 674 -- 14,405
Intercompany accounts payable......... -- 29,903 1,699 (31,602) --
----------- ------- ------ ------- -------
Total current liabilities....... -- 52,554 2,676 (31,602) 23,628
Equipment and other notes, less
current portion..................... -- 34,689 952 -- 35,641
Other long-term liabilities........... -- 4,198 -- -- 4,198
Minority interest..................... -- -- 1,515 -- 1,515
Stockholders' equity (deficit)........ 5,404 (24,448) 1,767 22,681 5,404
----------- ------- ------ ------- -------
$ 5,404 $ 66,993 $ 6,910 $ (8,921) $ 70,386
----------- ------- ------ ------- -------
----------- ------- ------ ------- -------
</TABLE>
F-28
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
(AMOUNTS IN THOUSANDS) ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- -------------------------------------- ----------- --------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $ 78,294 $ 14,769 $ -- $ 93,063
Costs of operations................... -- 67,505 12,832 -- 80,337
----------- ------- ------- ------- -------
Gross profit........................ -- 10,789 1,937 -- 12,726
Corporate operating expenses.......... -- 7,431 -- -- 7,431
----------- ------- ------- ------- -------
Income (loss) from company
operations........................ -- 3,358 1,937 -- 5,295
Equity in earnings of unconsolidated
partnerships........................ -- 468 -- -- 468
----------- ------- ------- ------- -------
Operating income (loss)............. -- 3,826 1,937 -- 5,763
Interest expense, net................. -- 3,946 109 -- 4,055
----------- ------- ------- ------- -------
Income (loss) before income taxes... -- (120) 1,828 -- 1,708
Provision for income taxes............ -- 427 -- -- 427
----------- ------- ------- ------- -------
Income (loss) before equity in
income (loss) of consolidated
subsidiaries...................... -- (547) 1,828 -- 1,281
Equity in income (loss) of
consolidated subsidiaries........... 1,281 1,828 (3,109) --
----------- ------- ------- ------- -------
Net income (loss)................... $ 1,281 $ 1,281 $ 1,828 $ (3,109) $ 1,281
----------- ------- ------- ------- -------
----------- ------- ------- ------- -------
</TABLE>
F-29
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss).................. $ 1,281 $ 1,281 $ 1,828 $ (3,109) $ 1,281
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Total depreciation and
amortization................... -- 9,501 370 -- 9,871
Amortization of deferred gain on
debt restructure............... -- (1,047) -- -- (1,047)
Gain on disposal of assets....... -- (113) -- -- (113)
Equity in income (loss) of
consolidated subsidiaries...... (1,281) (1,828) -- 3,109 --
Cash provided by (used in) changes
in operating working capital:
Receivables, net................. -- (1,402) (262) -- (1,664)
Intercompany receivables, net.... -- 989 (989) -- --
Other current assets............. -- 141 16 -- 157
Accounts payable and other
current liabilities............ -- (1,118) (25) -- (1,143)
----------- ------- ------ ------- -------
Net cash provided by operating
activities................... -- 6,404 938 -- 7,342
----------- ------- ------ ------- -------
INVESTING ACTIVITIES:
Additions to property and
equipment........................ -- (6,693) (409) -- (7,102)
Acquisitions of imaging centers.... -- (18,566) -- -- (18,566)
Proceeds from sales of assets...... -- 347 -- -- 347
Other.............................. -- (4,937) -- -- (4,937)
----------- ------- ------ ------- -------
Net cash used in investing
activities................... -- (29,849) (409) -- (30,258)
----------- ------- ------ ------- -------
FINANCING ACTIVITIES:
Payments on debt and capital lease
obligations...................... -- (10,913) (113) -- (11,026)
Proceeds from issuance of debt..... -- 33,728 -- -- 33,728
Other.............................. -- 921 (436) -- 485
----------- ------- ------ ------- -------
Net cash provided by (used in)
financing activities......... -- 23,736 (549) -- 23,187
----------- ------- ------ ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ -- 291 (20) -- 271
CASH AND CASH EQUIVALENTS:
Beginning of period................ -- 5,554 1,310 -- 6,864
----------- ------- ------ ------- -------
End of period...................... $ -- $ 5,845 $ 1,290 $ -- $ 7,135
----------- ------- ------ ------- -------
----------- ------- ------ ------- -------
</TABLE>
F-30
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
xxxxxxxxxxxxxxxxxxxxxx
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 9,650 $ 7,135
Trade accounts receivable, net........................................................ 21,674 15,645
Other receivables, net................................................................ 330 358
Other current assets.................................................................. 2,149 1,554
----------- ---------
Total current assets.............................................................. 33,803 24,692
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $26,989 and
$16,203, respectively................................................................... 46,745 34,488
INVESTMENT IN PARTNERSHIPS................................................................ 495 402
OTHER ASSETS.............................................................................. 2,471 5,468
INTANGIBLE ASSETS, net.................................................................... 43,273 33,272
----------- ---------
$ 126,787 $ 98,322
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-31
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- ----------
<S> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of equipment and other notes........................................... $ 5,706 $ 15,462
Accounts payable and other accrued expenses............................................ 14,905 14,970
----------- ----------
Total current liabilities.......................................................... 20,611 30,432
----------- ----------
LONG-TERM LIABILITIES:
Equipment and other notes, less current portion........................................ 67,781 57,733
Other long-term liabilities............................................................ 680 1,472
----------- ----------
Total long-term liabilities........................................................ 68,461 59,205
----------- ----------
MINORITY INTEREST........................................................................ 1,871 2,000
----------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 3,500,000 shares authorized:
Convertible Series A preferred stock, 2,501,760 shares outstanding at
June 30, 1997...................................................................... -- 6,750
Convertible Series B preferred stock, 25,000 shares outstanding at
March 31, 1998..................................................................... 23,923 --
Convertible Series C preferred stock, 27,953 shares outstanding at
March 31, 1998..................................................................... 13,173 --
Common stock, $.001 par value, 25,000,000 shares authorized: 2,805,660* and 2,714,725
shares outstanding at March 31, 1998 and June 30, 1997, respectively................. 3 3
Additional paid-in capital............................................................. 23,366 23,100
Accumulated deficit.................................................................... (24,621) (23,168)
----------- ----------
Total stockholders' equity......................................................... 35,844 6,685
----------- ----------
$ 126,787 $ 98,322
----------- ----------
----------- ----------
</TABLE>
* Adjusted from 2,799,463 shares as set forth in the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1998, to reflect a
reconciliation of the records of the Company and its transfer agent as of
such date with respect to the exchange of common stock of IHC and MHC in the
Merger and the issuance of the Company's common stock upon the exercise of
certain options.
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-32
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Contract services..................................................................... $ 39,186 $ 35,186
Patient services...................................................................... 43,855 31,153
Other................................................................................. 2,632 1,790
---------- ----------
Total revenues...................................................................... 85,673 68,129
---------- ----------
COSTS OF OPERATIONS:
Costs of services..................................................................... 44,513 37,386
Provision of doubtful accounts........................................................ 1,525 1,116
Equipment leases...................................................................... 12,983 13,822
Depreciation and amortization......................................................... 10,670 7,203
---------- ----------
Total costs of operations........................................................... 69,691 59,527
---------- ----------
GROSS PROFIT............................................................................ 15,982 8,602
CORPORATE OPERATING EXPENSES............................................................ 6,510 5,343
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION...................................... 6,309 --
---------- ----------
INCOME FROM COMPANY OPERATIONS.......................................................... 3,163 3,259
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS....................................... 480 364
---------- ----------
OPERATING INCOME........................................................................ 3,643 3,623
INTEREST EXPENSE, net................................................................... 4,665 2,741
---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES......................................... (1,022) 882
PROVISION FOR INCOME TAXES.............................................................. 431 134
---------- ----------
NET INCOME (LOSS)....................................................................... $ (1,453) $ 748
---------- ----------
---------- ----------
INCOME (LOSS) PER COMMON AND PREFERRED SHARE:
Basic................................................................................. $ (0.19) $ 0.14
---------- ----------
---------- ----------
Diluted............................................................................... $ (0.19) $ 0.14
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON AND PREFERRED SHARES OUTSTANDING:
Basic................................................................................. 7,589,549 5,213,882
---------- ----------
---------- ----------
Diluted............................................................................... 7,589,549 5,444,308
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-33
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Contract services..................................................................... $ 12,846 $ 11,596
Patient services...................................................................... 15,056 10,695
Other................................................................................. 657 742
---------- ----------
Total revenues...................................................................... 28,559 23,033
---------- ----------
COSTS OF OPERATIONS:
Costs of services..................................................................... 14,745 12,647
Provision for doubtful accounts....................................................... 480 258
Equipment leases...................................................................... 3,981 4,732
Depreciation and amortization......................................................... 3,905 2,471
---------- ----------
Total costs of operations........................................................... 23,111 20,108
---------- ----------
GROSS PROFIT............................................................................ 5,448 2,925
CORPORATE OPERATING EXPENSES............................................................ 2,254 1,688
---------- ----------
INCOME FROM COMPANY OPERATIONS.......................................................... 3,194 1,237
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS....................................... 156 120
---------- ----------
OPERATING INCOME........................................................................ 3,350 1,357
INTEREST EXPENSE, net................................................................... 1,420 947
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................................................ 1,930 410
PROVISION FOR INCOME TAXES.............................................................. -- 30
---------- ----------
NET INCOME.............................................................................. $ 1,930 $ 380
---------- ----------
---------- ----------
INCOME (LOSS) PER COMMON AND PREFERRED SHARE:
Basic................................................................................. $ 0.21 $ 0.07
---------- ----------
---------- ----------
Diluted............................................................................... $ 0.20 $ 0.07
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON AND PREFERRED SHARES OUTSTANDING:
Basic................................................................................. 9,075,693 5,216,485
---------- ----------
---------- ----------
Diluted............................................................................... 9,493,304 5,438,545
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-34
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................................................... $ (1,453) $ 748
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Total depreciation and amortization................................................... 10,786 7,360
Amortization of deferred gain on debt restructure..................................... (1,355) (797)
Provision for supplemental service fee termination.................................... 6,309 --
Cash provided by (used in) changes in operating working capital:
Receivables, net...................................................................... (4,720) (466)
Other current assets.................................................................. (695) (490)
Accounts payable and other current liabilities........................................ 1,189 281
---------- ----------
Net cash provided by operating activities........................................... 10,061 6,636
---------- ----------
INVESTING ACTIVITIES:
Additions to property and equipment..................................................... (15,233) (2,407)
Acquisitions of imaging centers......................................................... (12,890) (2,766)
Other................................................................................... (988) 351
---------- ----------
Net cash used in investing activities............................................... (29,111) (4,822)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock............................................... 23,346 --
Stock options and warrants exercised.................................................... 266 --
Payment of loan fees.................................................................... (2,210) --
Payments on debt and capital lease obligations.......................................... (82,985) (7,727)
Proceeds from issuance of debt.......................................................... 83,277 5,139
Other................................................................................... (129) 414
---------- ----------
Net cash provided by (used in) financing activities................................. 21,565 (2,174)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... 2,515 (360)
CASH AND CASH EQUIVALENTS:
Beginning of period..................................................................... 7,135 6,864
---------- ----------
End of period........................................................................... $ 9,650 $ 6,504
---------- ----------
---------- ----------
SUPPLEMENTAL INFORMATION:
Interest paid........................................................................... $ 4,476 $ 1,969
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-35
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. MERGER AND RECAPITALIZATION
InSight Health Services Corp. (InSight or Company) is a Delaware corporation
formed on February 23, 1996 in connection with the Agreement and Plan of Merger,
dated as of February 26, 1996 (Merger Agreement), among American Health Services
Corp., a Delaware corporation (AHS), Maxum Health Corp., a Delaware corporation
(MHC or Maxum), InSight and two wholly owned subsidiaries of InSight, AHSC
Acquisition Company, a Delaware corporation (AHSC Acquisition), and MXHC
Acquisition Company, a Delaware corporation (MXHC Acquisition). Pursuant to the
terms of the Merger Agreement, (i) AHSC Acquisition merged with and into AHS and
MXHC Acquisition merged with and into Maxum (collectively, Merger), (ii) each
outstanding share of common stock, par value $.03 per share, of AHS (AHS Common
Stock) was converted into the right to receive one-tenth of a share of common
stock, par value $.001 per share, of InSight (Common Stock), (iii) each
outstanding share of Series B Senior Convertible Preferred Stock, par value $
.03 per share, of AHS (AHS Series B Preferred Stock) which was convertible into
100 shares of AHS Common Stock was converted into the right to receive ten (10)
shares of Common Stock, (iv) each outstanding share of Series C Preferred Stock,
par value $.03 per share, of AHS (the AHS Series C Preferred Stock), which was
issued immediately prior to the consummation of the Merger, was converted into
the right to receive 1.25088 shares of Series A Preferred Stock, par value $.001
per share, of InSight (the InSight Series A Preferred Stock), (v) each
outstanding share of common stock, par value $.01 per share, of Maxum (Maxum
Common Stock) was converted into the right to receive .598 of a share of Common
Stock, (vi) each outstanding share of Series B Preferred Stock, par value $.01
per share, of Maxum (the Maxum Series B Preferred Stock), which was issued
immediately prior to the consummation of the Merger, was converted into the
right to receive 83.392 shares of InSight Series A Preferred Stock, and (vii)
each outstanding option, warrant or other right to purchase AHS Common Stock and
Maxum Common Stock was converted into the right to acquire, on the same terms
and conditions, shares of Common Stock, with the number of shares and exercise
price applicable to such option, warrant or other right adjusted based on the
applicable exchange ratio for the underlying AHS Common Stock or Maxum Common
Stock.
Concurrent with the consummation of the Merger, AHS and MHC completed a debt
restructuring with General Electric Company (GE), the primary creditor of MHC
and AHS. This restructuring resulted in the reduction of certain debt and
operating lease obligations and cancellation of certain stock warrants of MHC
and AHS in exchange for, among other things, the issuance to GE, immediately
prior to the consummation of the Merger, of Maxum Series B Preferred Stock and
AHS Series C Preferred Stock. At the effective time of the Merger, Maxum Series
B Preferred Stock and AHS Series C Preferred Stock issued to GE was converted
into the right to receive such number of shares of InSight Series A Preferred
Stock that was convertible into such number of shares of Common Stock
representing approximately 48% of Common Stock outstanding at the effective time
of the Merger (after giving effect to such conversion).
Under an amended equipment service agreement, GE was also entitled to
receive for ten years an annual supplemental service fee equal to 14% of the
Company's pretax income, subject to certain adjustments. In connection with the
Company's recapitalization described below, GE surrendered its rights under the
amended equipment service agreement to receive the supplemental service fee.
The Merger was accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles. MHC was treated as the
acquiror for accounting purposes.
On September 13, 1996, AHS changed its name to InSight Health Corp. (IHC).
F-36
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. MERGER AND RECAPITALIZATION (CONTINUED)
On October 14, 1997, InSight consummated a recapitalization
(Recapitalization) pursuant to which (a) certain investors affiliated with TC
Group, LLC and its affiliates (collectively, Carlyle), a private merchant bank
headquartered in Washington, D.C., made a cash investment of $25 million in the
Company and received therefor (i) 25,000 shares of newly issued Convertible
Preferred Stock, Series B of the Company, par value $0.001 per share (Series B
Preferred Stock), initially convertible, at the option of the holders thereof,
in the aggregate into 2,985,075 shares of Common Stock, and (ii) warrants
(Carlyle Warrants) to purchase up to 250,000 shares of Common Stock at an
exercise price of $10.00 per share; (b) GE (i) surrendered its rights under the
amended equipment service agreement to receive supplemental service fee payments
equal to 14% of pretax income in exchange for (i) the issuance of 7,000 shares
of newly issued Convertible Preferred Stock, Series C of the Company, par value
$0.001 per share (Series C Preferred Stock), initially convertible, at the
option of GE, in the aggregate into 835,821 shares of Common Stock, (ii)
warrants (GE Warrants) to purchase up to 250,000 shares of Common Stock at an
exercise price of $10.00 per share, and (iii) exchanged all of its InSight
Series A Preferred Stock for an additional 20,953 shares of Series C Preferred
Stock, initially convertible, at the option of GE, in the aggregate into
2,501,760 shares of Common Stock; and (c) the Company executed a Credit
Agreement with NationsBank, N.A. pursuant to which NationsBank, as agent and
lender, provided a total of $125 million in senior secured credit financing
(Bank Financing), including (i) a $50 million term loan facility consisting of a
$20 million tranche with increasing amortization over a five-year period and a
$30 million tranche with increasing amortization over a seven-year period,
principally repayable in years 6 and 7, (ii) a $25 million revolving working
capital facility with a five-year maturity, and (iii) a $50 million acquisition
facility. On December 19, 1997, the Bank Financing was increased to a total of
$150 million by converting $10 million of outstanding debt under the acquisition
facility to the seven-year tranche (which was thereby increased to $40 million)
and increasing the acquisition facility to $65 million.
The terms of the Series B Preferred Stock and the Series C Preferred Stock
(collectively, Preferred Stock) are substantially the same. The Preferred Stock
has a liquidation preference of $1,000 per share. It will participate in any
dividends paid with respect to the Common Stock. There is no mandatory or
optional redemption provision for the Preferred Stock. The Preferred Stock is
convertible at an initial conversion price of $8.375 per share.
For so long as Carlyle and its affiliates own at least 33% of the Series B
Preferred Stock or GE and its affiliates own at least 33% of the Series C
Preferred Stock, respectively, the approval of at least 67% of the holders of
such series of Preferred Stock is required before the Company may take certain
actions including, but not limited to, amending its certificate of incorporation
or bylaws, changing the number of directors or the manner in which directors are
selected, incurring indebtedness in excess of $15 million in any fiscal year,
issuing certain equity securities below the then current market price or the
then applicable conversion price, acquiring equity interests or assets of
entities for consideration equal to or greater than $15 million, and engaging in
mergers for consideration equal to or greater than $15 million. The Preferred
Stock will vote with the Common Stock on an as-if-converted basis on all
matters, except the election of directors, subject to an aggregate maximum
Preferred Stock percentage of 37% of all votes entitled to be cast on such
matters. Assuming the conversion of all of the Series B Preferred Stock into
Common Stock and the exercise of all of the Carlyle Warrants, Carlyle would own
approximately 31% of the Common Stock of the Company, on a fully diluted basis.
Assuming the conversion of all of the Series C Preferred Stock and the exercise
of the GE Warrants, GE would own approximately 34% of the Common Stock of the
Company, on a fully diluted basis.
F-37
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. MERGER AND RECAPITALIZATION (CONTINUED)
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Company's Board of Directors (the Board) is currently fixed at
nine. Six directors (Common Stock Directors) are to be elected by the common
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and GE
and approved by a majority of the Board in its sole discretion. Of the three
remaining directors (Preferred Stock Directors), two are to be elected by the
holders of the Series B Preferred Stock and one is to be elected by the holders
of the Series C Preferred Stock, in each case acting by written consent and
without a meeting of the common stockholders. As long as Carlyle and certain
affiliates thereof own an aggregate of at least 50% of the Series B Preferred
Stock, originally purchased thereby, the holders of the Series B Preferred Stock
will have the right to elect two Preferred Stock Directors and as long as
Carlyle and certain affiliates thereof own an aggregate of at least 25% of such
stock, such holders will have the right to elect one Preferred Stock Director.
As long as GE and its affiliates own an aggregate of at least 25% of the Series
C Preferred Stock, originally purchased thereby, GE will have the right to elect
one Preferred Stock Director. If any such ownership percentage falls below the
applicable threshold, the Preferred Stock Director(s) formerly entitled to be
elected by Carlyle or GE, as the case may be, will be initially appointed by the
Board, and will thereafter be elected by the common stockholders. The Board
currently consists of eight directors, five of whom are Common Stock Directors
and three of whom are Preferred Stock Directors. The vacancy created for the
Joint Director has not yet been filled.
At any time after October 22, 1998, all of the Series B Preferred Stock and
the Series C Preferred Stock may be converted into a newly created Convertible
Preferred Stock, Series D of the Company, par value $0.001 per share (Series D
Preferred Stock). The Series D Preferred Stock allows the number of directors to
be automatically increased to a number which would permit each of Carlyle and
GE, by filling the newly created vacancies, to achieve representation on the
Board proportionate to their respective common stock ownership percentages on an
as-if-converted basis but would limit such representation to less than two
thirds of the Board of Directors for a certain period of time. The Series D
Preferred Stock has a liquidation preference of $0.001 per share but no
mandatory or optional redemption provision. It will participate in any dividends
paid with respect to the Common Stock and is convertible into 6,322,660 shares
of Common Stock.
Holders of the Preferred Stock also have a right of first offer with respect
to future sales in certain transactions or proposed transactions not involving a
public offering by the Company of its Common Stock or securities convertible
into Common Stock. Holders of the Preferred Stock are also entitled to certain
demand and "piggyback" registration rights.
2. INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of the Company
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial statements and do not include all of
the information and disclosures required by generally accepted accounting
principles for annual financial statements. These financial statements should be
read in conjunction with the consolidated financial statements and related
footnotes included as part of the Company's Annual Report on Form 10-K for the
period ended June 30, 1997 filed with the Securities and Exchange Commission
(SEC) on October 14, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for fair presentation of
results for the period have been included. The results of operations for the
nine months ended March 31, 1998, are not necessarily indicative of the results
to be achieved for the full fiscal year.
F-38
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. INTERIM FINANCIAL STATEMENTS (CONTINUED)
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
3. INVESTMENTS IN PARTNERSHIPS
Set forth below is the summarized income statement data of the Company's
unconsolidated partnerships (amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net revenues........................................... $ 3,685 $ 3,211 $ 1,205 $ 1,059
Expenses............................................... 2,567 2,376 847 784
--------- --------- --------- ---------
Net income............................................. $ 1,118 $ 835 $ 358 $ 275
--------- --------- --------- ---------
--------- --------- --------- ---------
Equity in earnings of partnerships..................... $ 480 $ 364 $ 156 $ 120
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Set forth below is the summarized combined financial data of the Company's
three 50% or less, owned and controlled entities, which are consolidated
(amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
(UNAUDITED)
Condensed Combined Balance Sheet Data:
Current assets....................................................... $ 3,197 $ 2,596
Total assets......................................................... 4,494 4,288
Current liabilities.................................................. 1,149 727
Long-term debt....................................................... 240 424
Minority interest equity............................................. 1,699 1,702
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Condensed Combined Statement of Operations Data:
Total revenues........................................................... $ 4,988 $ 5,310 $ 1,340 $ 1,823
Costs of operations...................................................... 3,614 3,825 1,040 1,269
Provision for center profit distribution................................. 700 771 158 290
--------- --------- --------- ---------
Gross profit............................................................. $ 674 $ 714 $ 142 $ 264
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The provision for center profit distribution shown above represents the
minority interest in the income of these combined entities.
4. INCOME (LOSS) PER SHARE
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), Earnings Per Share (EPS). SFAS No. 128
replaces primary EPS and fully diluted EPS with basic EPS
F-39
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INCOME (LOSS) PER SHARE (CONTINUED)
and diluted EPS. Basic EPS is computed by dividing reported earnings by weighted
average shares outstanding. Diluted EPS is computed in the same way as the
previously used fully diluted EPS, except that the calculation now uses the
average share price for the reporting period to compute dilution from options
and warrants under the treasury stock method.
The number of shares used in computing EPS is equal to the weighted average
number of common and preferred shares outstanding during the respective period.
Since the Preferred Stock has no stated dividend rate and participates in any
dividends paid with respect to the Common Stock, the convertible amounts are
included in the computation of basic EPS. Dilution relating to options and
warrants are not included for the nine months ended March 31, 1998 due to their
antidilutive effect. There were no adjustments to net income (loss) (the
numerator) for purposes of computing EPS.
A reconciliation of basic and diluted share computations is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Average common stock outstanding......................... 2,731,105 2,712,122 2,753,037 2,714,725
Effect of preferred stock................................ 4,858,444 2,501,760 6,322,656 2,501,760
------------ ------------ ------------ ------------
Denominator for basic EPS................................ 7,589,549 5,213,882 9,075,693 5,216,485
Dilutive effect of stock options and warrants............ -- 230,426 417,611 222,060
------------ ------------ ------------ ------------
7,589,549 5,444,308 9,493,304 5,438,545
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
5. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Notes are guaranteed by certain
of the Company's wholly-owned subsidiaries (the "Guarantor Subsidiaries"). Such
guarantees are full, unconditional and joint and several. Separate financial
statements of the Guarantor Subsidiaries are not presented because the Company's
management has determined that they would not be material to investors. The
following supplemental financial information sets forth, on an unconsolidated
basis, balance sheet, statement of operations, and statement of cash flows
information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting.
F-40
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........ $ -- $ 6,910 $ 2,740 $ -- $ 9,650
Trade accounts receivable, net... -- 19,043 2,631 -- 21,674
Other receivables, net........... -- 190 140 -- 330
Intercompany accounts
receivable..................... 130,664 4,851 -- (135,515) --
Other current assets............. -- 2,009 140 -- 2,149
----------- --------------- ------- --------------- --------
Total current assets........... 130,664 33,003 5,651 (135,515) 33,803
Property and equipment, net........ -- 43,166 3,579 -- 46,745
Investments in partnerships........ -- 495 -- -- 495
Investments in consolidated
subsidiaries..................... (24,620) 2,359 -- 22,261 --
Other assets....................... -- 2,471 -- -- 2,471
Intangible assets, net............. -- 42,464 809 -- 43,273
----------- --------------- ------- --------------- --------
$ 106,044 $ 123,958 $ 10,039 $ (113,254) $ 126,787
----------- --------------- ------- --------------- --------
----------- --------------- ------- --------------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of equipment and
other notes...................... $ 4,218 $ 1,346 $ 142 $ -- $ 5,706
Accounts payable and other accrued
expenses......................... -- 14,277 628 -- 14,905
Intercompany accounts payable...... -- 130,664 4,851 (135,515) --
----------- --------------- ------- --------------- --------
Total current liabilities...... 4,218 146,287 5,621 (135,515) 20,611
Equipment and other notes, less
current portion.................. 65,982 1,611 188 -- 67,781
Other long term liabilities........ -- 680 -- -- 680
Minority interest.................. -- -- 1,871 -- 1,871
Stockholders' equity (deficit)..... 35,844 (24,620) 2,359 22,261 35,844
----------- --------------- ------- --------------- --------
$ 106,044 $ 123,958 $ 10,039 $ (113,254) $ 126,787
----------- --------------- ------- --------------- --------
----------- --------------- ------- --------------- --------
-- -- -- -- --
</TABLE>
F-41
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
(AMOUNTS IN THOUSANDS) ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ -- $ 74,511 $ 11,162 $ -- $ 85,673
Costs of operations............... -- 59,706 9,985 -- 69,691
----------- ------- ------- ----- -------
Gross profit.................... -- 14,805 1,177 -- 15,982
Corporate operating expenses...... -- 6,510 -- -- 6,510
Provision for supplemental service
fee termination................. -- 6,309 -- -- 6,309
----------- ------- ------- ----- -------
Income (loss) from company
operations...................... -- 1,986 1,177 -- 3,163
Equity in earnings of
unconsolidated partnerships..... -- 480 -- -- 480
----------- ------- ------- ----- -------
Operating income (loss)........... -- 2,466 1,177 -- 3,643
Interest expense, net............. -- 4,449 216 -- 4,665
----------- ------- ------- ----- -------
Income (loss) before income
taxes........................... -- (1,983) 961 -- (1,022)
Provision for income taxes........ -- 431 -- -- 431
Income (loss) before equity in
income (loss) of consolidated
subsidiaries.................... -- (2,414) 961 -- (1,453)
Equity in income (loss) of
consolidated subsidiaries....... (1,453) 961 492 --
----------- ------- ------- ----- -------
Net income (loss)................. $ (1,453) $ (1,453) $ 961 $ 492 $ (1,453)
----------- ------- ------- ----- -------
----------- ------- ------- ----- -------
</TABLE>
F-42
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Revenues.......................... $ -- $ 57,297 $ 10,832 $ -- $ 68,129
Costs of operations............... -- 50,059 9,468 -- 59,527
----------- ------- ------- ------- -------
Gross profit.................... -- 7,238 1,364 -- 8,602
Corporate operating expenses...... -- 5,343 -- -- 5,343
----------- ------- ------- ------- -------
Income (loss) from company
operations.................... -- 1,895 1,364 -- 3,259
Equity in earnings of
unconsolidated partnerships..... -- 364 -- -- 364
----------- ------- ------- ------- -------
Operating income (loss)......... -- 2,259 1,364 -- 3,623
Interest expense, net............. -- 2,657 84 -- 2,741
----------- ------- ------- ------- -------
Income (loss) before income
taxes......................... -- (398) 1,280 -- 882
Provision for income taxes........ -- 134 -- -- 134
----------- ------- ------- ------- -------
Income (loss) before equity in
income (loss) of consolidated
subsidiary.................... -- (532) 1,280 -- 748
Equity in income (loss) of
consolidated subsidiaries....... 748 1,280 (2,028) --
----------- ------- ------- ------- -------
Net income (loss)............... $ 748 $ 748 $ 1,280 $ (2,028) $ 748
----------- ------- ------- ------- -------
----------- ------- ------- ------- -------
</TABLE>
F-43
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- --------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss).................. $ (1,453) $ (1,453) $ 961 $ 492 $ (1,453)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Total depreciation and
amortization................... -- 10,437 349 -- 10,786
Amortization of deferred gain on
debt restructure............... -- (1,355) -- -- (1,355)
Provision for supplemental
service fee termination........ -- 6,309 -- -- 6,309
Equity in income (loss) of
consolidated subsidiaries...... 1,453 (961) -- (492) --
Cash provided by (used in) changes
in operating working capital:
Receivables, net................. -- (4,916) 196 -- (4,720)
Intercompany receivables, net.... (93,812) 89,620 4,192 -- --
Other current assets............. -- (624) (71) -- (695)
Accounts payable and other
current liabilities............ -- 1,210 (21) -- 1,189
----------- --------------- ------- ------- --------
Net cash provided by operating
activities................... (93,812) 98,267 5,606 -- 10,061
----------- --------------- ------- ------- --------
INVESTING ACTIVITIES:
Additions to property and
equipment........................ -- (13,421) (1,812) -- (15,233)
Acquisitions of imaging centers.... -- (12,890) -- -- (12,890)
Other.............................. -- (861) (127) -- (988)
----------- --------------- ------- ------- --------
Net cash used in investing
activities................... -- (27,172) (1,939) -- (29,111)
----------- --------------- ------- ------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock............................ 23,346 -- -- -- 23,346
Stock options and warrants
exercised........................ 266 -- -- -- 266
Payment of loan fees............... -- (2,210) -- -- (2,210)
Payments on debt and capital lease
obligations...................... (2,700) (79,337) (948) -- (82,985)
Proceeds from issuance of debt..... 72,900 10,241 136 -- 83,277
Other.............................. -- 1,276 (1,405) -- (129)
----------- --------------- ------- ------- --------
Net cash provided by (used in)
financing activities......... 93,812 (70,030) (2,217) -- 21,565
----------- --------------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ -- 1,065 1,450 -- 2,515
CASH AND CASH EQUIVALENTS:
Beginning of period................ -- 5,845 1,290 -- 7,135
----------- --------------- ------- ------- --------
End of period...................... $ -- $ 6,910 $ 2,740 $ -- $ 9,650
----------- --------------- ------- ------- --------
----------- --------------- ------- ------- --------
</TABLE>
F-44
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS
--------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss).................. $ 748 $ 748 $ 1,280 $ (2,028)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Total depreciation and
amortization................... -- 7,087 273 --
Amortization of deferred gain on
debt restructure............... -- (797) -- --
Equity in income (loss) of
consolidated subsidiaries...... (748) (1,280) -- 2,028
Cash provided by (used in) changes
in operating working capital:
Receivables, net................. -- (221) (245) --
Intercompany receivables, net.... -- 326 (326) --
Other current assets............. -- (520) 30 --
Accounts payable and other
current liabilities............ -- 492 (211) --
----- ------ ------ -------
Net cash provided by operating
activities................... -- 5,835 801 --
----- ------ ------ -------
INVESTING ACTIVITIES:
Additions to property and
equipment........................ -- (2,307) (100) --
Acquisitions of imaging centers.... -- (2,766) -- --
Other.............................. -- 351 -- --
----- ------ ------ -------
Net cash used in investing
activities................... -- (4,722) (100) --
----- ------ ------ -------
FINANCING ACTIVITIES:
Payments on debt and capital lease
obligations...................... -- (7,488) (239) --
Proceeds from issuance of debt..... -- 5,139 -- --
Other.............................. -- 766 (352) --
----- ------ ------ -------
Net cash provided by (used in)
financing activities......... -- (1,583) (591) --
----- ------ ------ -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ -- (470) 110 --
CASH AND CASH EQUIVALENTS:
Beginning of period................ -- 5,554 1,310 --
----- ------ ------ -------
End of period...................... $ -- $ 5,084 $ 1,420 $ --
----- ------ ------ -------
----- ------ ------ -------
<CAPTION>
CONSOLIDATED
-------------------
<S> <C>
(AMOUNTS IN THOUSANDS
OPERATING ACTIVITIES:
Net income (loss).................. $ 748
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Total depreciation and
amortization................... 7,360
Amortization of deferred gain on
debt restructure............... (797)
Equity in income (loss) of
consolidated subsidiaries...... --
Cash provided by (used in) changes
in operating working capital:
Receivables, net................. (466)
Intercompany receivables, net.... --
Other current assets............. (490)
Accounts payable and other
current liabilities............ 281
------
Net cash provided by operating
activities................... 6,636
------
INVESTING ACTIVITIES:
Additions to property and
equipment........................ (2,407)
Acquisitions of imaging centers.... (2,766)
Other.............................. 351
------
Net cash used in investing
activities................... (4,822)
------
FINANCING ACTIVITIES:
Payments on debt and capital lease
obligations...................... (7,727)
Proceeds from issuance of debt..... 5,139
Other.............................. 414
------
Net cash provided by (used in)
financing activities......... (2,174)
------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ (360)
CASH AND CASH EQUIVALENTS:
Beginning of period................ 6,864
------
End of period...................... $ 6,504
------
------
</TABLE>
F-45
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report........................................................................ F-47
Balance Sheets as of December 31, 1997 and 1996..................................................... F-48
Statements of Income for the Years Ended December 31, 1997 and 1996................................. F-49
Statements of Stockholders' Equity for the Years Ended December 31, 1997 and 1996................... F-50
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996............................. F-51
Notes to Financial Statements....................................................................... F-52
Balance Sheets (unaudited) as of March 31, 1998 and 1997............................................ F-60
Statements of Income and Retained Earnings (unaudited) for the Three Months Ended March 31, 1998 and
1997.............................................................................................. F-61
Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1998 and 1997............. F-62
Notes to Financial Statements....................................................................... F-63
</TABLE>
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Signal Medical Services, Inc.:
We have audited the accompanying balance sheets of Signal Medical Services,
Inc. as of December 31, 1997 and 1996, and the related statements of income,
stockholders' equity and cash flows for the years then ended. 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 financial position of Signal Medical Services,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
January 9, 1998
F-47
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 1,847,000 667,000
Accounts receivables, net of allowance of $101,000 and $44,000..................... 3,219,000 2,388,000
Other receivables.................................................................. 52,000 11,000
Prepaid expenses and other assets.................................................. 93,000 90,000
------------- ------------
Total current assets............................................................. 5,211,000 3,156,000
------------- ------------
Property and equipment:
Medical equipment.................................................................. 23,607,000 18,430,000
Furniture, fixtures and other equipment............................................ 390,000 291,000
------------- ------------
23,997,000 18,721,000
Less accumulated depreciation and amortization..................................... 10,762,000 7,112,000
------------- ------------
Property and equipment, net...................................................... 13,235,000 11,609,000
------------- ------------
Other assets, net.................................................................... 580,000 488,000
------------- ------------
$ 19,026,000 15,253,000
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 627,000 425,000
Accrued compensation............................................................... 792,000 583,000
Accrued maintenance................................................................ 259,000 64,000
Other accrued expenses and other liabilities....................................... 869,000 838,000
Short-term borrowings.............................................................. -- 294,000
Current portion of long-term debt.................................................. 3,227,000 3,314,000
Current portion of capital lease obligation........................................ 309,000 --
------------- ------------
Total current liabilities........................................................ 6,083,000 5,518,000
Long-term debt....................................................................... 3,712,000 4,447,000
Accrued taxes........................................................................ 1,008,000 771,000
Deferred income taxes................................................................ 801,000 389,000
Other liabilities.................................................................... 380,000 140,000
Long-term portion of capital lease obligation........................................ 1,545,000 --
------------- ------------
Total liabilities................................................................ 13,529,000 11,265,000
------------- ------------
Redeemable convertible cumulative preferred stock, $.01 par value, 60,000 shares
authorized, issued and outstanding, redeemable at $33.34 per share................. 2,000,000 2,000,000
Stockholders' equity:
Common stock, $.01 par value, 110,000 shares authorized, 33,500 shares issued...... -- --
Additional paid-in capital......................................................... 156,000 156,000
Retained earnings.................................................................. 3,841,000 2,332,000
Less cost of 17,580 treasury shares.................................................. (500,000) (500,000)
------------- ------------
Total stockholders' equity....................................................... 3,497,000 1,988,000
------------- ------------
Commitments and contingencies
$ 19,026,000 15,253,000
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenues........................................................................... $ 20,704,000 17,852,000
------------- -------------
Operating costs and expenses:
Operating costs.................................................................. 7,455,000 6,592,000
Selling, general and administrative.............................................. 2,701,000 2,257,000
Lease expense.................................................................... 3,697,000 3,140,000
Depreciation and amortization.................................................... 3,676,000 3,200,000
Interest expense, net of interest income of $27,000 and $26,000.................. 654,000 827,000
------------- -------------
Total operating costs and expenses............................................. 18,183,000 16,016,000
------------- -------------
Income before income taxes..................................................... 2,521,000 1,836,000
Income Taxes 1,012,000 735,000
------------- -------------
Net Income..................................................................... $ 1,509,000 1,101,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......................... $ -- 156,000 1,231,000 (500,000) 887,000
Net Income.......................................... -- -- 1,101,000 -- 1,101,000
----------- ----------- ---------- ---------- ------------
Balance, December 31, 1996.......................... -- 156,000 2,332,000 (500,000) 1,988,000
Net Income.......................................... -- -- 1,509,000 -- 1,509,000
----------- ----------- ---------- ---------- ------------
Balance, December 31, 1997.......................... $ -- 156,000 3,841,000 (500,000) 3,497,000
----------- ----------- ---------- ---------- ------------
----------- ----------- ---------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 1,509,000 1,101,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 3,676,000 3,200,000
Change in assets and liabilities:
Increase in accounts receivable............................................... (831,000) (288,000)
Decrease (increase) in other receivables...................................... (41,000) 56,000
Increase in prepaid expenses and other current assets......................... (3,000) (39,000)
Decrease (increase) in other assets........................................... 66,000 (84,000)
Increase in accounts payable, accrued expenses and other liabilities.......... 1,526,000 1,029,000
------------- -------------
Net cash provided by operating activities................................... 5,902,000 4,975,000
------------- -------------
Cash flows used in investing activities:
Additions to medical equipment, furniture and fixtures............................ (3,421,000) (2,918,000)
Investment in joint ventures...................................................... (185,000) --
------------- -------------
Net cash used in investing activities....................................... (3,606,000) (2,918,000)
------------- -------------
Cash flows used in financing activities:
Net decrease in short-term borrowings............................................. (294,000) (156,000)
Proceeds from long-term debt...................................................... 2,720,000 475,000
Repayment of long-term debt....................................................... (3,542,000) (3,151,000)
------------- -------------
Net cash used in financing activities....................................... (1,116,000) (2,832,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents................................ 1,180,000 (775,000)
Cash and cash equivalents, beginning of period...................................... 667,000 1,442,000
------------- -------------
Cash and cash equivalents, end of period............................................ $ 1,847,000 667,000
------------- -------------
------------- -------------
Cash paid for income taxes.......................................................... $ 807,000 381,000
------------- -------------
------------- -------------
Cash paid for interest.............................................................. 599,000 850,000
------------- -------------
------------- -------------
Capital lease obligation incurred................................................... $ 1,854,000 --
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
Signal Medical Services, Inc. (the Company) provides fixed site and
mobile magnetic resonance imaging (MRI), computer tomography (CT),
general radiology and lithotripsy equipment and operations under
contracts with hospitals and other health care providers throughout the
United States. The Company's customer contracts at December 31, 1997 are
primarily with health care providers in the northeastern and southeastern
United States.
During 1997, the Company developed and began operating several new
ventures, which are jointly owned by the Company and its respective joint
venture partners. These joint ventures include a medical billing and
collection company, a mobile lithotripsy joint venture and a mobile x-ray
and ultrasound company. The Company's investment in these joint ventures
totaled $185,000 and is included in other assets. The Company also began
managing two newly developed multi-modality imaging centers in which the
Company expects to acquire a 50% ownership interest during the first
quarter of 1998. The Company's ownership interest in these joint ventures
varies from 35% to 60%, and the operating results of these joint ventures
was not material to the Company's 1997 financial statements.
(b) REVENUE RECOGNITION
Revenues are recognized at the time equipment and related services are
provided, generally on a fee-per-procedure or daily fee basis.
(c) MEDICAL EQUIPMENT AND FURNITURE AND FIXTURES
Medical equipment and furniture and fixtures are stated at cost.
Depreciation and amortization are provided on the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
2 to 7
Medical equipment...................................... years
2 to 5
Furniture, fixtures and other equipment................ years
</TABLE>
Repairs and maintenance expenditures are charged to expense as incurred.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability.
Amortization of capitalized leased assets is computed on the
straight-line method over the term of the lease or estimated useful life
of the equipment, whichever is shorter.
Property acquired under capital leases consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Medical Equipment....................................... $ 1,854,000 --
Accumulated Amortization................................ -- --
------------ ------------
$ 1,854,000 --
------------ ------------
------------ ------------
</TABLE>
(d) OTHER ASSETS
Other assets include deferred financing costs and certain deferred costs
incurred in connection with the Company's contracts with health care
providers. These assets are being amortized using the straight-line
method over the terms of the related debt and contracts which range from
5 to 7 years. Accumulated amortization amounted to $258,000 in 1997 and
$178,000 in 1996.
F-52
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid short-term investments with an original maturity of three
months or less to be cash equivalents. At December 31, 1997, cash and
cash equivalents consisted primarily of cash invested in a money market
account and overnight investment account.
(f) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) USE OF ESTIMATES
Management of the Company has made several estimates and assumptions
relating to the reporting of certain assets, including the allowance for
doubtful receivables, and liabilities and the disclosure of continent
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
The components of the allowance for doubtful receivables for the years
ended December 31, 1997 and 1996 were as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996................................ $ 55,000
Charged to operating costs............................ --
Write-offs............................................ (11,000)
---------
Balance at December 31, 1996.............................. 44,000
Charged to operating costs............................ 40,000
Write-offs............................................ --
Other................................................. 17,000
---------
Balance at December 31, 1997.............................. $ 101,000
---------
---------
</TABLE>
(h) RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
(i) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, on January 1, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the
F-53
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount by which the carrying amount of the assets exceed the fair value
of the assets. Adoption of this Statement did not have any impact on the
Company's financial position, results of operations, or liquidity.
(2) LEASES
The Company leases certain medical equipment, office space and fixed site
MRI operating space. Future minimum lease commitments under noncancelable
leases with a term of 12 months or more are as follows at December 31,
1997:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1998.............................................................. $ 446,000 $ 1,166,000
1999.............................................................. 432,000 1,062,000
2000.............................................................. 405,000 565,000
2001.............................................................. 378,000 341,000
2002.............................................................. 351,000 94,000
Thereafter........................................................ 322,000 --
------------ ------------
Total minimum lease payments.................................... 2,334,000 $ 3,228,000
------------
------------
Amounts representing interest..................................... (480,000)
------------
Present value of net minimum payments........................... 1,854,000
Current portion................................................... (309,000)
------------
Long-term portion of capital lease obligation................. $ 1,545,000
------------
------------
</TABLE>
Total operating lease expense for medical equipment amounted to $3,697,000
in 1997 and $3,140,000 in 1996. Other rent expense, which is included in
selling, general and administrative expenses, totaled $125,000 for 1997 and
$122,000 for 1996, respectively.
(3) INCOME TAXES
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 CURRENT DEFERRED TOTAL
- ---------------------------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
U.S. Federal.............................................. $ 451,000 355,000 806,000
State and Local........................................... 149,000 57,000 206,000
---------- --------- ----------
600,000 412,000 1,012,000
---------- --------- ----------
---------- --------- ----------
YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------
U.S. Federal.............................................. 341,000 296,000 637,000
State and Local........................................... 70,000 28,000 98,000
---------- --------- ----------
$ 411,000 324,000 735,000
---------- --------- ----------
---------- --------- ----------
</TABLE>
F-54
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) INCOME TAXES (CONTINUED)
Income tax expense differed from the amount computed by applying the U.S.
federal income tax rate of 34% to pretax income in 1997 and 1996. As a result of
the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
% OF PRETAX % OF PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS
------------ --------------- ---------- ---------------
<S> <C> <C> <C> <C>
"Expected" tax expense....................................... $ 857,000 34% $ 624,000 34%
State corporation taxes, net of federal tax benefit.......... 136,000 5% 65,000 4%
Other........................................................ 19,000 1% 46,000 2%
-- --
------------ ----------
$ 1,012,000 40% $ 735,000 40%
-- --
-- --
------------ ----------
------------ ----------
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables.................................................. $ 33,000 17,000
Option compensation expense......................................................... 43,000 43,000
Unamortized start-up and organization costs incurred prior to inception of business
operations........................................................................ -- 5,000
Compensated absences, principally due to accrual for financial reporting purposes... 41,000 34,000
Alternative minimum tax credit carryforward......................................... -- 373,000
Net operating loss carryforwards.................................................... -- 27,000
Other liabilities................................................................... 346,000 190,000
State tax credit.................................................................... -- 34,000
Other............................................................................... 3,000 9,000
------------ ------------
Total gross deferred tax assets................................................... 466,000 732,000
------------ ------------
Deferred tax liabilities
Medical equipment, furniture and fixtures, and other assets principally due to
differences in depreciation and amortization.................................... 1,267,000 1,121,000
------------ ------------
Total gross deferred tax liabilities.............................................. 1,267,000 1,121,000
------------ ------------
Net deferred tax liability.......................................................... $ 801,000 389,000
------------ ------------
------------ ------------
</TABLE>
Management has concluded that it is more likely than not that the Company
will have sufficient taxable income of an appropriate character within the
carryback and carryforward period permitted by current tax law to allow for the
utilization of the deductible amounts generating the deferred tax asset and,
therefore, no valuation allowance is required.
(4) REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK
On April 3, 1992, 60,000 shares of $.01 par value series A redeemable
convertible cumulative preferred stock were issued to SMSI Holding, Inc., a
wholly owned subsidiary of Anthem Blue Cross and Blue Shield of Connecticut,
Inc. at $33.34 per share. Each share of series A preferred stock is convertible
F-55
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(4) REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK (CONTINUED)
into one share of common stock at any time after the date of issuance. In the
event of a public offering of common stock by the Company, the preferred stock
will automatically be converted into shares of common stock, provided that the
offering price per share and gross proceeds from the offering are not less than
$66.68 and $5,000,000 respectively.
On or after April 1, 1997, the series A preferred stock is redeemable at
$33.34 per share plus any unpaid dividends at the option of SMSI Holding, Inc.
Upon liquidation, dissolution or winding up of the Company, the holders of the
series A preferred stock shall be entitled to receive, before any distribution
is made to the holders of common stock of the Company, a distribution of $33.34
per share plus any unpaid dividends. The series A preferred stock accumulates a
dividend at an annual rate of $2.33 per share through March 31, 1994 and $3.00
per share from April 1, 1994 to March 31, 1997 payable upon a liquidation,
dissolution or winding up, conversion or redemption, consolidation or merger of
the Company. The amount of accumulated and unpaid series A preferred stock
dividends was $820,000 at December 31, 1997. The holders of the series A
preferred stock are entitled to one vote per share of common stock into which
the preferred stock is convertible.
(5) STOCKHOLDERS' EQUITY
On April 3, 1992, 33,500 shares of $.01 par value common stock were issued
to the founders of the Company.
The Company has a fixed option plan. Under the 1994 Employee Stock Option
Plan, the Company may grant options to its employees for up to 18,000 shares of
common stock. The exercise price of each option equals the fair value of the
Company's stock on the date of grant, and an option's maximum term is ten years.
Options generally vest over a period of one to three years. At December 31,
1997, all options were fully vested.
The Company has elected to adopt the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Accordingly, no compensation cost has been recognized for stock
options issued. The impact on net income in 1997 and 1996 had the Company
adopted FAS 123 would have been immaterial. Options granted, exercised and
outstanding under this plan were as follows:
<TABLE>
<CAPTION>
EXERCISE EXERCISE
1997 PRICE 1996 PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........................................ 14,790 -- 13,790 $ 18.00
Granted................................................................. -- -- 1,000 83.00
Exercised............................................................... -- -- -- --
--------- --------- -----------
Outstanding at end of year.............................................. 14,790 14,790
--------- ---------
--------- ---------
Fair value of options granted during the year........................... $ -- $ 36.65
--------- ---------
--------- ---------
</TABLE>
The fair value of stock options granted during 1996 were estimated on the
date of grant using the minimum value method with the following assumptions:
risk-free interest rate of 6.0 percent, expected life of 10 years, and no
dividends.
F-56
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) RELATED PARTY TRANSACTION
On April 3, 1992, the Company loaned $35,000, at an interest rate of 9%, to
an officer and common stockholder of the Company. Interest is due April 1st of
each year and 34% of the officer's annual bonus, if any, must be paid toward the
outstanding principal balance. The remaining balance of the note December 31,
1997 and 1996 was $0 and $9,000, respectively, and is included in other
receivables.
The Company made advances to its employees and joint ventures which totaled
approximately $32,000 and $21,000 as of December 31, 1997 and 1996,
respectively. These advances are included in other receivables.
(7) SHORT-TERM BORROWINGS
The Company has a $1,500,000 line of credit from Anthem Blue Cross and Blue
Shield of Connecticut, Inc. Borrowings under this line bear interest at the
three-month LIBOR rate plus 2% (7.81% at December 31, 1997). The amounts
outstanding at December 31, 1997 and 1996 were $0 and $294,000, respectively.
The weighted average interest rate on the line of credit during 1997 and 1996
was 8.57%, respectively.
F-57
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) LONG-TERM DEBT
The following schedule summarizes long-term debt at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Term notes with banks:
$450,000, interest fixed at 7.90%; due in 48 equal monthly principal payments through
May 1, 1997......................................................................... $ -- 38,000
$2,500,000, interest fixed at 7.90% through November 1998, variable thereafter; due in
84 equal monthly principal payments through December 1, 2000........................ 1,071,000 1,429,000
$3,000,000, interest fixed at 9.50%; due in 60 equal monthly principal payments
through June 1, 1999................................................................ 900,000 1,500,000
$824,444, interest fixed at 9.65% through December 1, 1996, variable thereafter; due
in 47 equal monthly principal payments through October 1, 1998...................... 176,000 386,000
$1,950,000, interest fixed at 9.95% through January 1, 1998, variable thereafter; due
in 48 equal monthly principal payments through December 1, 1998..................... 487,000 975,000
$750,000, interest fixed at 9.40%; due in 36 equal monthly principal payments through
January 10, 1998.................................................................... -- 250,000
$900,000, interest fixed at 9.40%; due in 35 equal monthly principal payments through
January 10, 1998.................................................................... -- 308,000
$1,200,000, interest fixed at 8.75%; due in 48 equal monthly principal payments
through September 11, 1999.......................................................... 525,000 825,000
$2,100,000, interest fixed at 8.40%; due in 48 equal monthly principal payments
through December 14, 1999........................................................... 1,050,000 1,575,000
$475,000, interest fixed at 8.46%; due in 24 equal monthly principal payments through
December 31, 1998................................................................... 237,000 475,000
$795,000, interest fixed at 8.95%; due in 60 equal monthly principal payments through
February 28, 2002................................................................... 663,000 --
$950,000, interest fixed at 8.90%; due in 60 equal monthly principal payments through
August 1, 2002...................................................................... 887,000 --
$975,000, interest fixed at 8.49%; due in 60 equal monthly principal payments through
October 31, 2002.................................................................... 943,000 --
------------ ------------
6,939,000 7,761,000
Less current maturities............................................................... 3,227,000 3,314,000
------------ ------------
$ 3,712,000 4,447,000
------------ ------------
------------ ------------
</TABLE>
F-58
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998........................................................... $3,227,000
1999........................................................... 1,951,000
2000........................................................... 901,000
2001........................................................... 544,000
2002........................................................... 316,000
Thereafter..................................................... --
---------
$6,939,000
---------
---------
</TABLE>
The term notes contain covenants which, among other things, require
maintenance of certain ratios of liabilities to tangible net worth, debt service
coverage and minimum levels of liquid investments and profitability.
The term notes are secured by the medical equipment purchased with the note
proceeds, the related service contacts with hospital customers and other assets
of the Company.
The Company has a $5,000,000 capital expenditure line of credit with a
financial institution under which it finances equipment acquisitions on a
long-term basis. Interest is at market rates determined at the time of each
drawdown under the line. The unused portion of this line at December 31, 1997
was $5,000,000.
(9) CONTINGENCIES
The Company entered into an agreement in 1993 in which it became the
guarantor of a loan between Citrus Memorial Health Foundation, Inc., a customer,
and a bank. This loan had an outstanding principal balance of approximately
$577,000 at December 31, 1997. In September 1994, the Company entered into a
similar loan guarantee with Manchester Memorial Hospital and the same bank. This
loan had an outstanding principal balance of approximately $1,027,000 at
December 31, 1997.
On December 29, 1997, the Company entered in an agreement under which it
became a guarantor of a credit facility between Whitney Imaging Center, LLC
(WIC) and Shoreline Imaging Center, LLC (SIC) as the borrowers and a bank.
Proceeds from the credit facility are being used to finance the development of
the two multi-modality imaging centers owned by WIC and SIC and managed by the
Company. The credit facility is also guaranteed by the owners of WIC and SIC and
is secured by the assets of WIC, SIC and their owners. The Company's guaranty is
unsecured. The total amount committed by the bank under the credit facility is
$2,450,000. Outstanding borrowings under the facility at December 31, 1997
totaled $1,319,000.
In the event that the debtors default under these loans, the Company could
become liable for all unpaid interest and principal. As of December 31, 1997,
the debtors were current as to interest and principal payments under the loans.
F-59
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 1,642,000 1,013,000
Accounts receivables, net........................................................ 3,397,000 2,571,000
Other receivables................................................................ 239,000 6,000
Prepaid expenses and other assets................................................ 121,000 139,000
------------- -------------
Total current assets........................................................... 5,399,000 3,729,000
------------- -------------
Property and equipment:
Medical equipment, net........................................................... 12,174,000 10,705,000
Furniture, fixtures and other equipment, net..................................... 112,000 91,000
------------- -------------
Property and equipment, net.................................................... 12,286,000 10,796,000
------------- -------------
Other assets, net.................................................................. 660,000 546,000
------------- -------------
$ 18,345,000 15,071,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 235,000 326,000
Accrued compensation............................................................. 516,000 371,000
Accrued maintenance.............................................................. 258,000 126,000
Other accrued expenses and other liabilities..................................... 1,112,000 778,000
Current portion of long-term debt................................................ 2,993,000 3,304,000
Current portion of capital lease obligation...................................... 309,000 --
------------- -------------
Total current liabilities...................................................... 5,423,000 4,905,000
Long-term debt..................................................................... 3,130,000 4,391,000
Accrued taxes...................................................................... 1,307,000 838,000
Deferred income taxes.............................................................. 912,000 419,000
Other liabilities.................................................................. 139,000 176,000
Long-term portion of capital lease obligation...................................... 1,468,000 --
------------- -------------
Total liabilities.............................................................. 12,379,000 10,729,000
------------- -------------
Redeemable convertible cumulative preferred stock, $.01 par value, 60,000 shares
authorized, issued and outstanding, redeemable at $33.34 per share............... 2,000,000 2,000,000
Stockholders' equity:
Common stock..................................................................... -- --
Additional paid-in capital....................................................... 156,000 156,000
Retained earnings................................................................ 4,310,000 2,686,000
Less cost of treasury shares....................................................... (500,000) (500,000)
------------- -------------
Total stockholders' equity..................................................... 3,966,000 2,342,000
------------- -------------
$ 18,345,000 15,071,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 5,622,000 $ 5,085,000
------------ ------------
Operating costs and expenses:
Operating costs..................................................................... 2,067,000 1,735,000
Selling, general and administrative................................................. 845,000 706,000
Lease expense....................................................................... 686,000 989,000
Depreciation and amortization....................................................... 1,058,000 888,000
Interest expense, net of interest income of $15,000 and $1,000...................... 171,000 178,000
------------ ------------
Total operating costs and expenses................................................ 4,827,000 4,496,000
------------ ------------
Income before income taxes........................................................ 795,000 589,000
Income Taxes.......................................................................... 326,000 235,000
------------ ------------
Net Income........................................................................ $ 469,000 $ 354,000
------------ ------------
Retained earnings, beginning of period................................................ 3,841,000 2,332,000
------------ ------------
Retained earnings, end of period...................................................... 4,310,000 2,686,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 469,000 354,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 1,058,000 888,000
Change in assets and liabilities:
Increase in accounts receivable................................................. (178,000) (183,000)
Decrease (increase) in other receivables........................................ (187,000) 5,000
Increase in prepaid expenses and other current assets........................... (28,000) (49,000)
Decrease (increase) in other assets............................................. (82,000) (65,000)
Decrease in accounts payable, accrued expenses and other liabilities............ (257,000) (176,000)
------------ ------------
Net cash provided by operating activities..................................... 795,000 774,000
------------ ------------
Cash flows used in investing activities:
Additions to medical equipment, furniture and fixtures.............................. (107,000) (68,000)
------------ ------------
Net cash used in investing activities......................................... (107,000) (68,000)
------------ ------------
Cash flows used in financing activities:
Net decrease in short-term borrowings............................................... -- (294,000)
Proceeds from long-term debt........................................................ -- 795,000
Repayment of long-term debt......................................................... (893,000) (861,000)
------------ ------------
Net cash used in financing activities......................................... (893,000) (360,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents.................................. (205,000) 346,000
Cash and cash equivalents, beginning of period........................................ 1,847,000 667,000
------------ ------------
Cash and cash equivalents, end of period.............................................. $ 1,642,000 1,013,000
------------ ------------
------------ ------------
Cash paid for income taxes............................................................ $ 68,000 236,000
------------ ------------
------------ ------------
Cash paid for interest................................................................ 159,000 170,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
SIGNAL MEDICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(1) BASIS OF PRESENTATION
In the opinion of management, the financial information reflects all
adjustments which are necessary to a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented and are of a normal recurring nature, unless otherwise disclosed
in this report.
The statements should be read in conjunction with the notes to the financial
statements of Signal Medical Services, Inc. (the Company) as of and for the
years ended December 31, 1997 and 1996.
(2) ACQUISITION BY INSIGHT HEALTH SERVICES CORP.
On May 18, 1998, the stock of the Company was acquired by InSight Health
Services Corp., a leading provider of diagnostic imaging and related
information services based in Newport Beach, California. The purchase price
consisted of $46 million (subject to certain post-closing adjustments),
including the assumption of indebtedness.
(3) NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
Nos. 130 and 131, "Reporting Comprehensive Income" and "Disclosures about
Segments of an Enterprise and Related Information." FASB Nos. 130 and 131
are effective for fiscal years beginning after December 15, 1997, with
earlier adoption permitted. The Company believes that adoption of these
standards does not have a material impact on the Company.
F-63
<PAGE>
MOBILE IMAGING CONSORTIUM
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
-----------
<S> <C>
Independent Auditors' Report........................................................................ F-65
Combined Balance Sheets as of December 31, 1996 and 1995............................................ F-66
Combined Statements of Income for the Years Ended December 31, 1996, 1995 and 1994.................. F-67
Combined Statements of Partners' Capital Accounts for the Years Ended December 31, 1996, 1995 and
1994.............................................................................................. F-68
Combined Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.............. F-69
Notes to Financial Statements....................................................................... F-70
Combining Balance Sheet as of December 31, 1996..................................................... F-75
Combining Balance Sheet as of December 31, 1995..................................................... F-76
Combining Statement of Income for the Year Ended December 31, 1996.................................. F-77
Combining Statement of Income for the Year Ended December 31, 1995.................................. F-78
Combining Statement of Income for the Year Ended December 31, 1994.................................. F-79
</TABLE>
F-64
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Mobile Imaging Consortium--Maine
Mobile Imaging Consortium--New Hampshire
We have audited the accompanying combined balance sheets of Mobile Imaging
Consortium, consisting of Mobile Imaging Consortium--Maine (a Maine limited
partnership) and Mobile Imaging Consortium--New Hampshire (a Maine general
partnership), as of December 31, 1996 and 1995, and the related combined
statements of income, partners' capital accounts and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these combined 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 audits 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 combined financial position of Mobile Imaging
Consortium as of December 31, 1996 and 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in accordance with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The combining details appearing
in conjunction with the combined financial statements are presented for purposes
of additional analysis and are not a required part of the basic combined
financial statements. Such additional information has been subjected to the
auditing procedures applied in our audits of the basic combined financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic combined financial statements taken as a whole.
<TABLE>
<S> <C>
/s/ BAKER NEWMAN & NOYES
--------------------------
January 20, 1997 Baker Newman & Noyes
Limited Liability Company
</TABLE>
F-65
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents............................................................. $ 381,591 $ 972,134
Accounts receivable, net of contractual and bad debt allowances of $463,000 for 1996
and $260,000 for 1995 (note 3)...................................................... 1,350,324 1,069,537
Prepaid expenses and other current assets............................................. 177,340 164,131
------------ ------------
Total current assets.............................................................. 1,909,255 2,205,802
Property and equipment:
Leasehold improvements.............................................................. 2,501 2,501
Equipment........................................................................... 2,775,368 2,518,317
Equipment under capital leases (note 5)............................................. 4,106,512 3,743,960
Furniture and fixtures.............................................................. 7,592 7,592
------------ ------------
6,891,973 6,272,370
Less accumulated depreciation and amortization...................................... 5,201,323 4,026,953
------------ ------------
Net property, plant and equipment................................................... 1,690,650 2,245,417
Other assets, net..................................................................... 12,386 38,374
------------ ------------
$ 3,612,291 $ 4,489,593
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses................................................. $ 247,415 $ 338,644
Current portion of long-term debt (note 4)............................................ 131,017 208,993
Current portion of obligations under capital leases (note 5).......................... 1,077,732 766,813
------------ ------------
Total current liabilities......................................................... 1,456,164 1,314,450
Long-term debt, less current portion (note 4)......................................... 67,555 --
Obligations under capital leases, less current portion (note 5)....................... 454,245 1,222,621
Commitments and contingencies (notes 9 and 10)
Partners' capital..................................................................... 1,634,327 1,952,522
------------ ------------
$ 3,612,291 $ 4,489,593
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-66
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Net scan revenue (note 7)............................................. $ 7,299,625 $ 6,499,166 $ 5,981,629
Interest.............................................................. 9,264 27,991 8,885
Other................................................................. 139,143 58,993 74,100
------------ ------------ ------------
Total revenue....................................................... 7,448,032 6,586,150 6,064,614
Expenses:
Payroll, fringe and related taxes..................................... 1,007,573 935,134 999,538
Management fees (note 8).............................................. 147,265 140,729 130,000
Hospital maintenance fees............................................. 141,175 129,247 115,554
Professional fees..................................................... 267,991 159,793 128,597
Tractor expenses...................................................... 83,583 64,631 65,573
Repairs and maintenance............................................... 509,285 472,797 479,196
Cryogens.............................................................. 116,777 110,527 109,000
Film and medical supplies............................................. 469,499 349,280 327,407
Insurance............................................................. 126,259 124,646 124,099
Utilities............................................................. 72,963 70,664 69,456
Rent.................................................................. 30,266 36,841 36,471
Property taxes........................................................ 53,316 88,006 86,969
Bad debts............................................................. 198,370 -- 125,387
Depreciation.......................................................... 1,174,370 1,282,300 1,289,777
Amortization.......................................................... 24,009 34,079 34,078
Interest.............................................................. 189,924 290,755 387,437
Other................................................................. 203,602 159,971 174,820
------------ ------------ ------------
Total operating expenses............................................ 4,816,227 4,489,400 4,683,359
------------ ------------ ------------
Net income.............................................................. $ 2,631,805 $ 2,096,750 $ 1,381,255
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-67
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED GENERAL
PARTNERS PARTNERS PARTNERS
(MIC-ME) (MIC-ME) (MIC-NH) TOTAL
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.............................. $ 603,184 $ 487,992 $ 264,141 $ 1,355,317
Net income.............................................. 756,610 521,074 103,571 1,381,255
Partner distributions (note 6).......................... (638,480) (442,320) (325,000) (1,405,800)
------------- ------------- ----------- -------------
Balance, December 31, 1994.............................. 721,314 566,746 42,712 1,330,772
Net income.............................................. 1,040,369 710,246 346,135 2,096,750
Partner distributions (note 6).......................... (710,000) (490,000) (275,000) (1,475,000)
------------- ------------- ----------- -------------
Balance, December 31, 1995.............................. 1,051,683 786,992 113,847 1,952,522
Net income.............................................. 1,334,745 906,496 390,564 2,631,805
Partner distributions (note 6).......................... (1,505,000) (1,020,000) (425,000) (2,950,000)
------------- ------------- ----------- -------------
Balance, December 31, 1996.............................. $ 881,428 $ 673,488 $ 79,411 $ 1,634,327
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
</TABLE>
See accompanying notes.
F-68
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 2,631,805 $ 2,096,750 $ 1,381,255
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................... 1,174,370 1,282,300 1,289,777
Amortization................................................... 24,009 34,079 34,078
Loss on disposal of asset...................................... -- 1,653 --
Changes in current assets and liabilities:
Increase in accounts receivable.............................. (280,787) (209,038) (269,491)
Increase in prepaid expenses and other current assets........ (13,209) (19,975) (67,583)
Decrease in other assets..................................... 1,979 -- --
Increase (decrease) in accounts payable and accrued
expenses................................................... (91,229) (15,580) 103,229
------------- ------------- -------------
Net cash provided by operating activities.......................... 3,446,938 3,170,189 2,471,265
Cash flows from investing activities:
Purchases of property and equipment................................ (257,051) (103,173) (48,611)
Purchases of investments........................................... -- -- (255,068)
Proceeds from sale of investments.................................. -- 255,068 --
------------- ------------- -------------
Net cash provided (used) by investing activities................... (257,051) 151,895 (303,679
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................... 256,324 93,164 --
Principal payments of long-term debt............................... (266,745) (529,300) (393,694)
Principal payments on capital lease obligations.................... (820,009) (689,084) (619,329)
Distributions to partners.......................................... (2,950,000) (1,475,000) (1,405,800)
------------- ------------- -------------
Net cash used by financing activities.............................. (3,780,430) (2,600,220) (2,418,823)
------------- ------------- -------------
Net increase (decrease) in cash...................................... (590,543) 721,864 (251,237)
Cash at beginning of year............................................ 972,134 250,270 501,506
------------- ------------- -------------
Cash at end of year.................................................. $ 381,591 $ 972,134 $ 250,269
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
Interest paid...................................................... $ 189,924 $ 294,107 $ 384,085
------------- ------------- -------------
------------- ------------- -------------
Supplemental schedule of noncash investing and financing activities:
Acquisition of property and equipment through obligations under
capital leases................................................... $ 362,552 $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-69
<PAGE>
MOBILE IMAGING CONSORTIUM
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The combined financial statements are prepared on the accrual basis of
accounting. The combined financial statements include the accounts of Mobile
Imaging Consortium--Maine (A Maine Limited Partnership) and Mobile Imaging
Consortium--New Hampshire (A Maine General Partnership). All transactions and
balances between the two partnerships have been eliminated in combination.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is calculated using
straight-line and accelerated methods over the estimated useful lives of the
assets. Assets capitalized under capital lease obligations are amortized over
the term of the related leases.
ORGANIZATION COSTS
Organization costs incurred in relation to the commencement of the
respective Partnership's activities have been capitalized and are amortized over
five years using the straight-line method.
SYNDICATION COSTS
Syndication costs incurred in forming the respective partnerships are
deducted from partners' capital in the combined financial statements.
INCOME TAXES
No provision or benefit for income taxes has been included in the combined
financial statements since any taxable income or loss passes through to, and is
reportable by, the respective partners individually.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Estimates related to contractual and bad debt allowances are
especially significant. Actual results could differ from those estimates.
2. ORGANIZATION
Mobile Imaging Consortium--Maine ("MIC-ME") is a limited partnership formed
under the laws of the State of Maine in October, 1991. The Partnership operates
two mobile magnetic resonance imaging systems which primarily serve hospitals
throughout Maine. The general partners have exclusive responsibility for the
control of all aspects of the Partnership's business.
Mobile Imaging Consortium--New Hampshire ("MIC-NH") is a general partnership
formed under the laws of the State of Maine in January, 1993. The Partnership
operates a mobile magnetic resonance imaging system which primarily serves three
hospitals in New Hampshire.
F-70
<PAGE>
MOBILE IMAGING CONSORTIUM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. ORGANIZATION (CONTINUED)
The two partnerships have similar general and limited partners. In addition,
both partnerships are managed by the same management agent, Joseph J. Bean
Associates. The management agent performs all recordkeeping functions on behalf
of the partners. In addition, the management agent is responsible for allocating
certain shared expenses incurred on behalf of both partnerships.
3. BUSINESS AND CREDIT CONCENTRATIONS
Nearly all of the patients served by the Partnerships are from Maine or New
Hampshire. No single patient accounted for more than five percent of the
combined revenues for 1996, 1995, or 1994, and no account receivable from any
patient exceeded five percent of total combined accounts receivable at December
31, 1996 and 1995.
MIC-NH maintains contracts with three hospitals located in New Hampshire and
generates all of its revenues under these contracts. The hospitals, in turn,
charge the individual patients. Therefore, MIC-NH had receivable balances from
only three parties as of December 31, 1996 and 1995.
MIC-ME submits the charges for substantially all of its patients to third
parties for full or partial payment. No single third-party payor accounted for
more than ten percent of total combined accounts receivable at December 31, 1996
and 1995.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Long-term debt consists of the following:
Variable rate note payable to a bank, due in
monthly installments of principal and interest
of $38,795 through May 1996; secured by
equipment....................................... $ -- $ 157,235
7.16% note payable to a financial institution, due
in monthly installments of $10,663 including
principal and interest through May 1996......... -- 51,758
8.55% note payable to a financial institution, due
in monthly installments of $7,776 including
principal and interest through September 1998;
secured by equipment............................ 151,170 --
7.81% note payable to a financial institution, due
in monthly installments of $9,792 including
principal and interest through May 1996......... 47,402 --
-------------- --------------
198,572 208,993
Less current installments of long-term debt....... (131,017) (208,993)
-------------- --------------
$ 67,555 $ --
-------------- --------------
-------------- --------------
</TABLE>
F-71
<PAGE>
MOBILE IMAGING CONSORTIUM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. LONG-TERM DEBT (CONTINUED)
Principal installments of long-term debt are as follows as of December 31,
1996:
<TABLE>
<S> <C>
1997.............................................. $ 131,017
1998.............................................. 67,555
--------------
$ 198,572
--------------
--------------
</TABLE>
5. LEASES
The Partnership is obligated under several capital leases for equipment as
follows:
At December 31, 1996 and 1995, the gross amount of equipment and related
accumulated amortization recorded under the capital leases is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Equipment....................................................... $ 4,106,512 $ 3,743,960
Less accumulated amortization................................... (2,711,410) (1,884,091)
------------- -------------
$ 1,395,102 $ 1,859,869
------------- -------------
------------- -------------
</TABLE>
The future minimum capital lease payments as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Future mininmum lease payments
1997............................................................ $1,182,024
1998............................................................ 482,467
---------
1,664,491
Less imputed interest (weighted average rate of 10.1%).......... 132,514
Present value of future minimum lease payments.................. 1,531,997
Current portion of obligations under capital leases............. 1,077,732
---------
Long-term portion of obligations under capital leases........... $ 454,245
---------
---------
</TABLE>
The lease agreements generally provide for fair market value purchase
options at the end of the lease terms.
6. PARTNERS' CAPITAL AND INCOME DISTRIBUTIONS
The allocation of net income or losses and distributions of cash flow are in
accordance with the terms of each respective partnership agreement. For MIC-NH,
the five general partners are distributed their pro-rata share of net income or
losses and distributions of cash flow. For MIC-ME, the four general partners, as
a group, and the limited partners, share equally in the first $100,000 of net
income or loss, allocated to the individual partners in each group based on
their pro-rata ownership interest. Likewise, the first $100,000 of distributions
of cash flow are allocated in this manner. Any income or losses or distributions
of cash flow exceeding $100,000 are allocated 60% to the general partners and
40% to the limited partners. Allocations within each group of partners are based
on each partners pro-rata ownership interest of the group.
F-72
<PAGE>
MOBILE IMAGING CONSORTIUM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. NET SCAN REVENUE
Net scan revenue consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Gross scan revenue............................... $ 8,888,277 $ 7,967,895 $ 6,984,102
Less contractual adjustments..................... (1,588,652) (1,468,729) (1,002,473)
------------- ------------- -------------
Net scan revenue................................. $ 7,299,625 $ 6,499,166 $ 5,981,629
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
8. RELATED PARTY TRANSACTIONS
As noted in note 1, the financial statements include the accounts of MIC-ME
and MIC-NH.
Certain shared expenses, such as insurance and supplies, are incurred by
MIC-ME and are charged to MIC-NH. These charges have been eliminated in the
combination of the two entities in the accompanying financial statements.
Charges from MIC-ME to MIC-NH for shared expenses were $48,000, $48,000, and
$93,365 for the years ended December 31, 1996, 1995 and 1994, respectively.
Joseph J. Bean Associates ("JBA") provides operational and financial
management services to both Partnerships. JBA is a party related to the
Partnerships through Joseph J. Bean, who either individually or through an
interest in another entity, acts as a general or limited partner in both
Partnerships. MIC-ME paid management fees of $90,159, $86,038, and $78,000 to
JBA for the years ended December 31, 1996, 1995 and 1994, respectively. MIC-NH
paid management fees of $57,106, $54,691, and $52,000 to JBA for the years ended
December 31, 1996, 1995 and 1994, respectively.
In addition, the Partnerships lease office space from JBA under an operating
lease agreement. The initial term of the lease is three years from May 1, 1996
to April 30, 1999. At that time the lease terms will automatically renew, unless
notice of termination is executed, for a term of 22 months through February 28,
2001. The Partnerships have an option to renew the lease for an additional term
of 10 years. Future lease payments for the remaining term of the lease,
including the automatic renewal period, are as follows:
<TABLE>
<S> <C>
1997............................................... $ 24,839
1998............................................... 25,164
1999............................................... 19,691
2000............................................... 17,117
2001............................................... 2,871
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Partnerships maintains several service contracts with hospitals located
in Maine and New Hampshire as well as contracts with third-party agencies. The
hospital service contracts have various lengths and payment terms. MIC-ME's
contracts are primarily based on the hospital's referral of patients to the
Partnership in return for compensation for the use of the hospital's physical
facilities. MIC-NH's contracts generally stipulate charges directly to the
hospital based on the volume of procedures performed.
The Partnerships also maintain contracts with various third-party payors
under which rates have been negotiated for service to patients who are insured
by these parties.
F-73
<PAGE>
MOBILE IMAGING CONSORTIUM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
It is anticipated that the hospital service contracts will be assumed by a
successor entity pursuant to an agreement described in note 10. The contracts
with third-party payors are expressly excluded from the agreement.
MIC-ME is involved in a dispute with the City of Portland regarding
jurisdiction for property tax assessment on the Partnership's mobile assets. The
City of Portland contends that it has jurisdiction to assess property taxes
based on the location of the Partnership's general offices. MIC-ME contends that
the mobile assets are subject to taxes from the jurisdictions in which the
assets are located on the assessment date, April 1.
The outcome of this matter is uncertain as of December 31, 1996. The
Partnership has estimated its potential liability in the event of an unfavorable
outcome and has included such amounts in the accompanying financial statements.
10. SALE OF PARTNERSHIPS' ASSETS AND ASSUMPTION OF LIABILITIES
In January, 1997 the Partnerships executed an Asset Purchase and Liabilities
Assumption Agreement (the "Agreement") with InSight Health Corp. ("InSight"), a
Delaware corporation. The Agreement stipulates that InSight will purchase all
operational assets and goodwill with the exception of cash on hand, accounts
receivable, and other items as specified in the Agreement. The Agreement also
stipulates that InSight will have no rights or liabilities with regard to the
property tax matter as described in note 9.
Pursuant to the Agreement, the Partnerships are required to deposit
collections of pre-sale accounts receivable into an escrow account up to
$1,000,000 as indemnification for InSight. The escrow will be released to the
Partnerships in equal amounts each quarter subsequent to the Agreement date,
barring any claims made by InSight as described in the Agreement.
The Agreement stipulates that InSight will assume substantially all
liabilities, contracts, leases and operating agreements upon execution of the
Agreement, except those as specifically documented in the Agreement or schedules
thereto.
Finally, the Agreement includes clauses which prohibit the corporate general
partners and the individual limited partners of the Partnerships from competing
with InSight in Maine and New Hampshire. The specific provisions dictate that
the parties will not compete in the area of nuclear magnetic resonance imaging
for a term of five years and in the area of CT scanning for a period of three
years. The Agreement also includes consulting and non-compete provisions for
Joseph J. Bean, individually, and Joseph J. Bean Associates, the management
agent of the Partnerships.
F-74
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINING BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
COMBINED
MIC-NEW DECEMBER 31,
MIC-MAINE HAMPSHIRE ELIMINATIONS 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 271,260 $ 110,331 $ -- $ 381,591
Accounts receivable, net................................. 1,220,066 130,258 -- 1,350,324
Prepaid expenses and other current assets................ 155,298 22,042 -- 177,340
Due from affiliates...................................... -- 1,315 (1,315) --
------------ ------------ ------------ ------------
Total current assets................................... 1,646,624 263,946 (1,315) 1,909,255
Property and equipment:
Leasehold improvements................................. 2,501 -- -- 2,501
Equipment.............................................. 2,664,599 110,769 -- 2,775,368
Equipment under capital leases......................... 1,944,195 2,162,317 -- 4,106,512
Furniture and fixtures................................. 7,592 -- -- 7,592
------------ ------------ ------------ ------------
4,618,887 2,273,086 -- 6,891,973
Less accumulated depreciation and amortization......... 3,714,639 1,486,684 -- 5,201,323
------------ ------------ ------------ ------------
Net property and equipment............................. 904,248 786,402 -- 1,690,650
Other assets, net........................................ -- 12,386 -- 12,386
------------ ------------ ------------ ------------
$ 2,550,872 $ 1,062,734 $ (1,315) $3,612,291
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses.................... $ 232,912 $ 14,503 $ -- $ 247,415
Due to affiliates........................................ 1,315 -- (1,315) --
Current portion of long-term debt........................ 114,900 16,117 -- 131,017
Current portion of capital lease obligations............. 532,156 545,576 -- 1,077,732
------------ ------------ ------------ ------------
Total current liabilities.............................. 881,283 576,196 (1,315) 1,456,164
Long-term debt, less current portion..................... 67,555 -- -- 67,555
Obligations under capital leases, less current portion... 47,118 407,127 -- 454,245
Partners' capital........................................ 1,554,916 79,411 -- 1,634,327
------------ ------------ ------------ ------------
$ 2,550,872 $ 1,062,734 $ (1,315) $3,612,291
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-75
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINING BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
COMBINED
MIC-NEW DECEMBER 31,
MIC-MAINE HAMPSHIRE ELIMINATIONS 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 780,033 $ 192,101 $ -- $ 972,134
Accounts receivable, net................................. 962,906 106,631 -- 1,069,537
Prepaid expenses and other current assets................ 139,881 24,250 -- 164,131
Due from affiliates...................................... 34,106 -- (34,106) --
------------ ------------ ------------ ------------
Total current assets................................... 1,916,926 322,982 (34,106) 2,205,802
Property and equipment:
Leasehold improvements................................. 2,501 -- -- 2,501
Equipment.............................................. 2,432,798 85,519 -- 2,518,317
Equipment under capital leases......................... 1,808,893 1,935,067 -- 3,743,960
Furniture and fixtures................................. 7,592 -- -- 7,592
------------ ------------ ------------ ------------
4,251,784 2,020,586 -- 6,272,370
Less accumulated depreciation and amortization......... 3,001,415 1,025,538 -- 4,026,953
------------ ------------ ------------ ------------
Net property and equipment............................. 1,250,369 995,048 -- 2,245,417
Other assets, net........................................ 16,080 22,294 -- 38,374
------------ ------------ ------------ ------------
$ 3,183,375 $ 1,340,324 $ (34,106) $4,489,593
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses.................... $ 303,520 $ 35,124 $ -- $ 338,644
Due to affiliates........................................ -- 34,106 (34,106) --
Current portion of long-term debt........................ 191,395 17,598 -- 208,993
Current portion of capital lease obligations............. 381,593 385,220 -- 766,813
------------ ------------ ------------ ------------
Total current liabilities.............................. 876,508 472,048 (34,106) 1,314,450
Obligations under capital leases, less current portion... 468,192 754,429 -- 1,222,621
Partners' capital........................................ 1,838,675 113,847 -- 1,952,522
------------ ------------ ------------ ------------
$ 3,183,375 $ 1,340,324 $ (34,106) $4,489,593
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-76
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED
MIC-NEW DECEMBER 31,
MIC-MAINE HAMPSHIRE ELIMINATIONS 1995
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Scan revenue........................................ $ 5,592,590 $ 1,707,035 $ -- $7,299,625
Interest............................................ 8,119 1,145 -- 9,264
Other............................................... 154,873 32,270 (48,000) 139,143
------------ --------------- ------------ ------------
Total revenue..................................... 5,755,582 1,740,450 (48,000) 7,448,032
Expenses:
Payroll, fringe and related taxes................... 746,493 261,080 -- 1,007,573
Management fees..................................... 90,159 57,106 -- 147,265
Hospital maintenance fees........................... 141,175 -- -- 141,175
Professional fees................................... 215,099 52,892 -- 267,991
Tractor expenses.................................... 68,702 14,881 -- 83,583
Repairs and maintenance............................. 334,216 175,069 -- 509,285
Cryogens............................................ 60,250 56,527 -- 116,777
Film and medical supplies........................... 458,991 10,508 -- 469,499
Insurance........................................... 84,785 41,474 -- 126,259
Utilities........................................... 71,719 49,244 (48,000) 72,963
Rent................................................ 30,266 -- -- 30,266
Property taxes...................................... 53,316 -- -- 53,316
Bad debts........................................... 198,370 -- -- 198,370
Depreciation........................................ 713,224 461,146 -- 1,174,370
Amortization........................................ 14,100 9,909 -- 24,009
Interest............................................ 92,603 97,321 -- 189,924
Other............................................... 140,873 62,729 -- 203,602
------------ --------------- ------------ ------------
Total operating expenses.......................... 3,514,341 1,349,886 (48,000) 4,816,227
------------ --------------- ------------ ------------
Net income.......................................... $ 2,241,241 $ 390,564 $ -- $2,631,805
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
</TABLE>
F-77
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMBINED
MIC-NEW DECEMBER 31,
MIC-MAINE HAMPSHIRE ELIMINATIONS 1995
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Scan revenue........................................ $ 4,863,716 $ 1,635,450 $ -- $6,499,166
Interest............................................ 24,999 2,992 -- 27,991
Other............................................... 105,192 1,801 (48,000) 58,9933
------------ --------------- ------------ ------------
Total revenue..................................... 4,993,907 1,640,243 (48,000) 6,586,150
Expenses:
Payroll, fringe and related taxes................... 709,021 266,113 -- 975,134
Management fees..................................... 86,038 54,691 -- 140,729
Hospital maintenance fees........................... 129,247 -- -- 129,247
Professional fees................................... 124,097 35,696 -- 159,793
Tractor expenses.................................... 64,631 -- -- 64,631
Repairs and maintenance............................. 311,408 161,389 -- 472,797
Cryogens............................................ 54,000 56,527 -- 110,527
Film and medical supplies........................... 333,859 15,421 -- 349,280
Insurance........................................... 82,143 42,503 -- 124,646
Utilities........................................... 69,575 49,089 (48,000) 70,664
Rent................................................ 36,841 -- -- 36,841
Property taxes...................................... 88,006 -- -- 88,006
Bad debts........................................... -- -- -- 198,370
Depreciation........................................ 863,542 418,758 -- 1,282,300
Amortization........................................ 24,170 9,909 -- 34,079
Interest............................................ 166,611 124,144 -- 290,755
Other............................................... 100,103 59,868 -- 159,971
------------ --------------- ------------ ------------
Total operating expenses.......................... 3,243,292 1,294,108 (48,000) 4,489,400
------------ --------------- ------------ ------------
Net income............................................ $ 1,750,615 $ 346,135 $ -- $2,096,750
------------ --------------- ------------ ------------
------------ --------------- ------------ ------------
</TABLE>
F-78
<PAGE>
MOBILE IMAGING CONSORTIUM
COMBINING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMBINED
MIC-NEW DECEMBER 31,
MIC-MAINE HAMPSHIRE ELIMINATIONS 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Scan revenue........................................... $ 4,563,281 $ 1,418,348 $ -- $5,981,629
Interest............................................... 7,898 987 -- 8,885
Other.................................................. 167,465 -- (93,365) 74,100
------------ ------------ ------------ ------------
Total revenue........................................ 4,738,644 1,419,335 (93,365) 6,064,614
Expenses:
Payroll, fringe and related taxes...................... 728,913 270,625 -- 999,538
Management fees........................................ 78,000 52,000 -- 130,000
Hospital maintenance fees.............................. 115,554 -- -- 115,554
Professional fees...................................... 105,410 23,187 -- 128,597
Tractor expenses....................................... 65,573 -- -- 65,573
Repairs and maintenance................................ 342,652 136,544 -- 479,196
Cryogens............................................... 54,000 55,000 -- 109,000
Film and medical supplies.............................. 313,867 13,540 -- 327,407
Insurance.............................................. 81,863 42,236 -- 124,099
Rent................................................... 36,471 -- -- 36,471
Utilities.............................................. 68,253 49,203 (48,000) 69,456
Property Taxes......................................... 86,969 -- -- 86,969
Bad debts.............................................. 125,387 -- -- 125,387
Depreciation........................................... 892,060 397,717 -- 1,289,777
Amortization........................................... 24,170 9,908 -- 34,078
Interest............................................... 227,885 159,552 -- 387,437
Other.................................................. 113,933 106,252 (45,365) 174,820
------------ ------------ ------------ ------------
Total operating expenses............................. 3,460,960 1,315,764 (93,365) 4,683,359
------------ ------------ ------------ ------------
Net income............................................... $ 1,277,684 $ 103,571 $ -- $1,381,255
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-79
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH SOLICITATION IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary........................................ 1
Risk Factors................................... 13
Use of Proceeds................................ 22
Exchange Offer................................. 23
Capitalization................................. 29
Unaudited Pro Forma Combined Condensed
Financial Statements.......................... 30
Selected Historical Consolidated Financial and
Operating Data................................ 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 39
The Diagnostic Imaging Industry................ 52
Business....................................... 55
Management..................................... 68
Executive Compensation......................... 71
Security Ownership of Certain Beneficial Owners
and Management................................ 76
Certain Relationships and Related
Transactions.................................. 84
Description of Senior Credit Facilities........ 87
Description of Notes........................... 88
Description of Preferred Stock................. 120
Certain Federal Income Tax Considerations...... 122
Plan of Distribution........................... 124
Legal Matters.................................. 125
Experts........................................ 125
Index to InSight Health Services Corp.
Consolidated Financial Statements............. F-1
Index to Signal Medical Services, Inc.
Financial Statements.......................... F-46
Index to Mobile Imaging Consortium Financial
Statements.................................... F-64
</TABLE>
[LOGO]
HEALTH SERVICES CORP.
$100,000,000
9 5/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
--------------
PROSPECTUS
--------------
______, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Bylaws provide that the directors and
officers of the Company may be indemnified and held harmless by the Company to
the fullest extent permitted by the General Corporation Law of the State of
Delaware against certain liabilities that those persons may incur in their
capacities as directors or officers. The Company has also entered into
indemnification agreements with each of its directors and executive officers.
See "Executive Compensation--Indemnification Agreements." In addition, the
Company's Certificate of Incorporation states that, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, a director of
the Company shall not be liable to the Company or its stockholders for monetary
damages for a breach of fiduciary duty as a director.
A policy of directors' and officers' liability insurance is maintained by
the Company which insures directors and officers for losses as a result of
claims against the directors and officers of the Company in their capacity as
directors and officers and also reimburses the Company for payments made
pursuant to the indemnity provisions described above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Certificate of Incorporation of InSight, previously filed and incorporated herein by reference from the
Company's Registration Statement on Form S-4 (No. 333-02935), filed April 24, 1996.
*3.2 Amended and Restated Bylaws of InSight, previously filed and incorporated herein by reference from the
Company's Annual Report on Form 10-K filed October 14, 1997.
*3.3 Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series B, of
InSight, previously filed and incorporated herein by reference from the Company's Annual Report on Form
10-K, filed October 14, 1997.
*3.4 Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series C, of
InSight, previously filed and incorporated herein by reference from the Company's Annual Report on Form
10-K, filed October 14, 1997.
*3.5 Certificate of Designation, Preferences and Rights of Convertible Preferred Stock, Series D, of
InSight, previously filed and incorporated herein by reference from the Company's Annual Report on Form
10-K, filed October 14, 1997.
4.1 Indenture, dated as of June 1, 1998, by and among the Company, the Subsidiary Guarantors and State
Street Bank and Trust Company, as Trustee (including forms of the Outstanding Notes and Exchange
Notes).
4.2 Form of Outstanding Note (contained in Exhibit 4.1).
4.3 Form of Exchange Note (contained in Exhibit 4.1).
4.4 Purchase Agreement, dated as of June 9, 1998, by and among the Company, the Subsidiary Guarantors and
the Initial Purchasers.
4.5 Registration Rights Agreement, dated as of June 12, 1998, by and among the Company, the Subsidiary
Guarantors and the Initial Purchasers.
+5.1 Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC as to the legality of the securities being
registered.
10.1 InSight's 1998 Employee Stock Option Plan.
10.2 InSight's 1997 Management Stock Option Plan.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.3 Credit Agreement dated as of October 14, 1997, as amended November 17, 1997, December 19, 1997, March
23, 1998 and amended and restated as of June 12, 1998, among the Company, the Subsidiary Guarantors (as
defined therein), NationsBank, N.A., as Agent, and the Lenders (as defined therein).
*10.4 Agreement and Plan of Merger dated as of February 26, 1996, by and among InSight, AHS, AHSC Acquisition
Company, MHC and MXHC Acquisition Company, previously filed and incorporated herein by reference from
the Company's Registration Statement on Form S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.5 Asset Purchase and Liabilities Assumption Agreement dated as of January 3, 1997, by and among InSight
Health Corp., Mobile Imaging Consortium, Limited Partnership and Mobile Imaging Consortium-New
Hampshire, previously filed and incorporated herein by reference from the Company's Current Report on
Form 8-K, filed June 16, 1997.
*10.6 Amendment No. 1 to Asset Purchase and Liabilities Assumption Agreement dated as of May 30, 1997, by and
among InSight Health Corp., Mobile Imaging Consortium--New Hampshire, previously filed and incorporated
herein by reference from the Company's Current Report on Form 8-K, filed June 16, 1997.
*10.7 Asset Purchase and Liabilities Assumption Agreement dated as of June 20, 1997, by and between InSight
Health Corp. and Desmond L. Fischer, M.D. (d/b/a Chattanooga Outpatient Center), previously filed and
incorporated herein by reference from the Company's Current Report on Form 8-K, filed July 14, 1997.
*10.8 Master Debt Restructuring Agreement by and among General Electric Company acting through GE Medical
Systems, General Electric Capital Corporation, InSight, AHS and MHC (without schedules and exhibits)
previously filed and incorporated herein by reference from the Company's Registration Statement on Form
S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.9 Registration Rights Agreement by and between General Electric Company acting through GE Medical Systems
and InSight, previously filed and incorporated herein by reference from the Company's Registration
Statement on Form S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.10 Master Service Agreement Addendum by and among General Electric Company acting through GE Medical
Systems, InSight, AHS and MHC, previously filed and incorporated herein by reference from the Company's
Registration Statement on Form S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.11 InSight's 1996 Directors' Stock Option Plan, previously filed and incorporated herein by reference from
the Company's Registration Statement on Form S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.12 InSight's 1996 Employee Stock Option Plan, previously filed and incorporated herein by reference from
the Company's Registration Statement on Form S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.13 Form of Indemnification Agreement between InSight and each of its directors and executive officers,
previously filed and incorporated herein by reference from the Company's Registration Statement on Form
S-4 (Registration Statement No. 333-02935), filed April 29, 1996.
*10.14 Agreements and form of warrants with holders of Series B Preferred Stock of AHS, previously filed and
incorporated herein by reference from the Company's Registration Statement on Form S-4 (Registration
No. 333-02935), filed April 29, 1996.
*10.15 AHS 1987 Stock Option Plan, previously filed and incorporated herein by reference from Post-Effective
Amendment No. 4 on Form S-1 to AHS's Registration Statement (Registration No. 33-00088), filed
September 5, 1985.
*10.16 AHS 1992 Option and Incentive Plan, previously filed and incorporated herein by reference from AHS's
Registration Statement on Form S-8 (Registration No. 33-51532), filed September 1, 1992.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.17 MHC 1989 Stock Option Plan, Amended and Restated as of October 28, 1993, previously filed and
incorporated herein by reference from MHC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
*10.18 Letter Agreement for Consulting Services between InSight and Frank E. Egger dated March 28, 1996,
previously filed and incorporated herein by reference from the Company's Registration Statement on Form
S-4 (Registration No. 333-02935), filed April 29, 1996.
*10.19 Executive Employment Agreement between InSight and E. Larry Atkins dated as of February 25, 1996,
previously filed and incorporated herein by reference from the Company's Registration Statement on Form
S-4 (Registration No. 333-02935), filed May 9, 1996.
*10.20 Executive Employment Agreement between InSight and Glenn P. Cato dated as of May 1, 1996, previously
filed and incorporated herein by reference from the Company's Amendment No. 1 to the Registration
Statement on Form S-4 (Registration No. 333-02935), filed May 9, 1996.
*10.21 Form of Executive Employment Agreement between InSight and various officers of InSight, previously
filed and incorporated herein by reference from the Company's Registration Statement on Form S-4
(Registration No. 333-02935), filed April 29, 1996.
*10.22 Nonqualified Stock Option Agreement, dated August 17, 1994, between MHC and Leonard H. Habas,
previously filed and incorporated herein by reference from the Company's Annual Report on Form 10-K for
the six months ended June 30, 1996.
*10.23 Nonqualified Stock Option Agreement, dated August 17, 1994, between MHC and Ronald G. Pantello,
previously filed and incorporated herein by reference from the Company's Annual Report on Form 10-K for
the six months ended June 30, 1996.
*10.24 Warrant Certificate No. S-1 dated August 14, 1996 in the name of Shattuck Hammond Partners, Inc.,
previously filed and incorporated herein by reference from the Company's Annual Report on Form 10-K,
filed October 14, 1997.
*10.25 Warrant Certificate No. L-1 dated March 11, 1997 in the name of Anthony J. LeVecchio, previously filed
and incorporated herein by reference from the Company's Annual Report on Form 10-K, filed October 14,
1997.
*10.26 Form of Stock Option Agreement between InSight and non-employee directors of InSight relating to
InSight's 1996 Directors' Stock Option Plan, previously filed and incorporated herein by reference from
the Company's Annual Report on Form 10-K, filed October 14, 1997.
*10.27 Form of Stock Option Agreement between InSight and employees of InSight relating to InSight's 1996
Employee Stock Option Plan, previously filed and incorporated herein by reference from the Company's
Annual Report on Form 10-K, filed October 14, 1997.
*10.28 Agreement and Plan of Merger dated as of April 15, 1998 among InSight, SMSI Acquisition Company, Signal
Medical Services, Inc., SMSI Holdings, Inc., Brian P. Stone, Thomas W. Crucitti and Todd Stowell,
previously filed and incorporated herein by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, filed May 13, 1998.
*10.29 First Amendment to Agreement and Plan of Merger dated as of May 15, 1998 by and among InSight, SMSI
Acquisition Company, Signal Medical Services, Inc., SMSI Holdings, Inc., Brian P. Stone, Thomas W.
Crucitti and Todd Stowell, previously filed and incorporated herein by reference from the Company's
Current Report on Form 8-K, filed June 2, 1998.
*10.30 Second Amendment to Agreement and Plan of Merger dated as of May 18, 1998 by and among InSight, SMSI
Acquisition Company, Signal Medical Services, Inc., SMSI Holdings, Inc., Brian P. Stone, Thomas W.
Crucitti and Todd Stowell, previously filed and incorporated herein by reference from the Company's
Current Report on Form 8-K, filed June 2, 1998.
+12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
+23.1 Consent of Arent Fox Kintner Plotkin & Kahn, PLLC (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Deloitte & Touche LLP.
23.5 Consent of Baker Newman & Noyes LLC.
24.1 Powers of Attorney for the Company (contained on the signature pages of this Registration Statement).
+25.1 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letters to DTC Participants.
99.4 Form of Letter to Clients and Form of Instruction to Book-Entry Transfer Participant.
</TABLE>
- ------------------------
+ to be filed by amendment
* previously filed
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of the Company is filed herewith:
Report of Independent Public Accountants
II. Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
II-4
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(d) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(f) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form (including
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request), within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means; and to arrange or
provide for a facility in the United States for the purpose of responding to
such requests; and
(g) To supply by means of a post-effective amendment all information
concerning a transaction and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach,
California, on July 31, 1998.
<TABLE>
<S> <C> <C>
INSIGHT HEALTH SERVICES CORP.
By: /s/ E. LARRY ATKINS
-----------------------------------------
Name: E. Larry Atkins
Office: President and Chief Executive
Officer
</TABLE>
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
E. Larry Atkins and Thomas V. Croal his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL E. ASPINWALL
- ------------------------------ Director July 31, 1998
Michael E. Aspinwall
Director, President and
/s/ E. LARRY ATKINS Chief Executive Officer
- ------------------------------ (Principal Executive July 31, 1998
E. Larry Atkins Officer)
/s/ GRANT R. CHAMBERLAIN
- ------------------------------ Director July 31, 1998
Grant R. Chamberlain
- ------------------------------ Director July 31, 1998
David W. Dupree
- ------------------------------ Director, Chairman of the
Frank E. Egger Board
/s/ LEONARD H. HABAS
- ------------------------------ Director July 31, 1998
Leonard H. Habas
- ------------------------------ Director July 31, 1998
Ronald G. Pantello
/s/ GLENN A. YOUNGKIN
- ------------------------------ Director July 31, 1998
Glenn A. Youngkin
Senior Executive Vice
President, Chief
/s/ THOMAS V. CROAL Operating Officer and
- ------------------------------ Chief Financial Officer July 31, 1998
Thomas V. Croal (Principal Financial and
Accounting Officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, each of the
following registrants have duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Newport Beach, California, on July 31, 1998.
<TABLE>
<S> <C>
INSIGHT HEALTH CORP.
RADIOSURGERY CENTERS, INC.
MAXUM HEALTH SERVICES CORP.
QUEST FINANCIAL SERVICES, INC.
MTS ENTERPRISES, INC.
DIAGNOSTEMPS, INC.
MAXUM HEALTH CORP.
MAXUM HEALTH SERVICES OF NORTH TEXAS, INC.
NDDC, INC.
DIAGNOSTIC SOLUTIONS CORP.
MAXUM HEALTH SERVICES OF ARLINGTON, INC.
MAXUM HEALTH SERVICES OF DALLAS, INC.
OPEN MRI, INC.
RADIOLOGY SERVICES CORP.
MISSISSIPPI MOBILE TECHNOLOGY, INC.
SIGNAL MEDICAL SERVICES, INC.
By: /s/ E. LARRY ATKINS
--------------------------------------------
E. Larry Atkins
Sole Director (Principal Executive Officer)
By: /s/ BRIAN G. DRAZBA
--------------------------------------------
Brian G. Drazba
Senior Vice President--Finance and
Controller (Principal Financial and
Accounting Officer)
</TABLE>
II-8
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Brian G.
Drazba his true and lawful attorney-in-fact and agent, he acting alone, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ E. LARRY ATKINS
- ------------------------------ Sole Director (Principal July 31, 1998
E. Larry Atkins Executive Officer)
</TABLE>
II-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InSight Health Services Corp.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements for INSIGHT HEALTH SERVICES CORP. included in this Form
10-K and have issued our report thereon dated October 14, 1997. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index to consolidated financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
October 14, 1997
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES OTHER PERIOD
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
December 31, 1994:
Allowance for doubtful accounts..................................... $1,664 $ 1,124 $ (1,233)(A) $1,555
Allowance for contractual adjustments............................... 1,030 2,692 (2,384)(A) 1,338
Inventory reserve................................................... 830 -- (830)(B) --
------ ---------- -------- ----------
Total............................................................... $3,524 $ 3,816 $ (4,447) $2,893
------ ---------- -------- ----------
------ ---------- -------- ----------
December 31, 1995:
Allowance for doubtful accounts..................................... $1,555 $ 1,669 $ (1,489)(A) $1,735
Allowance for contractual adjustments............................... 1,338 4,512 (4,302)(A) 1,548
------ ---------- -------- ----------
Total............................................................... $2,893 $ 6,181 $ (5,791) $3,283
------ ---------- -------- ----------
------ ---------- -------- ----------
June 30, 1996:
Allowance for doubtful accounts..................................... $1,735 $ 617 $ (63)(A)(C) $2,289
Allowance for contractual adjustments............................... 1,548 3,440 531(A)(C) 5,519
------ ---------- -------- ----------
Total............................................................... $3,283 $ 4,057 $ 468 $7,808
------ ---------- -------- ----------
------ ---------- -------- ----------
June 30, 1997:
Allowance for doubtful accounts..................................... $2,289 $ 1,506 $ (1,453)(A) $2,342
Allowance for contractual adjustments............................... 5,519 17,483 (17,853)(A) 5,149
------ ---------- -------- ----------
Total............................................................... $7,808 $18,989 $(19,305) $7,491
------ ---------- -------- ----------
------ ---------- -------- ----------
</TABLE>
- ------------------------
(A) Write offs of uncollectible accounts.
(B) MHC sold all inventory on hand in 1994.
(C) In connection with the Merger, MHC acquired the valuation and qualifying
accounts related to IHC.
S-2
<PAGE>
Exhibit 4.1
INDENTURE, dated as of June 1, 1998 among InSight Health
Services Corp., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), the Subsidiary Guarantors (as
hereinafter defined) and State Street Bank and Trust Company, N.A., a national
banking association duly organized and existing under the laws of the United
States of America, as trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of
9 5/8% Senior Subordinated Notes Due 2008 (herein called the "Initial Notes")
and 9 5/8% Series B Senior Subordinated Notes Due 2008 (the "Exchange Notes"
and, together with the Initial Notes, the "Notes") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
Each of the Subsidiary Guarantors has duly authorized its
guarantee of the Notes, and to provide therefor each of them has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company and the Subsidiary Guarantors, each
in accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
<PAGE>
2
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Two, Eight, Ten and
Twelve are defined in that Article.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person is merged with or into the Company or becomes a
Subsidiary or (b) assumed in connection with the acquisition of assets from such
Person.
"Act", when used with respect to any Holder, has the meaning
specified in Section 105.
"Additional Notes" has the meaning specified in Section 312.
"Affiliate" means, with respect to any specified person, (a)
any other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person or (b) any other
person that owns, directly or indirectly, 5% or more of such specified person's
Capital Stock or any executive officer or director of any such specified person
or other person or, with respect to any natural person, any person having a
relationship with such person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified person, means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Bank" means NationsBank, N.A. and its successors under
the Amended
<PAGE>
3
Credit Agreement, in its capacity as agent.
"Amended Credit Agreement" means the Credit Agreement, dated
as of October 14, 1997, as amended as of November 17, 1997, December 19, 1997
and March 23, 1998 and to be amended as of the Closing Date, among the Company,
the lenders named therein and NationsBank, N.A., as agent, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such facility may be amended, restated, supplemented,
refinanced, extended or otherwise modified from time to time.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or similar arrangement) (collectively, a "transfer") by the
Company or any Restricted Subsidiary other than in the ordinary course of
business and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Shares of Capital Stock of any of the Company's Restricted
Subsidiaries (which shall be deemed to include the sale, grant or conveyance of
any interest in the income, profits or proceeds therefrom), in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (x) that have a fair market value in excess of $1 million
or (y) for Net Cash Proceeds in excess of $1 million. For the purposes of this
definition, the term "Asset Sale" does not include (a) any transfer of
properties or assets (i) that is governed by Sections 801 and 1011, (ii) between
or among the Company and its Restricted Subsidiaries pursuant to transactions
that do not violate any other provision of the Indenture or (iii) representing
obsolete or permanently retired equipment and facilities or (b) the sale or
exchange of equipment in connection with the purchase or other acquisition of
other equipment, in each case used in the business of the Company or its
Restricted Subsidiaries as in existence on the Closing Date or any business
determined by the Board in its good faith judgment to be reasonably related
thereto.
"Banks" means the banks and other financial institutions that
from time to time are lenders under the Amended Credit Agreement.
"Board" means the Company's Board of Directors.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
"Capital Stock" of any Person means any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such Person's equity interest (however designated),
whether now outstanding or issued after the Closing Date.
"Capitalized Lease Obligation" means, with respect to any
Person, an obligation
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4
incurred or assumed under or in connection with any capital lease of real or
personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Cash Equivalent" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than six months
from the date of acquisition, (b) U.S. dollar denominated (or foreign currency
fully hedged) time deposits, certificates of deposit, Eurodollar time deposits
or Eurodollar certificates of deposit of (i) any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million or (ii)
any bank whose short-term commercial paper rating from S&P is at least A-1 or
the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an "Approved Lender"), in each case with maturities of not
more than six months from the date of acquisition, and (c) commercial paper
issued by any Approved Lender (or by the parent company thereof) and maturing
within six months of the date of acquisition.
"Change of Control" means the occurrence of any of the
following events:
(a) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) (other than Permitted
Holders) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 50% of
the voting power of all classes of Voting Stock of the Company;
provided, however, that upon any purchase and/or subsequent conversion
by any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than Permitted Holders), which at
the time of such purchase and/or subsequent conversion neither owns nor
is acquiring any shares of Common Stock of the Company, of any of the
issued and outstanding shares of Series B Preferred Stock or Series C
Preferred Stock, the number of shares of Common Stock which shall be
deemed to be outstanding for the purpose of computing the percentage of
the voting power of all classes of Voting Stock of the Company acquired
by such "person" or "group" shall be determined on a basis that gives
effect to the conversion of both (A) the shares of Series B Preferred
Stock or Series C Preferred Stock, as applicable, that were purchased
by such "person" or "group" and (B) the shares of Series B Preferred
Stock or Series C Preferred Stock, as applicable,
that continue to be owned by Permitted Holders after such purchase
and/or conversion by such "person" or "group" (without requiring actual
conversion of any of such shares of Series B Preferred Stock or Series
C Preferred Stock by the holders thereof);
(b) the Company, either individually or in conjunction with
one or more Subsidiaries, sells, assigns, conveys, transfers, leases
or otherwise disposes of, or the Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all or substantially all of
the properties of the Company and the Subsidiaries, taken as a whole
(either in one transaction or a series of related transactions),
including Capital Stock of
<PAGE>
5
the Subsidiaries, to any person (other than the Company or a
Restricted Subsidiary);
(c) during any consecutive two-year period, individuals who
at the beginning of such period constituted the Board (together with
any new directors (i) whose election by such Board or whose nomination
for election by the stockholders of the Company was approved by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved or (ii) elected or
appointed by any of the Permitted Holders) cease for any reason to
constitute a majority of the Board then in office; or
(d) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution, other than in a transaction that
complies with the provisions described under Section 801.
"Closing Date" means the date on which the Initial Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's Common Stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such Common Stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated EBITDA" means, for any period, the sum of,
without duplication, Consolidated Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Net Income for such period: (a) Fixed Charges
for such period, plus (b) the provision for federal, state, local and foreign
income taxes of the Company and its Restricted Subsidiaries for such period,
plus (c) the aggregate depreciation and amortization expense of the Company and
its Restricted Subsidiaries for such period, plus (d) any other non-cash charges
for such period, and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets
<PAGE>
6
or accrued liabilities in the ordinary course of business; provided that fixed
charges, income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in Consolidated
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income for such
period.
"Consolidated Net Income" means, for any period, the net
income (or net loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, adjusted
to the extent included in calculating such net income or loss by excluding (a)
any net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the portion of net
income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash during such period, (d) the net income (or loss)
of any Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination and (e) the net income (but not the net loss) of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is at the date of determination
restricted, directly or indirectly, except to the extent that such net income is
actually paid to the Company or a Restricted Subsidiary thereof by loans,
advances, intercompany transfers, principal repayments or otherwise; provided
that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated Net Income will be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Consolidated
Net Income otherwise attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of such
period.
"Consolidated Tangible Assets" means, as of the date of
determination, the total assets, less goodwill and other intangibles, shown on
the balance sheet of the Company and its Restricted Subsidiaries as of the most
recent date for which such a balance sheet is available, determined on a
consolidated basis in accordance with GAAP.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at 61 Broadway, 15th Floor, New York, New York 10006,
except that with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate trust and agency
business shall be conducted.
"corporation" includes corporations, associations, companies
and business trusts.
<PAGE>
7
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees
and successors.
"Designated Senior Indebtedness" means (i) so long as the
Senior Bank Debt is outstanding, the Senior Bank Debt and (ii) thereafter, any
other Senior Indebtedness permitted under the Indenture the principal amount of
which is $25 million or more and that has been specifically designated by the
Company, in the instrument creating or evidencing such Senior Indebtedness or in
an officers' certificate delivered to the Trustee, as "Designated Senior
Indebtedness."
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board is required
to deliver a resolution of the Board, to make a finding or otherwise take action
under the Indenture, a member of the Board who does not have any material direct
or indirect financial interest in or with respect to such transaction or series
of transactions.
"Disqualified Stock" means any class or series of Capital
Stock that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes, (ii) is redeemable at the option of
the holder thereof, at any time prior to such final Stated Maturity or (iii) at
the option of the holder thereof is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity; provided that any
Capital Stock that would not constitute Disqualified Stock but for provisions
therein giving holders thereof the right to cause the issuer thereof to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes will
not constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than Sections 1015 and 1016 hereof, and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the provisions contained in
Sections 1015 and 1016 hereof.
"Equity Offering" means a public or private offering of
Capital Stock (other than Disqualified Stock) of the Company.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
<PAGE>
8
"Exchange Notes" has the meaning stated in the first recital
of this Indenture and refers to any Exchange Notes containing terms
substantially identical to the Initial Notes (except that such Exchange Notes
shall not contain terms with respect to the interest rate step-up provision and
transfer restrictions) that are issued and exchanged for the Initial Notes
pursuant to the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of the Company
and its Restricted Subsidiaries (other than Indebtedness under the Amended
Credit Agreement) outstanding on the Closing Date and listed on a schedule to
this Indenture, until such amounts are repaid.
"Facility" means any premises, together with the diagnostic
imaging and treatment equipment installed therein, used by the Company in the
conduct of the business of providing diagnostic imaging and information,
treatment and related management services.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"Fixed Charges" means, for any period, without duplication,
the sum of (a) the amount that, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs, and (v) the interest component of Capitalized Lease
Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified
Stock by the Company and any Restricted Subsidiary (to any Person other than the
Company and its Restricted Subsidiaries), computed on a tax effected basis, plus
(c) all interest on any Indebtedness of any Person guaranteed by the Company or
any of its Restricted Subsidiaries or secured by a lien on the assets of the
Company or any of its Restricted Subsidiaries; provided, however, that Fixed
Charges will not include (i) any gain or loss from extinguishment of debt,
including the write-off of debt issuance costs, and (ii) the fixed charges of a
Restricted Subsidiary to the extent (and in the same proportion) that the net
income of such Subsidiary was excluded in calculating Consolidated Net Income
pursuant to clause (e) of the definition thereof for such period.
"Fixed Charge Coverage Ratio" means, for any period, the ratio
of Consolidated
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9
EBITDA for such period to Fixed Charges for such period.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a state thereof
or the District of Columbia and that has no material operations or assets in the
United States.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, consistently
applied, that are in effect on the Closing Date.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person entered into in the ordinary course of business under
(i) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in interest rates, and (ii) forward exchange agreements,
currency swap, currency option and other similar financial agreements or
arrangements designed to protect such Person against, or manage the exposure of
such Person to, fluctuations in foreign currency exchange rates.
"Holder" means the Person in whose name a Note is, at the time
of determination, registered on the Registrar's books.
"Indebtedness" means (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, (a) every obligation of such Person for money
borrowed, (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (d) every obligation of such
Person issued or assumed as the deferred purchase price of property or services,
(e) the attributable value of every Capitalized Lease Obligation of such Person,
(f) all Disqualified Stock of such Person valued at its maximum fixed repurchase
price, plus accrued and unpaid dividends, (g) all obligations of such Person
under or in respect of Hedging Obligations, and (h) every obligation of the type
referred to in clauses (a) through (g) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed.
For purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness is required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair
<PAGE>
10
market value of such Disqualified Stock, such fair market value will be
determined in good faith by the board of directors of the issuer of such
Disqualified Stock. Notwithstanding the foregoing, trade accounts payable and
accrued liabilities arising in the ordinary course of business and any liability
for federal, state or local taxes or other taxes owed by such Person will not be
considered Indebtedness for purposes of this definition.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Notes" has the meaning stated in the first recital of
this Indenture.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"Investment" in any Person means, (i) directly or indirectly,
any advance, loan or other extension of credit (including, without limitation,
by way of guarantee or similar arrangement) or capital contribution to such
Person, the purchase or other acquisition of any stock, bonds, notes, debentures
or other securities issued by such Person, the acquisition (by purchase or
otherwise) of all or substantially all of the business or assets of such Person,
or the making of any investment in such Person, (ii) the designation of any
Restricted Subsidiary as an Unrestricted Subsidiary and (iii) the fair market
value of the Capital Stock (or any other Investment), held by the Company or any
of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon, or with
respect to, any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired. A Person will be deemed to own subject to a
Lien any property that such Person has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement, capital lease or
other title retention agreement.
"Maturity", when used with respect to any Note, means the date
on which the principal of such Note or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents, including payments in
respect of deferred payment
<PAGE>
11
obligations when received in the form of, or stock or other assets when disposed
for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted Subsidiary), net
of (a) brokerage commissions and other fees and expenses (including fees and
expenses of legal counsel and investment banks) related to such Asset Sale, (b)
provisions for all taxes payable as a result of such Asset Sale, (c) payments
made to retire Indebtedness where such Indebtedness is secured by the assets
that are the subject of such Asset Sale, (d) amounts required to be paid to any
Person (other than the Company or any Restricted Subsidiary) owning a beneficial
interest in the assets that are subject to the Asset Sale and (e) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the seller after such Asset
Sale, including pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Non-payment Event of Default" means any event (other than a
Payment Event of Default) the occurrence of which entitles one or more Persons
to accelerate the maturity of any Designated Senior Indebtedness.
"Non-Recourse Indebtedness" means Indebtedness of a Permitted
Joint Venture (i) as to which neither the Company nor any of its Restricted
Subsidiaries (other than such Permitted Joint Venture), (a) provides any
guarantee or credit support of any kind (including any undertaking, guarantee,
indemnity, agreement or instrument that would constitute Indebtedness) or (b) is
directly or indirectly liable (as a guarantor or otherwise), and (ii) the
obligees of which will have recourse for repayment of the principal of and
interest on such Indebtedness and any fees, indemnities, expense reimbursements
or other amount of whatsoever nature accrued or payable in connection with such
Indebtedness solely against the assets of such Permitted Joint Venture and not
against any of the assets of the Company or its Restricted Subsidiaries (other
than such Permitted Joint Venture).
"Non-U.S. Person" means a Person that is not a "U.S. Person"
as defined in Regulation S.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture. For all purposes of this Indenture, the term "Notes" shall
include any Exchange Notes to be issued and exchanged for any Notes pursuant to
the Registration Rights Agreement and this Indenture and, for purposes of this
Indenture, all Initial Notes and Exchange Notes shall vote together as one
series of Notes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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12
"Officers' Certificate" means a certificate signed by the
Chairman, the Chief Executive Officer, President or any Vice President, and by
the Chief Financial Officer, Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary of the Company, or any Subsidiary Guarantor, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, including an employee of the Company, and who
shall be acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of
the date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered
to the Trustee for cancellation; and
(b) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Notes;
provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(c) Notes, except to the extent provided in Sections 1202
and 1203, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article Twelve; and
(d) Notes which have been paid pursuant to Section 308 or
in exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the
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13
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness that ranks pari passu in right of payment to the Notes and (b) with
respect to any Subsidiary Guarantee, Indebtedness that ranks pari passu in right
of payment to such Subsidiary Guarantee.
"Paying Agent" means State Street Bank and Trust Company,
N.A., and any successor (including the Company acting as Paying Agent)
authorized by the Company to pay the principal of (and premium, if any) or
interest on any Notes on behalf of the Company.
"Payment Default" has the meaning specified in Section 501.
"Payment Event of Default" has the meaning specified in
Section 1403.
"Permitted Business" means the Business conducted by the
Company, its Restricted Subsidiaries and Permitted Joint Ventures as of the
Closing Date and any and all diagnostic imaging and information businesses that
in the good faith judgment of the Board are reasonably related thereto.
"Permitted Holders" means (i) Carlyle Partners II, L.P., a
Delaware limited partnership, Carlyle Partners III, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands exempted
limited partnership, Carlyle International Partners III, L.P., a Cayman Islands
exempted limited partnership, C/S International Partners, a Cayman Islands
general partnership, State Board of Administration of Florida, a separate
account maintained pursuant to an Investment Management Agreement dated as of
September 6, 1996 among the State Board of Administration of Florida, Carlyle
Investment Group, L.P. and Carlyle Investment Management, L.L.C., Carlyle
Investment Group, L.P., a Delaware limited partnership, Carlyle-InSight
International Partners, L.P., a Cayman Islands exempted limited partnership, and
Carlyle-InSight Partners, L.P., a Delaware limited partnership, and their
Affiliates (collectively, "Carlyle Affiliates") and (ii) General Electric
Company, a New York corporation, and its Affiliates (collectively, "GE
Affiliates").
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of
one year or less issued or directly and fully guaranteed or insured by
the United States or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in
support thereof); (ii) certificates of deposit, Euro-dollar time
deposits or acceptances with a maturity of one year or less of any
financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000;
(iii) any shares of money market mutual or similar funds having assets
in excess of $500,000,000; (iv) repurchase obligations with a term not
exceeding
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14
seven days for underlying securities of the types described
in clauses (i) and (ii) above entered into with any financial
institution meeting the qualifications specified in clause (ii) above;
and (v) commercial paper with a maturity of one year or less issued by
a corporation that is not an Affiliate of the Company and is organized
under the laws of any state of the United States or the District of
Columbia and having a rating (A) from Moody's of at least P-1 or (B)
from S&P of at least A-1;
(b) Investments by the Company or any Wholly Owned
Restricted Subsidiary in another Person, if as a result of such
Investment (i) such other Person becomes a Restricted Subsidiary that
is a Subsidiary Guarantor or (ii) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially
all of its assets to, the Company or a Restricted Subsidiary that is a
Subsidiary Guarantor;
(c) Investments by the Company or a Restricted Subsidiary
in the Company or a Subsidiary Guarantor;
(d) Investments in existence on the Closing Date;
(e) promissory notes or other evidence of
Indebtedness received as a result of Asset Sales permitted under
Section 1016;
(f) loans or advances to officers, directors and
employees of the Company or any of its Restricted Subsidiaries made in
the ordinary course of business after the Closing Date in an amount not
to exceed $1 million in the aggregate at any one time outstanding;
(g) any Investment by the Company or any Restricted
Subsidiary of the Company in Permitted Joint Ventures made after the
Closing Date having an aggregate fair market value, when taken together
with all other Investments made pursuant to this clause (g) that are at
the time outstanding, not exceeding in the aggregate 5% of the
Consolidated Tangible Assets of the Company as of the last day of the
most recent full fiscal quarter ending immediately prior to the date of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent
changes in value); and
(h) other Investments that do not exceed $20 million in the
aggregate at any one time outstanding.
"Permitted Joint Venture" means any joint venture, partnership
or other Person designated by the Board, (i) at least 50% of whose Capital Stock
with voting power under ordinary circumstances to elect directors (or Persons
having similar or corresponding powers and responsibilities) is at the time
owned (beneficially or directly) by the Company and/or by one or more Restricted
Subsidiaries of the Company and if the Company owns more than 50% of the
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15
Capital Stock of the Permitted Joint Venture, such Permitted Joint Venture is a
Restricted Subsidiary of the Company, (ii) all of whose Indebtedness is
Non-Recourse Indebtedness, (iii) which is engaged in a Permitted Business, and
(iv) in which any Investment made as a result of designating such Person a
Permitted Joint Venture will not violate Section 1011; provided that each of
Berwyn Magnetic Resonance Center, LLC, Garfield Imaging Center, Ltd., MRI
Associates, L.P., Tom's River Imaging Associates, L.P., St. John's Regional
Imaging Center, LLC, Dublin Diagnostic Imaging, LLC, Buckhead Imaging, LLC,
MedFinancial, LLC, Connecticut Lithotripsy LLC, Northern Indiana Oncology Center
of Porter Memorial Hospital, LLC and Northwest Magnetic Imaging shall be deemed
to be a Permitted Joint Venture. Any such designation (other than with respect
to the Persons identified in the preceding sentence) shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution giving
effect to such designation and an officer's certificate certifying that such
designation complied with the foregoing provisions.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded plus the lesser of
the amount of any premium required to be paid in connection with such
refinancings pursuant to the terms of such indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
refinancing (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary of the Company that is the obligor
on the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the
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16
same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, partnership interests, participation, rights in or other
equivalents (however designated) of such Person's preferred or preference stock,
whether now outstanding or issued after the Closing Date, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
"purchase money obligations" of any Person means any
obligations of such Person to any seller or any other Person incurred or assumed
to finance the construction and/or acquisition of real or personal property to
be used in the business of such Person or any of its Subsidiaries in an amount
that is not more than 100% of the cost of such property, and incurred within 90
days after the date of such construction or acquisition (excluding accounts
payable to trade creditors incurred in the ordinary course of business);
provided, however, that any Lien on such Indebtedness shall not extend to any
property other than the property so acquired or constructed.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Qualified Equity Interest" means any Qualified Stock and all
warrants, options or other rights to acquire Qualified Stock (but excluding any
debt security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital
Stock of such Person, other than Disqualified Stock.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Registrar" means State Street Bank and Trust Company and any
successor authorized by the Company to act as Registrar.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company, the Subsidiary Guarantors and the Initial
Purchasers named therein, dated as of June 12, 1998 relating to the Notes.
"Registration Statement" means the Registration Statement as
defined in the
<PAGE>
17
Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the June 1 or December 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or
series of related transactions pursuant to which the Company or a Restricted
Subsidiary sells or transfers any property or asset in connection with the
leasing, or the resale against installment payments, of such property or asset
to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder.
"Senior Bank Debt" means the Obligations outstanding under the
Amended Credit Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and any
Hedging Obligations in respect thereof and (ii) any other Indebtedness permitted
to be incurred by the Company or any Subsidiary Guarantor under the terms of
this Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is subordinated in right of payment to any
Indebtedness for money borrowed. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (i) Indebtedness evidenced by
the Notes, (ii) Indebtedness of the Company that is expressly subordinated in
right of payment to any Senior Indebtedness of the Company or the Notes, (iii)
Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligations of the Company, (iv) Indebtedness of the Company
to the extent incurred in violation of this Indenture, (v) any liability for
federal, state or local taxes or other taxes, owed or owing by the Company, (vi)
trade account payables owed or owing by the Company, (vii) amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(viii) Indebtedness of the Company to any Restricted Subsidiary or any other
Affiliate of the Company, (ix) Disqualified Stock of the Company and (x)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to the
Company or any Restricted Subsidiary.
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18
"Series B Preferred Stock" means the Convertible Preferred
Stock, Series B, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Company's Certificate of
Designation, Preferences and Rights of the Series B Preferred Stock.
"Series C Preferred Stock" means the Convertible Preferred
Stock, Series C, par value $0.001 per share, of the Company, with the rights,
preferences and privileges set forth in the Company's Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of
the Company that, together with its Subsidiaries, (a) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated net sales
of the Company and its Subsidiaries, (b) as of the end of such fiscal year, was
the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year or (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during such entire fiscal year.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw Hill, Companies, and its successors
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Note or
any installment of interest thereon, the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
or a Subsidiary Guarantor that is subordinated in right of payment to the Notes
or the Subsidiary Guarantees issued by such Subsidiary Guarantor, as the case
may be.
"Subsidiary" means any Person a majority of the equity
ownership or Voting Stock of which is at the time owned, directly or indirectly,
by the Company and/or one or more other Subsidiaries of the Company.
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19
"Subsidiary Guarantee" means with respect to each Subsidiary
Guarantor, the unconditional guarantee by such Subsidiary Guarantor, pursuant to
Article Thirteen.
"Subsidiary Guarantors" means, collectively, all Restricted
Subsidiaries that are incorporated in the United States or a State thereof or
the District of Columbia (other than Permitted Joint Ventures); provided that
any Person that becomes an Unrestricted Subsidiary in compliance with Section
1011 shall not be included in "Subsidiary Guarantors" after becoming an
Unrestricted Subsidiary.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force at the date as of which this Indenture was executed, except
as provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is
designated by the Board as an Unrestricted Subsidiary in accordance with Section
1017 and (b) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means (i) securities that are
(a) direct obligations of the United States of America for the payment of which
the full faith and credit of the United States of America is pledged or (b)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depositary receipt.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the time,
stock of any other class or classes has, or might have, voting power by reason
of the happening of any contingency).
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20
"Weighted Average Life" means, as of the date of determination
with respect to any Indebtedness or Disqualified Stock, the quotient obtained by
dividing (a) the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Indebtedness or Disqualified Stock,
respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary, all of the outstanding voting securities (other than directors'
qualifying shares or shares of foreign Restricted Subsidiaries required to be
owned by foreign nationals pursuant to applicable law) of which are owned,
directly or indirectly, by the Company.
SECTION 102. Incorporation by Reference of Trust Indenture
Act.
(a) This Indenture is expressly made subject to the Trust
Indenture Act as if this Indenture were, on the date hereof, subject to the
Trust Indenture Act under the provisions of such statute and such provisions are
incorporated by reference in this Indenture.
(b) Whenever this Indenture refers to a provision of the
Trust Indenture Act, the provision is incorporated by reference in and made a
part of this Indenture. The following Trust Indenture Act terms used in this
Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture
that are defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by a rule of the Commission and not
otherwise defined herein shall have the meanings assigned to them therein.
SECTION 103. Compliance Certificates and Opinions.
Upon any application or request by the Company and the
Subsidiary Guarantors to the Trustee to take any action under any provision of
this Indenture, the Company and the Subsidiary Guarantors shall furnish to the
Trustee an Officers' Certificate stating that all
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21
conditions precedent, if any, provided for in this Indenture (including any
covenant compliance which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(a) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company and/or
the Subsidiary Guarantors may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Company or such Subsidiary Guarantor, as the case may be, stating that the
information with respect to such factual matters is in the possession of the
Company or such Subsidiary Guarantor, as the case may be, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations
<PAGE>
22
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 105. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee, the Company
and the Subsidiary Guarantors, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of the signer's authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held
by any Person, and the date of holding the same, shall be proved by the
Register.
(d) If the Company or any Subsidiary Guarantor shall
solicit from the Holders of Notes any request, demand, authorization, direction,
notice, consent, waiver or other Act, the Company or any such Subsidiary
Guarantor (as the case may be), may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company or any such Subsidiary Guarantor
(as the case may be) shall have no obligation to do so. Notwithstanding TIA
Section 316(c), such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request,
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23
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company and/or the Subsidiary Guarantors in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 106. Notices, etc., to Trustee, Company and
Subsidiary Guarantors.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, the Company or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Department, or
(b) the Company by the Trustee, any Holder or any0
Subsidiary Guarantor shall be sufficient for every purpose hereunder
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at 4400
MacArthur Boulevard, Suite 800, Newport Beach, California 92660,
Attention: General Counsel, or at any other address previously
furnished in writing to the Trustee or such Subsidiary Guarantor (as
the case may be) by the Company, or
(c) any Subsidiary Guarantor by any Holder, the Trustee or the
Company shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to Subsidiary Guarantor addressed to it at
4400 MacArthur Boulevard, Suite 800, Newport Beach, California 92660,
Attention: General Counsel, or at any other address previously
furnished in writing to the Trustee or the Company (as the case may be)
by such Subsidiary Guarantor.
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24
SECTION 107. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
and the Subsidiary Guarantors shall bind their respective successors and
assigns, whether so expressed or not.
SECTION 110. Severability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any
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25
Person, other than the parties hereto, any Paying Agent, any Note Registrar and
their successors hereunder, and the Holders any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Notes shall be governed by, and
construed in accordance with, the law of the State of New York. Upon the
issuance of the Exchange Notes, if any, or the effectiveness of the Shelf
Registration Statement, this Indenture shall be subject to the provisions of the
Trust Indenture Act that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
date established for payment of Defaulted Interest pursuant to Section 309,
Stated Maturity or Maturity with respect to any Note shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or of the
Notes) payment of principal (or premium, if any) or interest need not be made on
such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such Interest Payment Date, Redemption Date, date established for
payment of Defaulted Interest pursuant to Section 309, Stated Maturity or
Maturity, Change in Control Purchase Date or Asset Sale Purchase Date, as the
case may be, to the next succeeding Business Day.
SECTION 114. Conflict of Any Provision of Indenture with
Trust Indenture Act.
If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by Trust Indenture Act
Sections 310 to 318, inclusive, or conflicts with any provision (an
"incorporated provision") required by or deemed to be included in this Indenture
by operation of such Trust Indenture Act Sections, such imposed duties or
incorporated provision shall control. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provision shall be deemed to apply to this
Indenture as so modified or excluded, as the case may be.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
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26
The Initial Notes shall be known as the "95/8% Senior
Subordinated Notes due 2008" and the Exchange Notes shall be known as the "95/8%
Series B Senior Subordinated Notes due 2008", in each case, of the Company. The
Notes and the Trustee's certificate of authentication shall be in substantially
the form annexed hereto as Exhibit A. The Notes may have such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have letters, notations or other marks of
identification and such notations, legends or endorsements required by law,
stock exchange agreements to which the Company is subject or usage. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The definitive Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Initial Notes offered and sold in reliance on Rule 144A shall
be issued initially in the form of a permanent global Note substantially in the
form set forth in Exhibit A (the "U.S. Global Note") deposited with, or on
behalf of, the Depositary or with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the U.S. Global Note may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold in offshore transactions in
reliance on Regulation S shall be issued initially in the form of a single
permanent global Note in registered form substantially in the form set forth in
Exhibit A (the "Offshore Global Note") deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount at maturity of
the Offshore Global Note may from time to time be increased or decreased by
adjustments made in the records of the Trustee, as custodian for the Depositary
or its nominee, as herein provided.
Initial Notes offered and sold to "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) who are
not QIBs (excluding non-U.S. Persons) shall initially be issued in the form of
permanent certificated Notes ("U.S. Physical Notes") in registered form in
substantially the form of Exhibit A hereto. Notes issued pursuant to Section 306
in exchange for or upon transfer of interests in the U.S. Global Note or the
Offshore Global Note shall be in the form of U.S. Physical Notes or in the form
of permanent
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27
certificated Notes in registered form substantially in the form set
forth in Exhibit A (the "Offshore Physical Note").
The Offshore Physical Notes and the U.S. Physical Notes are
sometimes collectively herein referred to as the "Physical Notes". The Offshore
Global Note and the U.S. Global Note are sometimes collectively referred to as
the "Global Notes."
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Note is sold under an
effective Registration Statement or (ii) an Initial Note is exchanged for an
Exchange Note in connection with an effective Registration Statement, in each
case pursuant to the Registration Rights Agreement, (A) each U.S. Global Note
and U.S. Physical Note shall bear the legend set forth below (the "Private
Placement Legend") on the face thereof and (B) the Offshore Physical Notes and
the Offshore Global Note shall bear the legend set forth below on the face
thereof until at least 41 days after the Issue Date and receipt by the Company
and the Trustee of a certificate substantially in the form of Exhibit A hereto:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
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28
SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT
OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) PRIOR
TO THE END OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO
CLAUSES (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
Each Global Note, whether or not an Initial Note, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
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29
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $100,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305,
306, 307, 308, 906, 1015, 1016 or 1108, pursuant to an Exchange Offer or
pursuant to Section 312.
The Initial Notes shall be known and designated as the "9 5/8%
Senior Subordinated Notes Due 2008" and the Exchange Notes shall be known and
designated as the "9 5/8% Series B Senior Subordinated Notes Due 2008" of the
Company. Their Stated Maturity shall be June 15, 2008, and they shall bear
interest at the rate of 9 5/8% per annum from June 12, 1998, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, payable semiannually on June 15 and December 15 in each year, commencing
December 15, 1998, until the principal thereof is paid or duly provided for, to
the Person in whose name the Note (or any Predecessor Note) is registered at the
close of business on the June 1 or December 1 next preceding such Interest
Payment Date.
The principal of (and premium, if any), and interest on the
Notes shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the office of the Trustee located at 61
Broadway, 15th Floor, New York, New York 10006) or, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear on the Register; provided that all
payments with respect to the U.S. Global Note and the U.S. Physical Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof.
Notes that remain outstanding after the consummation of the
Exchange Offer and Exchange Notes issued in connection with the Exchange Offer
will be treated as a single class of securities under this Indenture.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof;
provided that U.S. Physical Notes originally purchased by or transferred to
institutional "accredited investors" (as defined in Rule
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30
501(a), (1), (2), (3) or (7) under the Securities Act) who are not QIBs
(excluding Non-U.S. Persons) will be subject to a minimum denomination of
$250,000.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its President or a Vice President. The signature of any of these
officers on the Notes may be manual or facsimile signatures of the present or
any future such authorized officer and may be imprinted or otherwise reproduced
on the Notes.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Initial Notes executed by
the Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Initial Notes directing the Trustee to
authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed the
sum of $100,000,000 plus the aggregate principal amount of any Additional Notes
issued; provided that such Exchange Notes shall be issuable only upon the valid
surrender for cancellation of Initial Notes of a like aggregate principal amount
in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Notes. Such order shall
specify the amount of Notes to be authenticated and the date on which the
original issue of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from
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31
such consolidation, or surviving such merger, or into which the Company shall
have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article Eight, any of
the Notes authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Notes executed in the
name of the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section in exchange or substitution for or upon registration of
transfer of any Notes, such successor Person, at the option of the Holders but
without expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. At all reasonable times,
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32
the Register shall be open to inspection by the
Trustee. The Trustee is hereby initially appointed as security registrar (the
"Note Registrar") for the purpose of registering Notes and transfers of Notes as
herein provided.
Subject to the provisions of Section 307, upon surrender for
registration of transfer of any Note at the office or agency of the Company
designated pursuant to Section 1002, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denomination or
denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination and of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange (including an exchange of Initial
Notes for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; provided that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have been
declared effective by the Commission and that the Initial Notes to be exchanged
for the Exchange Notes shall be canceled by the Trustee.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Note
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in form satisfactory to the Company and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes, other than exchanges pursuant to Section 304,
906, 1015, 1016 or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1104
and ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any Note
so selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Notes.
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(a) Each Global Note initially shall (i) be registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder"), (ii) be deposited with, or on
behalf of, the Depositary or with the Trustee, as custodian for such Depositary,
and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under any Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of any Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Note may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 307. In addition, U.S. Physical
Notes or Offshore Physical Notes shall be transferred to all beneficial owners
in exchange for their beneficial interests in the U.S. Global Note or the
Offshore Global Note, respectively, if: (x) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for the applicable
Global Note or the Depositary ceases to be a "Clearing Agency" registered under
the Exchange Act and a successor depositary is not appointed by the Company
within 90 days or (y) an Event of Default has occurred and is continuing and
Holders of more than 25% in aggregate principal amount of the Notes at the time
Outstanding represented by the Global Notes advise the Trustee through the
Depositary in writing that the continuation of a book-entry system through the
Depositary with respect to the Global Notes is no longer required.
(c) Any beneficial interest in one of the Global Notes that
is transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer pursuant to paragraph
(b) of this Section of a beneficial interest in any Global Note to a beneficial
owner who is required or permitted to hold a Physical Note, the Note Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of the applicable Global Note in an amount equal to the principal amount
of the beneficial interest in such Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, subject
to the terms and
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34
conditions of Section 307 hereof, one or more Physical Notes of like tenor and
amount.
(e) In connection with the transfer of the entire U.S. Global
Note or Offshore Global Note to beneficial owners pursuant to paragraph (b) of
this Section, the U.S. Global Note or Offshore Global Note, as the case may be,
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Note or Offshore Global Note, as the case may be, an
equal aggregate principal amount of U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an
interest in the U.S. Global Note pursuant to subsection (b) or (d) of this
Section shall, unless such exchange is made on or after the Resale Restriction
Termination Date and except as otherwise provided in Section 307, bear the
applicable legend regarding transfer restrictions applicable to the U.S.
Physical Note set forth in Section 202.
(g) The registered Global Notes Holder may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(h) Beneficial owners of interests in a Global Note may
receive Physical Notes (which shall bear the Private Placement Legend if
required by Section 202) in accordance with the procedures of the Depositary. In
connection with the execution, authentication and delivery of such Physical
Notes, the Registrar shall reflect on its books and records a decrease in the
principal amount of the relevant Global Note equal to the principal amount of
such Physical Notes and the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes having an equal aggregate
principal amount.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Note is sold under an
effective Registration Statement, or (ii) an Initial Note is exchanged for an
Exchange Note in connection with an effective Registration Statement, in each
case pursuant to the Registration Rights Agreement, the following provisions
shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Initial
Note, whether or not
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35
such Initial Note bears the Private Placement Legend, if (x) the
requested transfer is at least two years after the original issue date
of the Initial Notes or (y) the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit D
hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of
the U.S. Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a U.S. Physical
Note or an interest in the U.S. Global Note to a QIB (excluding Non-U.S.
Persons):
(i) If the Note to be transferred consists of (i) U.S.
Physical Notes, the Registrar shall register the transfer and the
Company shall execute, and the Trustee shall authenticate and deliver
one or more U.S. Physical Notes if such transfer is being made by a
proposed transferor who has checked the box provided for on the form of
Initial Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it,
or the Person on whose behalf it is acting with respect to any such
account, is a QIB within the meaning of Rule 144A, and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A or (ii) an interest in the U.S.
Physical Note, the transfer of such interest may be effected only
through the book-entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Initial Notes to be transferred consist of U.S. Physical Notes, upon
receipt by the Registrar of instructions given in accordance with the
Depositary's and the Registrar's procedures therefor, the Registrar
shall reflect on its books and records the date and an increase in the
principal amount of the U.S. Global Note in an amount equal to the
principal amount of the U.S. Physical Notes, as the case may be, to be
transferred, and the Trustee shall cancel the U.S.
<PAGE>
36
Physical Notes so transferred.
(c) Transfers of Interests in the Offshore Global Note or
Offshore Physical Notes to U.S. Persons. The following provisions shall apply
with respect to any transfer of interests in the Offshore Global Note or
Offshore Physical Notes to U.S. Persons:
(i) prior to the removal of the Private Placement Legend from
the Offshore Global Notes or Offshore Physical Notes pursuant to
Section 202, the Note Registrar shall refuse to register such
transfer; and
(ii) after such removal pursuant to Section 202, the Note
Registrar shall register the transfer of any such Note without
requiring any additional certification.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Note to a
Non-U.S. Person:
(i) Prior to July 22, 1998, the Registrar shall register any
proposed transfer of an Initial Note to a Non-U.S. Person upon receipt
of a certificate substantially in the form of Exhibit E hereto from the
proposed transferor and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Temporary Certificates of
like tenor and amount.
(ii) On and after July 22, 1998, the Registrar shall register
any proposed transfer to any Non-U.S. Person (x) if the Initial Note to
be transferred is an Offshore Physical Note, (y) if the Initial Note to
be transferred is a U.S. Physical Note or an interest in the U.S.
Global Note, upon receipt of a certificate substantially in the form of
Exhibit D from the proposed transferor and (z) in the case of either
clause (x) or (y), the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and
amount.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the document, if any, required by paragraph (i), and
(y) instructions in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of
the U.S. Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred and the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more Physical Notes of like tenor and amount.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by paragraph (a)(i)(x) of this
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37
Section 307 exist or (ii) there is delivered to the Registrar an Opinion of
Counsel reasonably satisfactory to the Company to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(f) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain until such time as no Notes remain
Outstanding copies of all letters, notices and other written communications
received pursuant to Section 306 or this Section 307. The Company shall have the
right to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee or the
Registrar, or (ii) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and deliver, in exchange for any such mutilated Note or in lieu of
any such destroyed, lost or stolen Note, a new Note of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated,
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destroyed, lost or stolen Notes.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially shall be the office of the Trustee located at 61 Broadway, 15th
Floor, New York, New York 10006 pursuant to Section 1002 or, at the option of
the Company, interest may be paid by check mailed to the address of the Person
entitled thereto pursuant to Section 310 as such address appears in the
Register; provided that all payments with respect to the Global Note and
Physical Notes the Holders of which have given wire transfer instructions to the
Trustee (or other Paying Agent) by the Regular Record Date shall be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided
in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Note and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 107, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the
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39
Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
If the Company shall be required to pay any additional
interest pursuant to the terms of the Registration Rights Agreement, it shall
deliver an Officer's Certificate to the Trustee setting forth the new interest
rate and the period for which such rate is applicable.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of (and premium, if any)
and (subject to Sections 305 and 309) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly canceled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this
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40
Section, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that canceled Notes be
returned to it.
SECTION 312. Issuance of Additional Notes.
The Company may, subject to Article Ten of this Indenture,
issue up to $75,000,000 aggregate principal amount of additional Notes having
identical terms and conditions as the Notes offered hereby, except that interest
may begin accruing from a date other than the Closing Date (the "Additional
Notes"). Any Additional Notes will be part of the same issue as the Notes
offered hereby and will vote on all matters with the Notes offered hereby.
SECTION 313. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
Upon the request of the Company, this Indenture will cease to
be of further effect (except as to surviving rights of registration of transfer
or exchange of the Notes, as expressly provided for herein or pursuant hereto)
and the Trustee, at the expense of the Company, will execute proper instruments
acknowledging satisfaction and discharge of this Indenture when:
(a) either (i) all the Notes theretofore authenticated and
delivered (other than mutilated, destroyed, lost or stolen Notes that
have been replaced or paid and Notes that have been subject to
defeasance under Article Twelve) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee
for cancellation (A) have become due and payable, (B) will become due
and payable at maturity within one year or (C) are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, and the Company, in the case
of (A), (B) or
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41
(C) above, has irrevocably deposited or caused to be deposited with
the Trustee funds in trust for the purpose in an amount sufficient to
pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any, on) and interest on the Notes to the date of
such deposit (in the case of Notes that have become due and payable)
or to the Stated Maturity or redemption date, as the case may be;
(b) the Company has paid or caused to be paid all sums payable
under this Indenture by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided herein relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant
to subclause (ii) of clause (a) of this Section, the obligations of the
Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of any interest on any Note when it
becomes due and payable, and continuance of such default for a period
of 30 days (whether or not
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42
prohibited by Article 14);
(b) default in the payment of the principal of (or premium, if
any, on) any Note when due (whether or not prohibited by Article 14);
(c) failure to perform or comply with Sections 801, 1010,
1011, 1015 and 1016;
(d) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in this
Indenture or in any Subsidiary Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach
for a period of 60 days after written notice has been given to the
Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Notes (and
Additional Notes, if any) then outstanding;
(e) (i) an event of default has occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing an issue
of Indebtedness of the Company or any Restricted Subsidiary, which
issue individually or in the aggregate has an aggregate outstanding
principal amount of not less than $5 million, and such default has
resulted in such Indebtedness becoming, whether by declaration or
otherwise, due and payable prior to the date on which it would
otherwise become due and payable or (ii) a default (a "Payment
Default") in any payment when due at final maturity of any such
Indebtedness;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay one or more final judgments the uninsured portion
of which exceeds in the aggregate $5 million, which judgment or
judgments are not paid, discharged or stayed for a period of 60 days;
(g) any Subsidiary Guarantee ceases to be in full force and
effect or is declared null and void or any such Subsidiary Guarantor
denies that it has any further liability under any Subsidiary
Guarantee, or gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such Subsidiary
Guarantee in accordance with this Indenture); or
(h) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustments or
composition of or in respect of the Company or any Significant
Subsidiary under the Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Significant Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such
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decree or order unstayed and in effect for a period of 90 consecutive
days; or
(i) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal Bankruptcy
Code or any other applicable federal or state law, or the consent by it
to the filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than as specified in Section
501(h) or 501(i) above) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Notes (and Additional
Notes, if any) then outstanding may, and the Trustee at the request of such
Holders will, declare the principal of, and accrued interest on, all of the
outstanding Notes immediately due and payable and, upon any such declaration,
such principal and such interest will become due and payable immediately.
If an Event of Default specified in Section 501(h) or 501(i)
above occurs and is continuing, then the principal of and accrued interest on
all of the outstanding Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
At any time after a declaration of acceleration under this
Indenture, but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the holders of a majority in aggregate principal amount
of the outstanding Notes (and Additional Notes, if any), by written notice to
the Company and the Trustee, may rescind such declaration and its consequences
if: (i) the Company has paid or deposited with the Trustee a sum sufficient to
pay (A) all overdue interest on all Notes, (B) all unpaid principal of (and
premium, if any, on) any outstanding Notes that has become due otherwise than by
such declaration of acceleration and interest thereon at the rate borne by the
Notes, (C) to the extent that payment of such interest is lawful, interest upon
overdue interest and overdue principal at the rate borne by the Notes and (D)
all sums paid or advanced by the Trustee under this Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and (ii) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
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Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because an Event of Default
specified in Section 501(e) shall have occurred and be continuing and provided
no judgment or decree for payment of the money due has been obtained by the
Trustee, such declaration of acceleration shall be automatically annulled if the
Indebtedness that is the subject of such Event of Default has been discharged or
the holders thereof have rescinded their declaration of acceleration in respect
of such Indebtedness, and written notice of such discharge or rescission, as the
case may be, shall have been given to the Trustee by the Company and
countersigned by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders, within 30 days after such declaration of acceleration in
respect of the Notes, and no other Event of Default has occurred during such
30-day period which has not been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company and each of the Subsidiary Guarantors covenants
that if
(a) default is made in the payment of any installment of
interest on any Note when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Note at the Maturity thereof,
the Company and each Subsidiary Guarantor, subject to Section 1305, will, upon
demand of the Trustee, pay to the Trustee for the benefit of the Holders of such
Notes, the whole amount then due and payable on such Notes for principal (and
premium, if any) and interest, and interest on any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate borne
by the Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company or any Subsidiary Guarantor, as the case may
be, fails to pay such amounts forthwith upon such demand, the Trustee, in its
own name as trustee of an express trust, may institute a judicial proceeding for
the collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same against the Company, such
Subsidiary Guarantor or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company, such Subsidiary Guarantor or any other obligor upon the
Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial
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45
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes (including the Subsidiary Guarantors) or the property of the Company or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of
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46
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Company or any other
obligors of the Notes, including the Subsidiary Guarantors, as their
interests may appear, or as a court of competent jurisdiction may
direct.
SECTION 507. Limitation on Suits.
No Holder of any of the Notes has any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver or trustee or for any other remedy thereunder, unless
such Holder has previously given written notice to the Trustee of a continuing
Event of Default, the Holders of at least 25% in aggregate principal amount of
the outstanding Notes (and Additional Notes, if any) have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding,
the Trustee has failed to institute any such proceeding within 60 days after
receipt of such notice, request and offer of indemnity and the Trustee, within
such 60-day period, has not received directions inconsistent with such written
request from Holders of a majority in aggregate principal amount of the
outstanding Notes (and Additional Notes, if any). Such limitations do not apply,
however, to a suit instituted by a Holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note. A Holder may not use this
Indenture to prejudice the rights of another Holder or to obtain a preference or
priority over another Holder.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
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47
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Twelve)
and in such Note of the principal of (and premium, if any) and (subject to
Section 309) interest on such Note on the respective Stated Maturities expressed
in such Note (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 308, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of
the Outstanding Notes (and Additional Notes, if any) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or
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48
power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might conflict
with law or this Indenture or involve it in personal liability or be
unjustly prejudicial to the Holders not consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the outstanding Notes (and Additional Notes, if any) may, by notice to
the Trustee, on behalf of the Holders of all of the Notes, waive any existing
Default or Event of Default and its consequences under this Indenture, except a
continuing Default or Event of Default in the payment of the principal of (and
premium, if any) or interest on any Note (except for such a default resulting
from an acceleration that has been rescinded), or in respect of a covenant or
provision that under this Indenture cannot be modified or amended without the
consent of the Holder of each outstanding Note.
Upon any such waiver, such Default or Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company and each Subsidiary Guarantor covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company and each Subsidiary Guarantor (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 515. Waiver of Personal Liability of Directors,
Officers, Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of
the Company, as
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such, shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. No director, officer, employee,
incorporator or stockholder of any Subsidiary Guarantor, as such, shall have any
liability for any obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee or this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary Guarantees. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such waiver is against public
policy.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing and
is actually known to the Trustee, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
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(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a responsible officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 512 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section.
SECTION 602. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing
and is actually known to the Trustee, the Trustee shall mail to each Holder of
the Notes notice of the Default or Event of Default within 90 days after the
occurrence thereof. However, except in the case of a Default or an Event of
Default in payment of principal of (and premium, if any, on) or interest on any
Notes, the Trustee may withhold the notice to the Holders of the Notes if a
committee of its trust officers in good faith determines that withholding such
notice is in the interests of the Holders of the Notes.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting, pursuant to the terms of this
Indenture or otherwise, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
with sufficient detail as may be requested by the Trustee and any
resolution of the Board may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate and/or an Opinion of Counsel;
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(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees
and expenses of its agents and counsel) which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into, and may conclusively rely upon, the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(i) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in
this Indenture; and
(j) the Trustee shall not be deemed to have notice or
knowledge of any matter, including, without limitation, whether or not
an Event of Default has occurred, unless an officer within the
Corporate Trust Department of the Trustee has actual acknowledge
thereof or unless written notice thereof is received by the Trustee at
its Corporate Trust Office and such notice references the Notes, the
Company or this Indenture.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of
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such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance
of Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Subsidiary Guarantors, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture, the Notes or any Subsidiary
Guarantee, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and, upon the effectiveness of the Registration Statement,
that the statements made by it in a Statement of Eligibility on Form T-1
supplied to the Company are true and accurate, subject to the qualifications set
forth therein. The Trustee shall not be accountable for the use or application
by the Company of Notes or the proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other
agent of the Company or of the Trustee, in its individual or other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company or any Subsidiary Guarantor, as the
case may be.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) from time to time reasonable compensation for all
services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel),
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except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so
notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(i) or (j), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1). The Trustee and each
successor Trustee shall have (or its corporate parent shall have) a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
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54
SECTION 609. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 610 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding Notes
(and Additional Notes, if any), delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, except when the Trustee's duty to resign is stayed in
accordance with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 608
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation, winding-up or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall
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be appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes (and Additional Notes, if any) delivered to the Company and
the retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee and supersede
the successor Trustee appointed by the Company. If no successor Trustee shall
have been so appointed by the Company or the Holders and accepted appointment in
the manner hereinafter provided subject to TIA Section 315(e), any Holder who
has been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 107. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder subject to the retiring Trustee's rights
as provided under the last sentence of Section 607. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same
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effect as if such successor Trustee had itself authenticated such Notes. In case
at that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
that the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms.
The Company shall not, in a single transaction or series of
related transactions, consolidate or merge with or into (whether or not the
Company is the surviving corporation), or directly and/or indirectly through its
Subsidiaries, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) in one or more
related
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transactions to, another corporation, Person or entity unless:
(a) either (i) the Company is the surviving corporation or
(ii) in the case of a transaction involving the Company, the entity or
the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (the
"Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of
Columbia and assumes all the obligations of the Company under the Notes
and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee;
(b) immediately after giving effect to such transaction and
treating any obligation of the Company in connection with or as a
result of such transaction as having been incurred as of the time of
such transaction, no Default or Event of Default has occurred and is
continuing;
(c) the Company (or the Surviving Entity if the Company is not
the continuing obligor under this Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the first paragraph of
Section 1010;
(d) each Subsidiary Guarantor, unless it is the other party to
the transaction described above, has by supplemental indenture
confirmed that its Subsidiary Guarantee applies to the Surviving
Entity's obligations under this Indenture and the Notes;
(e) if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien,
the provisions of Section 1014 are complied with; and
(f) the Company delivers, or causes to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee,
an Officers' Certificate and an Opinion of Counsel, each stating that
such transaction complies with the requirements of this Indenture.
No Subsidiary Guarantor shall consolidate with or merge with
or into any other Person or convey, sell, assign, transfer, lease or otherwise
dispose of its properties and assets substantially as an entirety to any other
Person (other than the Company or another Subsidiary Guarantor) unless:
(a) subject to the provisions of the following paragraph, the
Person formed by or surviving such consolidation or merger (if other
than such Subsidiary Guarantor) or to which such properties and assets
are transferred assumes all of the obligations of such
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Subsidiary Guarantor under this Indenture and its Subsidiary
Guarantee, pursuant to a supplemental indenture in form and substance
satisfactory to the Trustee;
(b) immediately after giving effect to such transaction, no
Default or Event of Default has occurred and is continuing; and
(c) the Subsidiary Guarantor delivers, or causes to be
delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such transaction complies with the
requirements of this Indenture.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
SECTION 802. Successor Substituted.
In the event of any transaction described in and complying
with the conditions listed in the first paragraph of Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
will succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture, and thereafter the Company will, except in
the case of a lease, be discharged from all its obligations and covenants under
this Indenture and Notes.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND SUBSIDIARY GUARANTEES
SECTION 901. Without Consent of Holders.
Without the consent of any Holders, the Company and any
affected Subsidiary Guarantor, each when authorized by a Board Resolution, and
the Trustee may amend or supplement this Indenture, the Notes or any Subsidiary
Guarantee without the consent of any Holder of a Note:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company in this Indenture and in the Notes; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or
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to surrender any right or power herein conferred upon the Company; or
(3) to add additional Events of Defaults; or
(4) to provide for uncertificated Notes in addition to or
in place of the Physical Notes; or
(5) to evidence and provide for the acceptance of appointment
under this Indenture by a successor Trustee; or
(6) to secure the Notes; or
(7) to cure any ambiguity, to correct or supplement any
provision in this Indenture that may be defective or inconsistent with
any other provision in this Indenture, or to make any other provisions
with respect to matters or questions arising under this Indenture,
provided, however that such actions pursuant to this clause do not
adversely affect the interests of the Holders in any material respect;
or
(8) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the
Trust Indenture Act.
Notwithstanding the foregoing, neither the Company nor
the Trustee may amend any provisions of the Indenture or the
Notes concerning (i) the subordination of the Notes and the
Subsidiary Guarantees or (ii) legal defeasance or covenant
defeasance without, in either case, the prior written
consent of the Agent Bank, acting on behalf of the Banks
under the Amended Credit Agreement.
SECTION 902. With Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate Outstanding principal amount of the Notes (and Additional Notes, if
any) (including consents obtained in connection with a tender offer or exchange
offer for the Notes), by Act of said Holders delivered to the Company, any
affected Subsidiary Guarantor and the Trustee, the Company and the Subsidiary
Guarantor, each when authorized by a Board Resolution, and the Trustee may amend
or supplement in any manner this Indenture or any Subsidiary Guarantee or modify
in any manner the rights of the Holders under this Indenture or any Subsidiary
Guarantee; provided, however, that no such supplement, amendment or modification
may, without the consent of the Holder of each Outstanding Note affected
thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in
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which any Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to
make and consummate an Excess Proceeds Offer with respect to any Asset
Sale in accordance with the covenant described under Section 1016 or
the obligation of the Company to make and consummate a Change of
Control offer in the event of a Change of Control in accordance with
Section 1015, including, in each case, amending, changing or modifying
any definition relating thereto;
(c) reduce the percentage in principal amount of Outstanding
Notes, the consent of whose Holders is required for any waiver of
compliance with certain provisions of, or certain defaults and their
consequences provided for under, this Indenture;
(d) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on the Notes or reduce
the percentage or aggregate principal amount of outstanding Notes the
consent of whose Holders is necessary for waiver of compliance with
certain provisions of this Indenture or for waiver of certain Defaults
or Events of Default;
(e) modify the ranking or priority of the Notes or the
Subsidiary Guarantee of any Subsidiary Guarantor; or
(f) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guarantee or this Indenture other than
in accordance with the terms of this Indenture.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
Upon the request of the Company accompanied by a Board
Resolution authorizing the execution of any amended or supplemental indenture,
the Trustee shall, subject to this Section 903, join with the Company in the
execution of such amended or supplemental indenture authorized or permitted by
the terms of this Indenture. In executing, or accepting the additional trusts
created by, any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the Trustee shall
be entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The
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Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any affected
Subsidiary Guarantor and the Trustee of any supplemental indenture or Subsidiary
Guarantee pursuant to the provisions of Section 902, the Company shall give
notice thereof to the Holders of each Outstanding Note affected, in the manner
provided for in Section 107, setting forth in general terms the substance of
such supplemental indenture or Subsidiary Guarantee.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
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SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Corporate Trust Office located at 61 Broadway, 15th Floor,
New York, New York 10006 of the Trustee shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date (but no later than 12:00 p.m.
(New York City time) on such due date) of payments with respect to the principal
of (or premium, if any) or interest on any Notes, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
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(a) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal (and premium, if any) or interest; and
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent,
or then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall, subject to applicable escheatment laws, be paid to the
Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise if the Board shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the
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Company and its Subsidiaries as a whole and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or
any Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
(a) The Company and each Subsidiary Guarantor will deliver to
the Trustee, within 120 days after the end of each fiscal year, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of compliance by the
Company and such Subsidiary Guarantor with all conditions and covenants under
this Indenture. For purposes of this Section 1008(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
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(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary Guarantor gives any notice or
takes any other action with respect to a claimed default (other than with
respect to Indebtedness in the principal amount of less than $2,000,000), the
Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an Officers' Certificate specifying
such event, notice or other action within five days of becoming aware of its
occurrence.
SECTION 1009. Reports.
Whether or not the Company is required to file reports with
the Commission, so long as any Notes are outstanding, the Company will file all
such annual reports, quarterly reports and other documents that the Company
would be required to file if it were subject to Section 13(a) or 15(d) under the
Exchange Act. The Company shall also be required (a) to supply to the Trustee
and each Holder, or supply to the Trustee for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other documents within
15 days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to file
such reports and documents if the Company were so required and (b) if filing
such reports and documents with the Commission is not accepted by the Commission
or is prohibited under the Exchange Act, to supply at the Company's cost copies
of such reports and documents to any prospective Holder promptly upon written
request. In addition, whether or not required by the rules and regulations of
the Commission at any time after the Company files a registration statement with
respect to the Exchange Offer or a Shelf Registration Statement, the Company
will file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information specified in Rule
144A(d)(4) under the Securities Act.
SECTION 1010. Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, create, issue, assume, guarantee or in any manner become directly
or indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Indebtedness (including Acquired Indebtedness and the issuance of
Disqualified Stock), except that the Company and any Subsidiary Guarantors may
incur Indebtedness if, at the time of such event, the Fixed Charge Coverage
Ratio for the immediately preceding four full fiscal quarters for which internal
financial statements are available, taken as one accounting period, would have
been equal to at least (i) 2.0 to 1.0 from the Closing Date through and
including June 30, 2000 and (ii) 2.25 to 1.0 thereafter.
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66
(b) In making the foregoing calculation for any four-quarter
period that includes the Closing Date, pro forma effect will be given to the
Offering, as if such transactions had occurred at the beginning of such
four-quarter period. In addition (but without duplication), in making the
foregoing calculation, pro forma effect will be given to:
(i) the incurrence of such Indebtedness and (if applicable)
the application of the net proceeds therefrom, including to refinance
other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred at the beginning of such
four-quarter period;
(ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company or its Restricted Subsidiaries since the
first day of such four-quarter period as if such Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter
period; and
(iii) the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity or business acquired or disposed of by the Company or
its Restricted Subsidiaries, as the case may be, since the first day of
such four-quarter period, as if such acquisition or disposition
occurred at the beginning of such four-quarter period. In making a
computation under the foregoing clause (i) or (ii), (A) the amount of
Indebtedness under a revolving credit facility will be computed based
on the average daily balance of such Indebtedness during such
four-quarter period, (B) if such Indebtedness bears, at the option of
the Company, a fixed or floating rate of interest, interest thereon
will be computed by applying, at the option of the Company, either the
fixed or floating rate, and (C) the amount of any Indebtedness that
bears interest at a floating rate will be calculated as if the rate in
effect on the date of determination had been the applicable rate for
the entire period (taking into account any Hedging Obligations
applicable to such Indebtedness if such Hedging Obligations have a
remaining term at the date of determination in excess of 12 months).
(c) Notwithstanding the foregoing, the Company may, and may
permit its Restricted Subsidiaries to, incur the following Indebtedness
("Permitted Indebtedness"):
(i) Indebtedness of the Company or any Subsidiary Guarantor
under the Amended Credit Agreement (and the incurrence by any
Subsidiary Guarantor of guarantees thereof) in an aggregate principal
amount at any one time outstanding not to exceed $150 million, less any
amounts applied to the permanent reduction of such credit facilities
pursuant to the provisions of Section 1016;
(ii) Indebtedness represented by the Notes (other than the
Additional Notes) and the Subsidiary Guarantees;
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(iii) Existing Indebtedness;
(iv) the incurrence by the Company of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
refund, refinance or replace, any Indebtedness that is permitted to be
incurred under clause (ii) or (iii) above;
(v) Indebtedness owed by the Company to any Wholly Owned
Restricted Subsidiary or owed by any Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary (provided that such
Indebtedness is held by the Company or such Restricted Subsidiary);
provided, however, that any Indebtedness of the Company owing to any
such Restricted Subsidiary is unsecured and subordinated in right of
payment from and after such time as the Notes shall become due and
payable (whether at Stated Maturity, acceleration, or otherwise) to the
payment and performance of the Company's obligations under the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary
under Hedging Obligations incurred in the ordinary course of business;
(vii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of
Capital Stock;
(viii) either (A) Capitalized Lease Obligations of the Company
or any Restricted Subsidiary or (B) Indebtedness under purchase money
mortgages or secured by purchase money security interests so long as
(x) such Indebtedness is not secured by any property or assets of the
Company or any Restricted Subsidiary other than the property and assets
so acquired and (y) such Indebtedness is created within 60 days of the
acquisition of the related property; provided, however, that the
aggregate amount of Indebtedness under clauses (A) and (B) does not
exceed 5% of Consolidated Tangible Assets at any one time outstanding;
(ix) Guarantees by any Restricted Subsidiary made in
accordance with the provisions of Section 1022;
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two business
days of incurrence;
(xi) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted
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Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of
business;
(xii) the incurrence of Non-Recourse Indebtedness by Permitted
Joint Ventures; and
(xiii) Indebtedness of the Company, any Subsidiary Guarantor
or any Permitted Joint Venture not permitted by any other clause of
this definition, in an aggregate principal amount not to exceed $15
million at any one time outstanding.
SECTION 1011. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution
to holders of, any shares of the Capital Stock of the Company or any
Restricted Subsidiary, other than (i) dividends or distributions
payable solely in Qualified Equity Interests or (ii) dividends or
distributions by a Restricted Subsidiary payable to the Company or
another Wholly Owned Restricted Subsidiary;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock, or any options,
warrants or other rights to acquire such shares of Capital Stock, of
the Company, any Restricted Subsidiary or any Affiliate of the Company
(other than, in either case, any such Capital Stock owned by the
Company or any of its Wholly Owned Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, sinking fund payment or maturity, any Pari
Passu Indebtedness or Subordinated Indebtedness; and
(d) make any Investment (other than a Permitted Investment) in
any Person (such payments or other actions described in (but not
excluded from) clauses (a) through (d) being referred to as "Restricted
Payments"), unless at the time of, and immediately after giving effect
to, the proposed Restricted Payment:
(i) no Default or Event of Default has occurred and
is continuing,
(ii) the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, have been permitted to
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incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 1010, and
(iii) the aggregate amount of all Restricted Payments
made after the Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net
Income of the Company during the period (taken as one
accounting period) from the first day of the
Company's first fiscal quarter commencing after the
Closing Date to the last day of the Company's most
recently ended fiscal quarter for which internal
financial statements are available at the time of
such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income is a
loss, minus 100% of such amount); plus
(B) 100% of the aggregate net cash proceeds
received by the Company after the Closing Date from
the issuance or sale (other than to a Subsidiary) of
either (1) Qualified Equity Interests of the Company
or (2) debt securities or Disqualified Stock that
have been converted into or exchanged for Qualified
Stock of the Company, together with the aggregate net
cash proceeds received by the Company at the time of
such conversion or exchange.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may take the following actions, so long as no Default or Event of
Default has occurred and is continuing or would occur:
(a) the payment of any dividend in cash or Qualified Equity
Interests of the Company within 60 days after the date of declaration
thereof, if at the declaration date such payment would not have been
prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company, in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, Qualified
Equity Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Pari Passu Indebtedness or Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance and sale (other than to a Subsidiary)
of, shares of Qualified Equity Interests of the Company;
(d) the purchase, redemption, defeasance or other acquisition
or retirement for value of Pari Passu Indebtedness or Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance or sale (other than to a
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Subsidiary) of, Pari Passu Indebtedness or Subordinated Indebtedness,
respectively, so long as the Company or a Restricted Subsidiary would
be permitted to refinance such original Pari Passu Indebtedness or
Subordinated Indebtedness with such new Pari Passu Indebtedness or
Subordinated Indebtedness pursuant to clause (iv) of the definition of
Permitted Indebtedness;
(e) the repurchase of any Subordinated Indebtedness at a
purchase price not greater than 101% of the principal amount of such
Subordinated Indebtedness in the event of a Change of Control in
accordance with provisions similar to Section 1015; provided, however,
that prior to or simultaneously with such repurchase, the Company has
made the Change of Control Offer as provided in Section 1015 with
respect to the Notes and has repurchased all Notes validly tendered for
payment in connection with such Change of Control Offer;
(f) the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of the Company,
options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or
employees of the Company or of any Restricted Subsidiary (or their
estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan or
any other agreement under which such shares of stock or related rights
were issued; provided, however, that the aggregate cash consideration
paid for such purchase, redemption, acquisition, cancellation or other
retirement of such shares of Capital Stock after the Closing Date does
not exceed $500,000 in any fiscal year; and
(g) Investments constituting Restricted Payments not to exceed
$5 million at any one time outstanding.
The actions described in clauses (b), (c), (e), (f) and (g) of
the second paragraph of this Section 1011 will be Restricted Payments that will
be permitted to be taken in accordance with this Section 1011 but will reduce
the amount that would otherwise be available for Restricted Payments under
clause (d)(iii) of the first paragraph of this Section 1011 and the actions
described in clauses (a) and (d) of the second paragraph of this Section 1011
will be Restricted Payments that will be permitted to be taken in accordance
with this Section 1011 and will not reduce the amount that would otherwise be
available for Restricted Payments under clause (d)(iii) of the first paragraph
of this Section 1011.
For the purpose of making any calculations under this
Indenture (i) if a Restricted Subsidiary is designated an Unrestricted
Subsidiary, the Company will be deemed to have made an Investment in an amount
equal to the greater of the fair market value or net book value of the net
assets of such Restricted Subsidiary at the time of such designation as
determined by the Board, and (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board. The amount of all
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Restricted Payments (other than cash) shall be the fair market value on the date
of the Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by the Company or such Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board whose resolution
with respect thereto shall be delivered to the Trustee, such determination to be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if such fair market value exceeds
$5 million. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required under this Section 1011 were computed, together with a
copy of any fairness opinion or appraisal required by this Indenture.
If the aggregate amount of all Restricted Payments calculated
under the foregoing provision includes an Investment in an Unrestricted
Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the lesser of (x) the net asset value of such
Subsidiary at the time it becomes a Restricted Subsidiary and (y) the initial
amount of such Investment.
If an Investment resulted in the making of a Restricted
Payment, the aggregate amount of all Restricted Payments calculated under the
foregoing provision will be reduced by the amount of any net reduction in such
Investment (resulting from the payment of interest or dividends, loan repayment,
transfer of assets or otherwise, other than the redesignation of an Unrestricted
Subsidiary or other Person as a Restricted Subsidiary), to the extent such net
reduction is not included in the Company's Consolidated Net Income; provided
that the total amount by which the aggregate amount of all Restricted Payments
may be reduced may not exceed the lesser of (x) the cash proceeds received by
the Company and its Restricted Subsidiaries in connection with such net
reduction and (y) the initial amount of such Investment.
In computing the Consolidated Net Income of the Company for
purposes of the foregoing clause (d)(iii)(A) of the first paragraph of this
Section 1011, (i) the Company may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company will be permitted to
rely in good faith on the financial statements and other financial data derived
from its books and records that are available on the date of determination. If
the Company makes a Restricted Payment that, at the time of the making of such
Restricted Payment, would in the good faith determination of the Company be
permitted under the requirements of this Indenture, such Restricted Payment will
be deemed to have been made in compliance with this Indenture notwithstanding
any subsequent adjustments made in good faith to the Company's financial
statements affecting Consolidated Net Income of the Company for any period.
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SECTION 1012. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries.
The Company (a) shall not permit any Restricted Subsidiary to
issue any Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not, and shall not permit any Restricted Subsidiary
to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of
any Restricted Subsidiary to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary); provided, however, that this covenant will not
prohibit (i) the sale or other disposition of all, but not less than all, of the
issued and outstanding Capital Stock of a Restricted Subsidiary owned by the
Company and its Restricted Subsidiaries in compliance with the other provisions
of this Indenture, (ii) the sale or other disposition of a portion of the issued
and outstanding Capital Stock of an existing Wholly Owned Subsidiary if (A) as a
result of such sale or disposition such Wholly Owned Restricted Subsidiary
becomes a Permitted Joint Venture and (B) at the time of such sale or
disposition, the Company could make an Investment in the remaining Capital Stock
held by it or one of its Restricted Subsidiaries in an amount equal to the
amount of its remaining Investment in such existing Restricted Subsidiary
pursuant to Section 1011, or (iii) the ownership by directors of director's
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law.
The Company shall not permit any Restricted Subsidiary to
issue any Preferred Stock.
SECTION 1013. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction with, or for the benefit of, any Affiliate of the Company
("Interested Persons"), unless (a) such transaction is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could have been obtained in an arm's length transaction with third
parties who are not Interested Persons and (b) the Company delivers to the
Trustee (i) with respect to any transaction or series of related transactions
entered into after the Closing Date involving aggregate payments in excess of
$1.0 million, a resolution of the Board set forth in an officers' certificate
certifying that such transaction or transactions comply with clause (a) above
and that such transaction or transactions have been approved by the Board
(including a majority of the Disinterested Directors) of the Company and (ii)
with respect to a transaction or series of related transactions involving
aggregate payments equal to or greater than $10 million, a written opinion as to
the fairness to the Company or such Restricted Subsidiary of such transaction or
series of transactions from a financial point of view issued by an accounting,
appraisal or investment banking firm, in each case of national standing.
The foregoing covenant will not restrict:
(A) transactions among the Company and/or its Restricted
Subsidiaries;
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(B) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary;
(C) transactions permitted by Section 1011;
(D) advances to employees for moving, entertainment and travel
expenses and similar expenditures in the ordinary course of business
and consistent with past practice; and
(E) purchases of equipment, supplies and related services made
on an arm's length basis in the ordinary course of business by the
Company, any Restricted Subsidiary or any Permitted Joint Venture from
any Affiliate.
SECTION 1014. Limitation on Liens.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien securing Pari Passu Indebtedness or Subordinated Indebtedness of the
Company on or with respect to any of its property or assets, including any
shares of stock or indebtedness of any Restricted Subsidiary, whether owned at
the Closing Date or thereafter acquired, or any income, profits or proceeds
therefrom, or assign or otherwise convey any right to receive income thereon,
unless:
(i) in the case of any Lien securing Subordinated
Indebtedness, the Notes are secured by a Lien on such property, assets
or proceeds that is senior in priority to such Lien; and
(ii) in the case of any Lien securing Pari Passu Indebtedness,
the Notes are secured by a Lien on such property, assets or proceeds
that is senior in priority to or pari passu with such Lien.
(b) The Company shall not permit any Subsidiary Guarantor to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Pari Passu Indebtedness or Subordinated Indebtedness of such Subsidiary
Guarantor on or with respect to such Subsidiary Guarantor's properties or
assets, including any shares of stock or Indebtedness of any other Restricted
Subsidiary, whether owned at the Closing Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless:
(i) in the case of any Lien securing Pari Passu Indebtedness
of such Subsidiary Guarantor, each Subsidiary Guarantee of such
Subsidiary Guarantor is secured by a Lien on such property, assets or
proceeds that is senior in priority to or pari passu with such Lien;
and
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(ii) in the case of any Lien securing Subordinated
Indebtedness of such Subsidiary Guarantor, each Subsidiary Guarantee of
such Subsidiary Guarantor is secured by a Lien on such property, assets
or proceeds that is senior in priority to such Lien.
SECTION 1015. Purchase of Notes upon a Change of Control.
(a) If a Change of Control occurs at any time, then each
Holder shall have the right to require that the Company purchase such Holder's
Notes and Additional Notes, if any, in whole or in part in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to the offer described below (the "Change of Control Offer") and the
other procedures set forth in this Indenture.
(b) Within 30 days following any Change of Control, the
Company shall notify the Trustee thereof and give written notice of such Change
of Control to each Holder of Notes and Additional Notes by first-class mail,
postage prepaid, at its address appearing in the security register, stating,
among other things:
(i) the purchase price and the purchase date, which will be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as is necessary to comply
with requirements under the Exchange Act;
(ii) that any Note or Additional Note not tendered will
continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the
purchase price, any Notes or Additional Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest
after the Change of Control purchase date;
(iv) that Holders electing to have any Note purchased pursuant
to the Change of Control Offer will be required to surrender such Note,
together with the form entitled "Option to the Holder to Elect
Purchase" on the reverse side of such Note completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on this Business Day immediately preceding the Change of
Control Payment Date;
(v) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Change of Control
Payment Date, a facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for purchase
and a statement that such Holder is withdrawing his election to have
such Notes purchased; and
(vi) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes
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surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
(c) The Company shall comply with the applicable tender offer
rules including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer. To
the extent that provisions of any applicable securities laws or regulations
conflict with provisions of this Section 1015, the Company shall comply with
such securities laws and regulations and shall not be deemed to have breached
its obligations under this Section 1015 by virtue thereof.
(d) The Company will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Company and
purchases all the Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 1016. Limitation on Certain Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received by
the Company or such Restricted Subsidiary for such Asset Sale is not less than
the fair market value of the assets sold evidenced by a resolution of the board
of directors of such entity set forth in an Officers' Certificate delivered to
the Trustee and (ii) the consideration received by the Company or the relevant
Restricted Subsidiary in respect of such Asset Sale consists of at least 75%
cash or Cash Equivalents (for purposes of this clause (ii), cash and Cash
Equivalents includes (a) the principal amount of any Indebtedness for money
borrowed (as reflected in the Company's consolidated balance sheet) of the
Company or any Restricted Subsidiary that is assumed by any transferee of any
such assets or other property in such Asset Sale, but only to the extent that
such assumption is effected on a basis under which there is no further recourse
to the Company or any of its Restricted Subsidiaries with respect to such
Indebtedness, and (b) any securities, notes or other obligations received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 90 days of consummation of the related Asset Sale by the Company or such
Restricted Subsidiary into cash and Cash Equivalents (to the extent of the net
cash proceeds or the Cash Equivalents (net of related costs) received upon such
conversion)).
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale, the Company may, at its option, within 12 months after such Asset
Sale, (i) apply all or a portion of the Net Cash Proceeds to the permanent
reduction of amounts outstanding under the Amended Credit Agreement (and to
correspondingly reduce the commitments, if any, with respect thereto) or to the
permanent repayment of other Senior Indebtedness of the Company or a Restricted
Subsidiary, provided that the repayment of any Indebtedness incurred under the
Amended Credit Agreement in connection with the acquisition of any Facility with
the proceeds of any subsequent Sale and Leaseback Transaction relating to such
Facility shall not result in the
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permanent reduction of the amounts outstanding under the Amended Credit
Agreement or correspondingly permanently reduce the commitments thereunder, or
(ii) invest (or enter into a legally binding agreement to invest) all or a
portion of such Net Cash Proceeds in properties and assets to replace the
properties and assets that were the subject of the Asset Sale or in properties
and assets that will be used in the businesses of the Company or its Restricted
Subsidiaries, as the case may be, existing on the Closing Date or in businesses
the same, similar or reasonably related thereto. If any such legally binding
agreement to invest such Net Cash Proceeds is terminated, the Company may,
within 90 days of such termination or within 12 months of such Asset Sale,
whichever is later, invest such Net Cash Proceeds as provided in clause (i) or
(ii) (without regard to the parenthetical contained in such clause (ii)) above.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest
such Net Proceeds in a manner that is not prohibited by this Indenture. The
amount of such Net Cash Proceeds not so used as set forth above in this
paragraph shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5
million, the Company will, within 30 days thereafter, make an offer to purchase
(an "Excess Proceeds Offer") from all Holders of Notes and Additional Notes, if
any, on a pro rata basis, in accordance with the procedures set forth in this
Indenture, the maximum principal amount (expressed as a multiple of $1,000) of
Notes and Additional Notes, if any, that may be purchased with the Excess
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued interest, if any, to the date such offer to purchase is
consummated. To the extent that the aggregate principal amount of Notes and
Additional Notes, if any, tendered pursuant to such offer to purchase is less
than the Excess Proceeds, the Company may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes and Additional
Notes, if any, validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds, the Notes and Additional Notes, if any, to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset to zero.
SECTION 1017. Unrestricted Subsidiaries.
(a) The Board may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable for any Indebtedness of such Subsidiary, (ii) no default with
respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse
of time or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as a result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of Section
1011, (iv) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from Persons who are not Affiliates of the Company, (v) neither the Company
nor any Restricted Subsidiary
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has any obligation to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary, or to maintain or preserve such Subsidiary's
financial condition or to cause such Subsidiary to achieve certain levels of
operating results, and (vi) such Unrestricted Subsidiary has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not an executive officer of the Company or any of its
Restricted Subsidiaries. Notwithstanding the foregoing, the Company may not
designate any of its Subsidiaries existing as of the Closing Date or any
successor to any of them as an Unrestricted Subsidiary and may not sell,
transfer or otherwise dispose of any properties or assets of any such Subsidiary
to an Unrestricted Subsidiary, other than in the ordinary course of business.
(b) The Board may designate any Unrestricted Subsidiary as a
Restricted Subsidiary; provided, however that (i) no Default or Event of Default
has occurred and is continuing following such designation and (ii) the Company
could, at the time of making such designation and giving such pro forma effect
as if such designation had been made at the beginning of the applicable four
quarter period, incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of Section 1010
(treating any Indebtedness of such Unrestricted Subsidiary as the incurrence of
Indebtedness by a Restricted Subsidiary).
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (c) make loans or advances to the Company or any other Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:
(i) any agreement in effect on the Closing Date;
(ii) customary non-assignment provisions of any lease
governing a leasehold interest of the Company or any Restricted
Subsidiary;
(iii) the refinancing or successive refinancing of
Indebtedness incurred under the agreements in effect on the Closing
Date, so long as such encumbrances or restrictions are no more
restrictive than those contained in such original agreement;
(iv) any agreement or other instrument of a Person acquired by
the Company or any Restricted Subsidiary in existence at the time of
such acquisition (but not created
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in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired;
(v) purchase money obligations for acquired property permitted
under Section 1010 that impose restrictions of the nature described in
clause (d) above on the property so acquired;
(vi) any agreement for the sale of a Restricted Subsidiary or
an asset that restricts distributions by that Restricted Subsidiary or
transfers of such asset pending its sale;
(vii) secured Indebtedness otherwise permitted to be incurred
pursuant to Section 1014 that limits the right of the debtor to dispose
of the assets securing such Indebtedness;
(viii) restrictions on cash or other deposits or net worth
imposed by leases entered into in the ordinary course of business; and
(ix) Non-Recourse Indebtedness of any Permitted Joint Venture
permitted to be incurred under the Indenture.
SECTION 1019. Waiver of Certain Covenants.
The Company or any Subsidiary Guarantor may omit in any
particular instance to comply with any term, provision or condition set forth in
Section 803 or Sections 1007 through 1022, inclusive, if before or after the
time for such compliance the Holders of at least a majority in principal amount
of the Outstanding Notes (and Additional Notes, if any), by Act of such Holders,
waive such compliance in such instance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
SECTION 1020. Payment for Consent.
Neither the Company nor any of its Restricted Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
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SECTION 1021. Limitation on Layering Debt.
The Company and each Subsidiary Guarantor will not incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
or guarantee, as applicable, that is subordinate or junior in right of payment
to any Senior Indebtedness and senior in any respect in right of payment to the
Notes or such Subsidiary Guarantor's Subsidiary Guarantee, respectively.
SECTION 1022. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary that is
not a Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in
any other manner become liable for the payment of any Indebtedness of the
Company or any Indebtedness of any other Restricted Subsidiary, unless (a) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for a guarantee of payment of the Notes by such Restricted
Subsidiary on a senior subordinated basis and (b) with respect to any guarantee
of Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee is
subordinated to such Restricted Subsidiary's guarantee with respect to the Notes
at least to the same extent as such Subordinated Indebtedness is subordinated to
the Notes, provided, however, that the foregoing provision will not be
applicable to any guarantee by any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary.
Any guarantee by a Restricted Subsidiary of the Notes pursuant
to the preceding paragraph may provide by its terms that it will be
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer to any Person not an Affiliate of the Company of all of the
Company's and the Restricted Subsidiaries' Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by this Indenture) or (ii) the release or
discharge of the guarantee that resulted in the creation of such guarantee of
the Notes, except a discharge or release by or as a result of payment under such
guarantee.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
(a) The Notes may be redeemed at the option of the Company, at
any time as a whole or from time to time in part, at any time on or after June
15, 2003, on not less than 30 nor more than 60 days' prior notice to the Holders
at the following Redemption Prices (expressed as percentages of principal
amount) together with accrued and unpaid interest, if any, to the
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Redemption Date (subject to the right of holders of record in the relevant
record date to receive interest due on an interest payment date), if redeemed
during the 12-month period beginning on June 15 of the years indicated below.
Redemption
Year Price
2003.......................................................104.8125%
2004 ......................................................103.2083%
2005 .....................................................101.6042%
2006 and thereafter ......................................100.0000%
(b) In addition, at any time or from time to time on or before
June 15, 2001, the Company may redeem, on one or more occasions, up to 35% of
the sum of (i) the initial aggregate principal amount of the Notes and (ii) the
initial aggregate principal amount of any Additional Notes on one or more
occasions with the net proceeds of one or more Equity Offerings at a redemption
price equal to 109.625% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant record date to receive interest due on an Interest
Payment Date that is on or prior to the Redemption Date); provided that,
immediately after giving effect to such redemption, at least 65% of the sum of
(x) the initial aggregate principal amount of the Notes and (y) the initial
aggregate principal amount of any Additional Notes remains outstanding; provided
further that such redemptions shall occur within 60 days of the date of closing
of each Equity Offering.
(c) The Company is not required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
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If less than all the Notes (or Additional Notes, if any) are
to be redeemed, selection of Notes for redemption shall be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, by such method as the Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions of the principal of
Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than $1,000. The
Company shall notify the Trustee of any national securities exchange on which
the Notes may be listed.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 107 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the
notice which relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the Holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and
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payable upon each such Note, or the portion thereof, to be redeemed,
and that interest thereon will cease to accrue on and after said date,
(6) the place or places, if applicable, where such Notes are
to be surrendered for payment of the Redemption Price and accrued
interest, if any, and
(7) the CUSIP number.
Notice of redemption of Notes to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Regular Record Dates according to their terms and the
provisions of Section 309.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such
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Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Note so surrendered.
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company may, at its option and at any time, with respect
to the Notes, elect to have either Section 1202 or Section 1203 be applied to
all Outstanding Notes (and Additional Notes, if any) upon compliance with the
conditions set forth below in this Article Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from its obligations with respect to all
Outstanding Notes (and Additional Notes, if any) and the Subsidiary Guarantees
on the date the conditions set forth in Section 1204 are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Notes (and Additional Notes, if any) and the
Subsidiary Guarantees, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 1205 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Notes (and Additional Notes, if any) to receive payments
in respect of the principal of (and premium, if any, on) and interest on such
Notes when such payments are due from the trust described in Section 1204, (B)
the Company's obligations under Sections 304, 305, 308, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee and (D) this
Article Twelve. Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option
applicable to this
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Section 1203, the Company and any Subsidiary Guarantor shall be released from
its obligations under any covenant contained in Section 801 and Section 803 and
in Sections 1006 through 1018 and Sections 1021 and 1022 with respect to the
Outstanding Notes (and Additional Notes, if any) on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not to be "Outstanding" for the
purposes of any direction, waiver, consent or declaration or Act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the Outstanding
Notes (and Additional Notes, if any), the Company and any Subsidiary Guarantor
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Sections 501(c) and (d) but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant
Defeasance.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes (and Additional Notes, if
any):
(a) the Company must irrevocably deposit or cause to be
deposited with the Trustee, as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders, money in an amount, or U.S. Government Obligations that
through the scheduled payment of principal and interest thereon will
provide money in an amount, or a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay and discharge the principal of (and premium, if
any, on) and interest on the Outstanding Notes (and Additional Notes,
if any) at maturity (or upon redemption, if applicable) of such
principal or installment of interest;
(b) no Default or Event of Default has occurred and is
continuing on the date of such deposit or, insofar as an event of
bankruptcy under Section 501(h) is concerned, at any time during the
period ending on the 91st day after the date of such deposit;
(c) such legal defeasance or covenant defeasance may not
result in a breach or violation of, or constitute a default under, this
Indenture or any material agreement or instrument to which the Company
or any Subsidiary Guarantor is a party or by which it is bound;
(d) in the case of legal defeasance, the Company must deliver
to the Trustee an Opinion of Counsel stating that the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling, or, since the Closing Date, there has been a change
in applicable federal income tax law, to the effect, and based thereon
such
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opinion must confirm, that the Holders of the Outstanding Notes
will not recognize income, gain or loss for federal income tax purposes
as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance had not
occurred;
(e) in the case of covenant defeasance, the Company must have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(f) the Company must have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal
defeasance or the covenant defeasance, as the case may be, have been
complied with.
SECTION 1205. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Outstanding Notes (and Additional Notes, if any) shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1204 or the principal and interest
received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
Outstanding Notes (and Additional Notes, if any).
Anything in this Article Twelve to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1204 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance, as applicable, in accordance with this Article.
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SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1205 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 1202 or 1203, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1205; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Subsidiary Guarantees.
Each Subsidiary Guarantor hereby jointly and severally, fully,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of such
Holder, that: (a) the principal of (and premium, if any) and interest on the
Notes will be paid in full when due, whether at Stated Maturity, by
acceleration, call for redemption or otherwise (including, without limitation,
the amount that would become due but for the operation of the automatic stay
under Section 362(a) of the Federal Bankruptcy Code), together with interest on
the overdue principal, if any, and interest on any overdue interest, to the
extent lawful, and all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or of any such other obligations, the
same will be paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at Stated Maturity, by acceleration or
otherwise, subject, however, in the case of clauses (a) and (b) above, to the
limitations set forth in Section 1306 hereof. Each of the Subsidiary Guarantees
shall be a guarantee of payment and not of collection.
Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise
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constitute a legal or equitable discharge or defense of a Subsidiary Guarantor.
Each Subsidiary Guarantor hereby waives the benefits of
diligence, presentment, demand for payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company or any other Person, protest, notice and
all demands whatsoever and covenants that the Subsidiary Guarantee of such
Subsidiary Guarantor will not be discharged as to any Note except by complete
performance of the obligations contained in such Note and such Subsidiary
Guarantee or as provided for in this Indenture. Each of the Subsidiary
Guarantors hereby agrees that, in the event of a default in payment of principal
(or premium, if any) or interest on such Note, whether at its Stated Maturity,
by acceleration, call for redemption, purchase or otherwise, legal proceedings
may be instituted by the Trustee on behalf of, or by, the Holder of such Note,
subject to the terms and conditions set forth in this Indenture, directly
against each of the Subsidiary Guarantors to enforce such Subsidiary Guarantor's
Subsidiary Guarantee without first proceeding against the Company or any other
Subsidiary Guarantor. Each Subsidiary Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Notes, to collect interest on the
Notes, or to enforce or exercise any other right or remedy with respect to the
Notes, such Subsidiary Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company or any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
either the Company or any Subsidiary Guarantor, any amount paid by any of them
to the Trustee or such Holder, the Subsidiary Guarantee of each of the
Subsidiary Guarantors, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor further agrees that, as
between each Subsidiary Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Five hereof for the purposes of
the Subsidiary Guarantee of such Subsidiary Guarantor, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article Five hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by each Subsidiary
Guarantor for the purpose of the Subsidiary Guarantee of such Subsidiary
Guarantor.
SECTION 1302. Execution and Delivery of Subsidiary Guarantee.
To further evidence the Subsidiary Guarantee set forth in
Section 1301, each Subsidiary Guarantor hereby agrees that such Subsidiary
Guarantee, substantially in the form included in Exhibit C of this Indenture,
shall be endorsed on each Note authenticated and delivered by the Trustee. Such
Subsidiary Guarantee shall be executed by manual or facsimile signature on
behalf of each Subsidiary Guarantor by its Chairman, any Vice Chairman, its
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President or a Vice President and attested by its Secretary or Assistant
Secretary, and shall have been duly authorized by all requisite corporate
action. The validity and enforceability of any Subsidiary Guarantee shall not be
affected by the fact that it is not affixed to any particular Note.
Each Subsidiary Guarantor hereby agrees that its respective
Subsidiary Guarantee set forth in Section 1301 shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any
Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary
Guarantors.
SECTION 1303. Severability.
In case any provision of any Subsidiary Guarantee shall be
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1304. Seniority of Subsidiary Guarantees.
The obligations of each Subsidiary Guarantor to the Holders of
Notes and to the Trustee pursuant to such Subsidiary Guarantor's Subsidiary
Guarantee and this Indenture are unsecured senior subordinated obligations of
such Subsidiary Guarantor ranking pari passu in right of payment with all
existing and future senior subordinated obligations of such Subsidiary
Guarantor.
SECTION 1305. Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor and by its acceptance hereof each
Holder confirms that it is the intention of all such parties that the guarantee
by each Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law or the provisions of its local law relating to
fraudulent transfer or conveyance. To effectuate the foregoing intention, the
Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount that will not, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to Section 1306 hereof,
result in the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee constituting such fraudulent transfer or conveyance.
SECTION 1306. Contribution.
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In order to provide for just and equitable contribution among
the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in
the event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under a Subsidiary Guarantee, such Funding Guarantor shall
be entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Notes or any other Subsidiary Guarantor's obligations with respect to the
Subsidiary Guarantee of such Subsidiary Guarantor. "Adjusted Net Assets" of such
Subsidiary Guarantor at any date shall mean the lesser of (x) the amount by
which the fair value of the property of such Subsidiary Guarantor exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the
Subsidiary Guarantee of such Subsidiary Guarantor at such date and (y) the
amount by which the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date), excluding debt in respect of the Subsidiary Guarantee of such Subsidiary
Guarantor, as they become absolute and matured.
SECTION 1307. Release of a Subsidiary Guarantor.
(a) A Subsidiary Guarantor will be deemed automatically and
unconditionally released and discharged from all of its obligations under its
Subsidiary Guarantee without any further action on the part of the Trustee or
any Holder of the Notes upon a sale or other disposition to a Person not an
Affiliate of the Company of all of the Capital Stock of, or all or substantially
all of the assets of, such Subsidiary Guarantor, by way of merger, consolidation
or otherwise, which transaction is carried out in accordance with Section 801
and 1016, so long as (a) no Default or Event of Default shall have occurred and
be continuing at the time of, or would occur after giving effect on a pro forma
basis to, such release and (b) the Company is permitted to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to the
Fixed Charge Coverage Ratio test set forth in subsection (a) of Section 1010 on
the date on which such release occurs; provided that any such termination shall
occur (x) only to the extent that all obligations of such Subsidiary Guarantor
under all of its guarantees of, and under all of its pledges of assets or other
security interests which secure any Indebtedness of the Company shall also
terminate upon such sale, disposition or release and (y) only if the Trustee is
furnished with written notice of such release together with an Officers'
Certificate from such Subsidiary Guarantor to the effect that all of the
conditions to release in this Section 1307(a) have been satisfied.
(b) Any Subsidiary Guarantor that is designated by the Board
as an Unrestricted Subsidiary in accordance with the terms of this Indenture
may, at such time, at the option of the Board, be released and relieved of its
obligations under its Subsidiary Guarantee.
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The Trustee shall deliver an appropriate instrument evidencing such release upon
receipt of a Company Request accompanied by an Officers' Certificate certifying
as to the compliance with this Section 1307. Any Subsidiary Guarantor not so
released shall remain liable for the full amount of principal of and interest on
the Notes as provided in its Subsidiary Guarantee.
(c) Concurrently with the Legal Defeasance of the Notes under
Section 1202 hereof, or the Covenant Defeasance of the Notes under Section 1203
hereof, the Subsidiary Guarantors shall be released from all their obligations
under their Subsidiary Guarantees under this Article Thirteen.
SECTION 1308. Benefits Acknowledged.
Each Subsidiary Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated by
this Indenture and that its guarantee and waivers pursuant to its Subsidiary
Guarantee are knowingly made in contemplation of such benefits.
SECTION 1309. Issuance of Subsidiary Guarantees by Certain
New Restricted Subsidiaries.
The Company shall provide to the Trustee, on the date that any
Person (other than a Foreign Subsidiary or Permitted Joint Venture) becomes a
Restricted Subsidiary, a supplemental indenture to this Indenture, executed by
such new Restricted Subsidiary, providing for a full and unconditional guarantee
on a senior subordinated basis by such new Restricted Subsidiary of the
Company's obligations under the Notes and this Indenture to the same extent as
that set forth in this Indenture.
ARTICLE FOURTEEN
SUBORDINATION
SECTION 1401. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder, by its
acceptance thereof, likewise covenants and agrees, for the benefit of the
Holders, from time to time, of Senior Indebtedness that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Notes and the payment of the principal of (and premium, if any) and
interest on each and all of the Notes are hereby expressly made subordinate and
subject in right of payment as provided in this Article to the prior payment in
full in cash of all Senior Indebtedness, whether outstanding on the Closing Date
or thereafter incurred; provided, however, that the Notes, the Indebtedness
represented thereby and the payment of the principal of (and premium, if any)
and interest on the Notes in all respects shall rank equally with, or prior
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to, all existing and future unsecured indebtedness (including, without
limitation, Indebtedness) of the Company that is subordinated to Senior
Indebtedness.
SECTION 1402. Payment over by the Company of Proceeds upon
Dissolution, etc.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities,
(1) the holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness) before the Holders
will be entitled to receive any payment in respect of any Obligations
with respect to the Notes, and until all Obligations with respect to
Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders may receive
securities that are subordinated at least to the same extent as the
Notes to Senior Indebtedness ("Permitted Junior Securities") and any
securities issued in exchange for Senior Indebtedness and Holders may
recover payments made from the trust described in Section 1204); and
(2) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or any Holder shall have
received any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, in respect
of principal of (and premium, if any) or interest on the Notes before
all Senior Indebtedness is paid in full or payment thereof provided
for (such provision with respect to Senior Indebtedness under the
Amended Credit Agreement being satisfactory to each Lender), and if
such fact shall at or prior to the time of such payment or
distribution, have been made known to the Trustee or such Holder, as
the case may be, by the Agent Bank, then and in such event such
payment or distribution (other than a payment or distribution in the
form of Permitted Junior Securities or out of the trust described in
Section 1204) shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the
Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance,
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transfer or lease of its properties and assets substantially as an entirety to
another Person upon the terms and conditions set forth in Article Eight shall
not be deemed a dissolution, winding up, liquidation, reorganization, assignment
for the benefit of creditors or marshaling of assets and liabilities of the
Company for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance, transfer or lease such properties and assets substantially as an
entirety, as the case may be, shall, as a part of such consolidation, merger,
conveyance, transfer or lease, comply with the conditions set forth in Article
Eight.
SECTION 1403. Suspension of Payment on Notes When Senior
Indebtedness of the Company in Default.
(a) Unless Section 1402 shall be applicable, the Company shall
not make any payment upon or in respect of the Notes (except in such Permitted
Junior Securities or from the trust described in Section 1204) if
(i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Indebtedness
occurs and is continuing beyond any applicable period of grace
(a "Payment Event of Default") which is notified to the
Trustee in writing from the Company, the Agent or any other
representative of holders of Designated Senior Indebtedness,
or
(ii) any Non-payment Event of Default occurs and is
continuing with respect to Designated Senior Indebtedness
which permits holders of the Designated Senior Indebtedness as
to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Agent Bank or the holders or the
representative of the holders of any Designated Senior
Indebtedness.
(b) Payments on the Notes may and shall be resumed (a) in the
case of a Payment Event of Default, upon the date on which such default is cured
or waived and (b) in case of a Non-payment Event of Default, the earlier of the
date on which such Non-payment Event of Default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received
unless the maturity of any Designated Senior Indebtedness has been accelerated.
No new period of payment blockage may be commenced by a Payment Blockage Notice
unless and until (i) 360 days have elapsed since the first day of the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No Non-payment Event of Default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice, unless such default has been cured or waived for a period of
not less than 90 days.
SECTION 1404. Payment Over by Subsidiary Guarantors of
Proceeds Upon Dissolution, etc.
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Upon any distribution to creditors of any Subsidiary Guarantor
in a liquidation or dissolution of such Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to such
Subsidiary Guarantor or its property, an assignment for the benefit of creditors
or any marshaling of such Subsidiary Guarantor's assets and liabilities,
(1) the holders of Senior Indebtedness of such Subsidiary
Guarantor shall be entitled to receive indefeasible payment in full in
cash or cash equivalents of all Obligations due in respect of such
Senior Indebtedness (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior
Indebtedness) before the Holders will be entitled to receive any
payment with respect to the respective Subsidiary Guarantee, and until
all Obligations with respect to Senior Indebtedness of such Subsidiary
Guarantor and Senior Indebtedness of the Company are paid in full in
cash or cash equivalents, any distribution to which the Holders would
be entitled shall be made to the holders of such Senior Indebtedness
(except that Holders may receive (i) Capital Stock of such Subsidiary
Guarantor (other than Disqualified Stock) and (ii) Permitted Junior
Securities and any securities issued in exchange for such Senior
Indebtedness); and
(2) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or any Holder shall have
received any payment or distribution of assets of such Subsidiary
Guarantor of any kind or character, whether in cash, property or
securities, in respect of principal of (and premium, if any) or
interest on the Notes before all Senior Indebtedness of such Subsidiary
Guarantor is paid in full or payment thereof provided for (such
provision with respect to Senior Indebtedness under the Amended Credit
Agreement being satisfactory to each Lender), and if such fact shall at
or prior to the time of such payment or distribution, have been made
known to the Trustee or such Holder, as the case may be, by the Agent
Bank, then and in such event such payment or distribution (other than
a payment or distribution in the form of Permitted Junior Securities)
shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payment or distribution of assets of such
Subsidiary for application to the payment of all Senior Indebtedness
of such Subsidiary Guarantor remaining unpaid, to the extent necessary
to pay all such Senior Indebtedness in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
The consolidation of any Subsidiary Guarantor with, or the
merger of any Subsidiary Guarantor into, another Person or the liquidation or
dissolution of any Subsidiary Guarantor following the conveyance, transfer or
lease of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of
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creditors or marshaling of assets and liabilities of such
Subsidiary Guarantor for the purposes of this Section if the Person formed by
such consolidation or into which such Subsidiary Guarantor is merged or the
Person which acquires by conveyance, transfer or lease such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or lease, comply with the
conditions set forth in Article Eight.
SECTION 1405. Suspension of Payment on Subsidiary Guarantees
When Senior Indebtedness of Subsidiary Guarantor in Default.
(a) Unless Section 1404 shall be applicable, a Subsidiary
Guarantor shall not make any payment upon or in respect of such Subsidiary
Guarantor's Subsidiary Guarantee (except in such Permitted Junior Securities) if
(i) a Payment Event of Default on Designated Senior
Indebtedness of such Subsidiary Guarantor or Designated Senior
Indebtedness of the Company occurs and is continuing beyond
any applicable period of grace which is notified to the
Trustee in writing from such Subsidiary Guarantor, the Agent
or any other representative of holders of Designated Senior
Indebtedness, or
(ii) any Non-payment Event of Default occurs and is
continuing with respect to Designated Senior Indebtedness of
such Subsidiary Guarantor or Designated Senior Indebtedness of
the Company which permits holders of the Designated Senior
Indebtedness of such Subsidiary Guarantor or Designated Senior
Indebtedness of the Company as to which such default relates
to accelerate its maturity and the Trustee receives a Payment
Blockage Notice from the Agent Bank or the holders or the
representative of the holders of such Designated Senior
Indebtedness.
(b) Payments on the Subsidiary Guarantees may and shall be
resumed (a) in the case of a Payment Event of Default, upon the date on which
such default is cured or waived and (b) in case of a Non-payment Event of
Default, the earlier of the date on which such Nonpayment Event of Default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new period of payment blockage may be
commenced by a Payment Blockage Notice unless and until (i) 360 days have
elapsed since the first day of the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have become due and payable have been
paid in full. No Non-payment Event of Default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice, unless such default
has been cured or waived for a period of not less than 90 days.
SECTION 1406. Payment Permitted If No Default.
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Nothing contained in this Article or elsewhere in this
Indenture, in any of the Notes or in any Subsidiary Guarantee shall prevent the
Company or any Subsidiary Guarantors, as applicable, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company or any Subsidiary Guarantor referred to in Section
1402 or 1404 or under the conditions described in Section 1403 or 1405, from
making payments at any time of principal of (and premium, if any, on) or
interest on the Notes or under a Subsidiary Guarantee, as applicable.
SECTION 1407. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders shall be subrogated (equally and ratably with the holders of all
indebtedness of the Company or any Subsidiary Guarantor which by its express
terms is subordinated to Senior Indebtedness of the Company or such Subsidiary
Guarantor to the same extent as the Notes or the Subsidiary Guarantees are
subordinated and which is entitled to like rights of subrogation) to the rights
of the holders of such Senior Indebtedness to receive payments and distributions
of cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property or securities to which the
Holders or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Indebtedness by Holders or the Trustee, shall, as among the
Company, the Subsidiary Guarantors, their respective creditors other than
holders of Senior Indebtedness, and the Holders of the Notes, be deemed to be a
payment or distribution by the Company or any Subsidiary Guarantor to or on
account of the Senior Indebtedness.
SECTION 1408. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of the Notes on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Notes is
intended to or shall (a) impair, as between the Company, or any Subsidiary
Guarantor as applicable, and the Holders, the obligation of the Company or such
Subsidiary Guarantor, which is absolute and unconditional, to pay to the Holders
the principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company or any Subsidiary Guarantor of the
Holders and creditors of the Company or such Subsidiary Guarantor other than the
holders of Senior Indebtedness; or (c) prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness.
SECTION 1409. Trustee to Effectuate Subordination.
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Each Holder of a Note by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1410. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or any Subsidiary Guarantor, or by any act or failure to act, in
good faith, by any such holder, or by any non-compliance by the Company or any
Subsidiary Guarantor with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
(b) Without in any way limiting the generality of paragraph
(a) of this Section, the holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Notes, without incurring responsibility to the Holders and
without impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders to the holders of Senior Indebtedness, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Company, any Subsidiary Guarantor and any other Person.
SECTION 1411. Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Notes. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the Notes,
unless and until the Trustee shall have received written notice thereof from the
Company, the Agent or a holder of Senior Indebtedness or from any trustee,
fiduciary or agent therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to TIA Sections 315(a) through 315(d), shall be
entitled in all respects to assume that no such facts exist; provided, however,
that, if the Trustee shall not have received the notice provided for in this
Section at least three Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or interest on
any Note), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and to apply
the same to the
<PAGE>
97
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 1412. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to TIA Sections 315(a) through
315(d), and the Holders shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
SECTION 1413. Rights of Trustee As a Holder of Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 607.
SECTION 1414. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been
<PAGE>
98
appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1413 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1415. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders to take any action to accelerate the maturity of the
Notes pursuant to Article Five or to pursue any rights or remedies hereunder or
under applicable law, except as provided in Article Five.
SECTION 1416. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary,
payments from cash or the proceeds of U.S. Government Obligations held in trust
under Article Twelve hereof by the Trustee (or other qualifying trustee) and
which were deposited in accordance with the terms of Article Twelve hereof and
not in violation of Section 1403 hereof for the payment of principal of (and
premium, if any) and interest on the Notes shall not be subordinated to the
prior payment of any Senior Indebtedness or subject to the restrictions set
forth in this Article Fourteen, and none of the Holders shall be obligated to
pay over any such amount to the Company or any holder of Senior Indebtedness or
any other creditor of the Company.
SECTION 1417. Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such holders
if it shall in good faith mistakenly pay over or distribute to Holders or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
This Indenture may be signed in any number of counterparts
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
<PAGE>
99
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, as of the day and year first above written.
INSIGHT HEALTH SERVICES CORP.
By:
--------------------------------------------
Name:
Title:
INSIGHT HEALTH CORP.
By:
--------------------------------------------
Name:
Title:
RADIOLOGY SERVICES CORP.
By:
--------------------------------------------
Name:
Title:
OPEN MRI, INC.
By:
--------------------------------------------
Name:
Title:
MAXUM HEALTH CORP.
By:
--------------------------------------------
Name:
Title:
<PAGE>
100
SIGNAL MEDICAL SERVICES, INC.
By:
--------------------------------------------
Name:
Title:
QUEST FINANCIAL SERVICES, INC.
By:
--------------------------------------------
Name:
Title:
RADIOSURGERY CENTERS, INC.
By:
--------------------------------------------
Name:
Title:
MAXUM HEALTH SERVICES CORP.
By:
--------------------------------------------
Name:
Title:
MTS ENTERPRISES, INC.
By:
--------------------------------------------
Name:
Title:
DIAGNOSTEMPS, INC.
<PAGE>
101
By:
--------------------------------------------
Name:
Title:
MAXUM HEALTH SERVICES OF
NORTH TEXAS, INC.
By:
--------------------------------------------
Name:
Title:
MAXUM HEALTH SERVICES OF
ARLINGTON, INC.
By:
--------------------------------------------
Name:
Title:
MAXUM HEALTH SERVICES OF DALLAS, INC.
By:
--------------------------------------------
Name:
Title:
NDDC, INC.
By:
--------------------------------------------
Name:
Title:
DIAGNOSTIC SOLUTIONS CORP.
<PAGE>
102
By:
--------------------------------------------
Name:
Title:
MISSISSIPPI MOBILE TECHNOLOGY, INC.
By:
--------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
N.A., as Trustee
By:
--------------------------------------------
Name:
Title:
<PAGE>
Exhibit A
[FACE OF NOTE]
INSIGHT HEALTH SERVICES CORP.
9 5/8% [Series B]** Senior Subordinated Note Due 2008
CUSIP [_________]
No. [_______] $100,000,000
INSIGHT HEALTH SERVICES CORP., a Delaware corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to [___________], or its
registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS
($100,000,000), on June 15, 2008.
[Initial Interest Rate: 9 5/8% per annum.]*
[Interest Rate: 9 5/8% per annum.]**
Interest Payment Dates: June 15 and December 15 of each year
commencing December 15, 1998.
Regular Record Dates: June 1 and December 1 of each year.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
- ----------
* Include only for Initial Notes.
** Include only for Exchange Notes.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
executed.
Date: June , 1998 INSIGHT HEALTH SERVICES CORP.
---
By:
-------------------------------
Title:
Attest:
-------------------------------
A-2
<PAGE>
Form of Trustee's Certificate of Authentication
This is one of the 9 5/8% [Series B]** Senior Subordinated Notes due 2008
described in the within-mentioned Indenture.
Date: June __, 1998 STATE STREET BANK AND TRUST
COMPANY, N.A., as Trustee
By:
-----------------------------------
Authorized Signatory
- ----------
** Include only for Exchange Notes.
A-3
<PAGE>
[REVERSE SIDE OF NOTE]
INSIGHT HEALTH SERVICES CORP.
9 5/8% [Series B]** Senior Subordinated Note due 2008
1. Principal and Interest.
The Company will pay the principal of this Note on June 15,
2008.
The Company promises to pay interest on the principal amount
of this Note on each Interest Payment Date, as set forth below, at the rate of
[9 5/8% per annum (subject to adjustment as provided below)]* [9 5/8% per annum,
except that interest accrued on this Note pursuant to the penultimate paragraph
of this Section 1 for periods prior to the consummation of the Exchange Offer
(as such term is defined in the Registration Rights Agreement referred to below)
will accrue at the rate or rates borne by the Notes from time to time during
such periods].**
Interest will be payable semiannually on each Interest Payment
Date, commencing December 15, 1998 to the Holders of record of the Notes (or any
predecessor Notes) at the close of business on June 1, or December 1,
immediately preceding the applicable Interest Payment Date.
If (a) the Exchange Offer Registration Statement is not filed
with the Commission on or prior to the 60th calendar day following the Closing
Date or (b) the Exchange Offer Registration Statement is not declared effective
on or prior to the 150th calendar day following the Closing Date or the Exchange
Offer is not consummated on or prior to the 180th calendar day following the
Closing Date (except as otherwise set forth in the Registration Rights Agreement
(as defined below)) or (c) a Shelf Registration Statement is not declared
effective when required, the Company shall pay liquidated damages ("Liquidated
Damages") to each Holder of Notes with respect to the first 30-day period
following the 60-day period referred to in clause (a) above or the first 90-day
period following the periods referred to in clauses (b) or (c) above in an
amount equal to $0.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of Liquidated Damages will increase by an additional $0.05
per week per $1,000 principal amount of Notes at the beginning of each
subsequent 30-day period in the case of
- --------
* Include only for Initial Notes.
** Include only for Exchange Notes.
A-4
<PAGE>
clause (a) above or 90-day period in the case of clauses (b) and (c) above,
up to a maximum amount of Liquidated Damages of $0.30 per week per $1,000
principal amount of Notes. Upon the filing of the Exchange Offer Registration
Statement, the effectiveness of the Exchange Offer Registration Statement,
the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, Liquidated Damages will cease to
accrue from the date of such filing, consummation or effectiveness, as the
case may be; provided, however, that, if, after the date such Liquidated
Damages cease to accrue, a different event specified in clause (a), (b) or
(c) above occurs, Liquidated Damages may again commence accruing pursuant to
the foregoing provisions.
Interest on this Note will accrue from the most recent date to
which interest has been paid [on this Note or the Note surrendered in exchange
herefor]** or, if no interest has been paid, from June 12, 1998; provided that,
if there is no existing default in the payment of interest and if this Note is
authenticated between a Regular Record Date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such
Interest Payment Date. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on
the principal amount of the Notes on each June 15 and December 15 (each an
"Interest Payment Date") to the persons who are Holders (as reflected in the
Register at the close of business on the June 1 or December 1 immediately
preceding the applicable Interest Payment Date), in each case, even if the Note
is canceled on registration of transfer or registration of exchange after such
record date.
The principal of (and premium, if any), and interest on this
Note shall be payable, and this Note shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the Corporate Trust Office of the Trustee
located at 61 Broadway, 15th Floor, New York, New York 10006) or, at the option
of the Company, interest may be paid by check mailed to the address of the
Person entitled thereto as such address shall appear on the Register; provided
that all payments with respect to this Note, the Holders of which have given
wire transfer instructions to the Company, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
- --------------------
** Include only for Exchange Notes.
A-5
<PAGE>
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar upon written notice
thereto. The Company, any Subsidiary or any Affiliate of any of them may act as
Paying Agent, Registrar or co-registrar.
4. Subsidiary Guarantees.
This Note is initially entitled to the benefits of the
Subsidiary Guarantees made by the Subsidiary Guarantors as described in the
Indenture and may thereafter be entitled to Subsidiary Guarantees made by other
Subsidiary Guarantors for the benefit of the Holders of this Note. Each present
Subsidiary Guarantor has, and each future Subsidiary Guarantor will, irrevocably
and unconditionally, jointly and severally, guarantee on a senior subordinated
basis the punctual payment when due, whether at Stated Maturity, by
acceleration, in connection with a Change of Control Offer (as defined below),
an Asset Sale or redemption, or otherwise, of all obligations of the Company
under the Indenture and this Note, whether for payment of principal of, premium,
if any, or interest, if any, on the Notes, expenses, indemnification or
otherwise. A Subsidiary Guarantor shall be released from its Subsidiary
Guarantee upon the terms and subject to the conditions set forth in the
Indenture.
5. Subordination.
This Note and the Subsidiary Guarantees are subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full of
all existing and future Senior Indebtedness. Each of the Company and the
Subsidiary Guarantors agrees, and each Holder by accepting a Note agrees, to the
subordination provisions set forth in the Indenture, authorizes the Trustee to
give them effect and appoints the Trustee as attorney-in-fact for such purposes.
6. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
June 1, 1998, (the "Indenture"), between the Company, the Subsidiary Guarantors
named therein and State Street Bank and Trust Company, N.A., as trustee (the
"Trustee"). Capitalized terms herein are used as defined in the Indenture unless
otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general unsecured obligations of the Company.
A-6
<PAGE>
7. Redemption.
Optional Redemption. The Notes may be redeemed at the option
of the Company, in whole or in part, at any time and from time to time on or
after June 15, 2003 at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning June 15 of each of the years set forth below:
Redemption
Year Price
2003...................................104.8125%
2004 ..................................103.2083%
2005 .................................101.6042%
2006 and thereafter ..................100.0000%
In addition, at any time or from time to time prior to June 15,
2001, the Company may redeem up to 35% of the sum of (i) the initial aggregate
principal amount of the Notes and (ii) the initial aggregate principal amount of
any Additional Notes on one or more occasions with the net proceeds of one or
more Equity Offerings at a Redemption Price equal to 109.625% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
record date to receive interest due on an Interest Payment Date that is on or
prior to the Redemption Date); provided that, immediately after giving effect to
such redemption, at least 65% of the sum of (x) the initial aggregate principal
amount of the Notes and (y) the initial aggregate principal amount of any
Additional Notes remains outstanding; provided further that such redemptions
shall occur within 60 days of the date of closing of each Equity Offering.
Notice of a redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder to be redeemed at
such Holder's last address as it appears in the Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral multiples
of $1,000. On and after the Redemption Date, interest will cease to accrue on
Notes or portions of Notes called for redemption, unless the Company defaults in
the payment of the Redemption Price.
8. Repurchase upon a Change in Control and Asset Sales.
(a) If a Change of Control occurs at any time, then each
Holder of Notes or Additional Notes shall have the right to require that the
Company purchase such Holder's Notes
A-7
<PAGE>
or Additional Notes, as applicable, in whole or in part in integral multiples
of $1,000, at a purchase price in cash equal to 101% of the principal amount
of such Notes or Additional Notes, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to any such offer as is described in the
Indenture (a "Change of Control Offer") and (b) upon Asset Sales, the Company
may be obligated to make offers to purchase Notes with a portion of the Net
Cash Proceeds of such Asset Sales at a redemption price of 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase in accordance with the procedures set forth in the Indenture.
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess thereof; provided that
Certificated Notes originally purchased by or transferred to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not "qualified institutional buyers" (as defined in Rule
144A under the Securities Act) will be subject to a minimum denomination of
$250,000. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Notes selected for redemption (except
the unredeemed portion of any Note being redeemed in part). Also, it need not
register the transfer or exchange of any Notes for a period of 15 days before a
selection of Notes to be redeemed is made.
10. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all
purposes.
11. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be
deposited, with the Trustee
A-8
<PAGE>
money or U.S. Government Obligations sufficient to pay the then outstanding
principal of, premium, if any, and accrued interest on the Notes to redemption
or maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and any
existing default or compliance with any provision may be waived with the consent
of the Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency.
14. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Restricted Subsidiary
Capital Stock; (iv) transactions with Affiliates; (v) Liens; (vi) certain Asset
Sales; (vii) dividends and other payment restrictions affecting Restricted
Subsidiaries; (viii) mergers and certain transfers of assets. Within 120 days
after the end of each fiscal year, the Company must report to the Trustee on
compliance with such limitations.
15. Successor Persons.
When a successor Person assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor Person will be
released from those obligations.
16. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare all the Notes to be immediately
due and payable. If a bankruptcy or insolvency default with respect to the
Company or any of its Significant Subsidiaries occurs and is continuing, the
Notes automatically become immediately due and payable. Holders may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of at least a majority in
principal amount of the Notes then outstanding may
A-9
<PAGE>
direct the Trustee in its exercise of any trust or power.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
18. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. No director, officer,
employee, incorporator or stockholder of any Subsidiary Guarantor, as such,
shall have any liability for any obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes and the Subsidiary
Guarantees.
19. Authentication.
This Note shall not be valid until the Trustee manually signs
the certificate of authentication on the other side of this Note.
20. Governing Law.
The Notes shall be governed by, and construed in accordance
with, the law of the State of New York.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to InSight
Health Services Corp., 4400
A-10
<PAGE>
MacArthur Blvd., Suite 800, Newport Beach, California 92660, Attention: General
Counsel.
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or June 12, 2000 the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a)this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ] (b)this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
A-11
<PAGE>
Date: _________________________________
Signature to be guaranteed by an
institution that is a member of the
Signature Guarantee Medallion Program.
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: _____________________________
NOTICE: To be executed by an
executive officer
A-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1015 or Section 1016 of the Indenture, state the
amount (in original principal amount) below:
$
---------------------.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
A-13
<PAGE>
Exhibit B
Form of Certificate
to Be Delivered upon
Termination of Distribution Compliance Period
On or after July 22, 1998
InSight Health Services Corp.
4400 MacArthur Boulevard
Suite 800
Newport Beach, California 92660
Re: InSight Health Services Corp. (the "Company")
9 5/8% Senior Subordinated Notes due 2008 (the "Notes")
Ladies and Gentlemen:
Capitalized terms used herein without definitions shall have
the meanings ascribed thereto in the Indenture dated as of June 1, 1998 between
you and State Street Bank and Trust Company, N.A., as trustee. This letter
relates to U.S. $__________ principal amount at maturity of Notes represented by
the Offshore Global Note. Pursuant to Section 202 of the Indenture, we hereby
certify that (1) we are the beneficial owner of such principal amount of Notes
represented by the Offshore Global Note and (2) we are a Person outside the
United States to whom the Notes could be transferred in accordance with Rule 904
of Regulation S promulgated under the Securities Act. Accordingly, you are
hereby requested to issue an Offshore Physical Note representing the
undersigned's interest in the principal amount of Notes represented by the
Offshore Global Note, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
A-14
<PAGE>
Exhibit C
FORM OF SUBSIDIARY GUARANTEE
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of such
Holder, that: (a) the principal of (and premium, if any) and interest on the
Notes will be paid in full when due, whether at Stated Maturity, by
acceleration, call for redemption or otherwise (including, without limitation,
the amount that would become due but for the operation of the automatic stay
under Section 362(a) of the Federal Bankruptcy Code), together with interest on
the overdue principal, if any, and interest on any overdue interest, to the
extent lawful, and all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or of any such other obligations, the
same will be paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at Stated Maturity, by acceleration or
otherwise, subject, however, in the case of clauses (a) and (b) above, to the
limitations set forth in Section 1306 of the Indenture.
The obligations of the Subsidiary Guarantors to the Holders of the Notes
and to the Trustee on behalf of the Holders pursuant to this Subsidiary
Guarantee and the Indenture are expressly set forth in Article Thirteen of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of this Subsidiary Guarantee. The terms of Article Thirteen of the Indenture are
incorporated herein by reference.
This is a continuing guarantee and shall remain in full force and effect
and shall be binding upon each Subsidiary Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee on behalf of the Holders and the Holders of Notes and, in the event of
any transfer or assignment of rights by any Holder of Notes or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions hereof. This is a guarantee of payment and not a guarantee of
collection.
In certain circumstances more fully described in the Indenture, any
Subsidiary Guarantor may be released from its liability under this Subsidiary
Guarantee, and any such release will be effective whether or not noted herein.
<PAGE>
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Notes upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
<PAGE>
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its Subsidiary
Guarantee to be duly executed.
Date: June __, 1998
INSIGHT HEALTH CORP.
By:
Name:
Title:
RADIOLOGY SERVICES CORP.
By:
Name:
Title:
OPEN MRI, INC.
By:
Name:
Title:
MAXUM HEALTH CORP.
By:
Name:
Title:
SIGNAL MEDICAL SERVICES, INC.
By:
Name:
Title:
<PAGE>
QUEST FINANCIAL SERVICES, INC.
By:
Name:
Title:
RADIOSURGERY CENTERS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES CORP.
By:
Name:
Title:
MTS ENTERPRISES, INC.
By:
Name:
Title:
DIAGNOSTEMPS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF
NORTH TEXAS, INC.
<PAGE>
By:
Name:
Title:
MAXUM HEALTH SERVICES OF
ARLINGTON, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF DALLAS, INC.
By:
Name:
Title:
NDDC, INC.
By:
Name:
Title:
DIAGNOSTIC SOLUTIONS CORP.
By:
Name:
Title:
MISSISSIPPI MOBILE TECHNOLOGY, INC.
<PAGE>
By:
Name:
Title:
Each, a Subsidiary Guarantor
By:
Name:
Title:
<PAGE>
Exhibit D
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
[Date]
InSight Health Services Corp.
4400 MacArthur Boulevard
Suite 800
Newport Beach, California 92660
c/o STATE STREET BANK AND TRUST COMPANY
61 Broadway, 15th Floor
New York, New York 10006
Attention: Corporate Trust Department
Re: InSight Health Services Corp., (the "Company")
9 5/8 % Senior Subordinated Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed purchase of $[____________] aggregate
principal amount of the Notes:
1. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We agree on our own
behalf and on behalf of any investor account for which we are purchasing the
Notes to offer, sell or otherwise transfer such Notes prior to the date
which is two years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company was the owner
of such Notes, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c)
for so long as the Notes are eligible for resale pursuant to Rule 144A under
the Securities Act, to a person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that purchases for its own
<PAGE>
account or for the account of a QIB to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales to non-U.S. Persons that occur outside the United States within the
meaning of Regulations S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Securities Act that is acquiring the Notes for its
own account or for the account of such an institutional "accredited
investor" for investment purposes and not with a view to, or for offer or
sale in connection with, any distribution thereof in violation of the
Securities Act or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our
property and the property of such investor account or accounts be at all
times within our or their control and to compliance with any applicable
state securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e)
above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee substantially in the form of this
letter to the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) or Rule 501 under the Securities Act
and that it is acquiring such Notes for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge that the
Company and the Trustee reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the Notes
pursuant to clauses (d), (e) and (f) above to require the delivery of an
Opinion of Counsel, certifications and/or other information satisfactory to
the Company and the Trustee.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an institutional
"accredited investor," and we are acquiring the Notes for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the Securities Act and we have such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we
and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
3. We are acquiring the Notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
<PAGE>
By:
(NAME OF PURCHASER)
Date:
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
<PAGE>
Exhibit E
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[Date]
InSight Health Services Corp.
4400 MacArthur Boulevard
Suite 800
Newport Beach, California 92660
c/o
c/o STATE STREET BANK AND TRUST COMPANY
61 Broadway, 15th Floor
New York, New York 10006
Attention: Corporate Trust Department
Re: InSight Health Services Corp. (the "Company")
9 5/8% Senior Subordinated Notes Due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $[_________] aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the Securities Act of 1933, as amended,
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States and
the proposed transferee is a Non-U.S. Person (as defined in the Indenture
pursuant to which the Notes were issued);
(2) either (a) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our behalf
knows that the transaction has been pre-arranged with a buyer in the United
States;
<PAGE>
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933, as amended.
In addition, if the sale is made during a distribution compliance period and
the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has been made in accordance with
the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may
be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
Authorized Signature
<PAGE>
INSIGHT HEALTH SERVICES CORP.
Issuer,
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
Guarantors
and
STATE STREET BANK AND TRUST COMPANY, N.A.
Trustee
--------------------
Indenture
Dated as of June 1, 1998
---------------------
$100,000,000
9 5/8% Senior Subordinated Notes Due 2008
<PAGE>
INSIGHT HEALTH SERVICES CORP.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of June 1, 1998
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
Section 310(a)(1) 607
(a)(2) 607
(b) 608
Section 312(c) 701
Section 314(a) 703
(a)(4) 1008(a)
(c)(1) 103
(c)(2) 103
(e) 103
Section 315(b) 601
Section 316(a)(last
sentence) 101 ("Outstanding")
(a)(1)(A) 502, 512
(a)(1)(B) 513
(b) 508
(c) 105(d)
Section 317(a)(1) 503
(a)(2) 504
(b) 1003
Section 318(a) 114
</TABLE>
- ----------
Note: This reconciliation and tie shall not, for any purpose be deemed part of
the Indenture
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES......................................................................................................... 1
RECITALS OF THE COMPANY......................................................................................... 1
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION............................................................................................2
SECTION 101. Definitions................................................................................2
Acquired Indebtedness...........................................................................2
Act.............................................................................................2
Additional Notes................................................................................2
Affiliate.......................................................................................2
Agent Bank......................................................................................3
Amended Credit Agreement........................................................................3
Asset Sale......................................................................................3
Banks .......................................................................................3
Board .......................................................................................3
Board Resolution................................................................................4
Business Day....................................................................................4
Capital Stock...................................................................................4
Capitalized Lease Obligation....................................................................4
Cash Equivalent.................................................................................4
Change of Control...............................................................................4
Closing Date....................................................................................5
Commission......................................................................................5
Common Stock....................................................................................5
Company .......................................................................................6
Company Request" or "Company Order..............................................................6
Consolidated EBITDA.............................................................................6
Consolidated Net Income.........................................................................6
Consolidated Tangible Assets....................................................................7
Corporate Trust Office..........................................................................7
Corporation.....................................................................................7
Default .......................................................................................7
Defaulted Interest..............................................................................7
Depositary......................................................................................7
</TABLE>
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Designated Senior Indebtedness..................................................................7
Disinterested Director..........................................................................7
Disqualified Stock..............................................................................7
Equity Offering.................................................................................8
Event of Default................................................................................8
Exchange Act....................................................................................8
Exchange Notes..................................................................................8
Exchange Offer..................................................................................8
Exchange Offer Registration Statement...........................................................8
Existing Indebtedness...........................................................................8
Facility .......................................................................................8
Federal Bankruptcy Code.........................................................................9
Fixed Charges...................................................................................9
Fixed Charge Coverage Ratio.....................................................................9
Foreign Subsidiary..............................................................................9
Generally Accepted Accounting Principles" or "GAAP..............................................9
Guarantee.......................................................................................9
Hedging Obligations.............................................................................9
Holder.........................................................................................10
Indebtedness...................................................................................10
Indenture......................................................................................10
Initial Notes..................................................................................10
Interest Payment Date..........................................................................10
Investment.....................................................................................10
Lien...........................................................................................11
Maturity.......................................................................................11
Moody's........................................................................................11
Net Cash Proceeds..............................................................................11
Non-payment Event of Default...................................................................12
Non-Recourse Indebtedness......................................................................12
Non-U.S. Person................................................................................12
Notes..........................................................................................12
Obligations....................................................................................12
Officers' Certificate..........................................................................12
Opinion of Counsel.............................................................................12
Outstanding....................................................................................12
Pari Passu Indebtedness........................................................................13
Paying Agent...................................................................................13
Payment Default................................................................................14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Payment Event of Default.......................................................................14
"Permitted Business" means the Business conducted by the Company, its
Restricted Sub..............................................................................14
Permitted Holders..............................................................................14
Permitted Investments..........................................................................14
Permitted Joint Venture........................................................................15
Permitted Refinancing Indebtedness.............................................................16
Person ......................................................................................16
Predecessor Note...............................................................................16
Preferred Stock................................................................................16
Purchase money obligations.....................................................................17
QIB ......................................................................................17
Qualified Equity Interest......................................................................17
Qualified Stock................................................................................17
Redemption Date................................................................................17
Redemption Price...............................................................................17
Register and Note Registrar....................................................................17
Registrar......................................................................................17
Registration Rights Agreement..................................................................17
Registration Statement.........................................................................17
Regular Record Date............................................................................18
Regulation S...................................................................................18
Restricted Investment..........................................................................18
Restricted Subsidiary..........................................................................18
Rule 144A......................................................................................18
Sale and Leaseback Transaction.................................................................18
Securities Act.................................................................................18
Senior Bank Debt...............................................................................18
Senior Indebtedness............................................................................18
Shelf Registration Statement...................................................................19
Significant Subsidiary.........................................................................19
S&P............................................................................................19
Special Record Date............................................................................19
Stated Maturity................................................................................19
Subordinated Indebtedness......................................................................19
Subsidiary.....................................................................................20
Subsidiary Guarantee...........................................................................20
Subsidiary Guarantors..........................................................................20
Trust Indenture Act or TIA.....................................................................20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Trustee ......................................................................................20
Unrestricted Subsidiary........................................................................20
U.S. Government Obligations....................................................................20
Voting Stock...................................................................................21
Weighted Average Life..........................................................................21
Wholly Owned Restricted Subsidiary.............................................................21
SECTION 102. Incorporation by Reference of Trust Indenture Act.........................................21
SECTION 103. Compliance Certificates and Opinions......................................................22
SECTION 104. Form of Documents Delivered to Trustee....................................................22
SECTION 105. Acts of Holders...........................................................................23
SECTION 106. Notices, etc., to Trustee, Company and Subsidiary Guarantors..............................24
SECTION 107. Notice to Holders; Waiver.................................................................25
SECTION 108. Effect of Headings and Table of Contents..................................................26
SECTION 109. Successors and Assigns....................................................................26
SECTION 110. Severability Clause.......................................................................26
SECTION 111. Benefits of Indenture.....................................................................26
SECTION 112. Governing Law.............................................................................26
SECTION 113. Legal Holidays............................................................................26
SECTION 114. Conflict of Any Provision of Indenture with Trust Indenture Act...........................27
ARTICLE TWO NOTE FORMS...........................................................................................27
SECTION 201. Forms Generally...........................................................................27
SECTION 202. Restrictive Legends.......................................................................28
ARTICLE THREE THE NOTES..........................................................................................30
SECTION 301. Title and Terms...........................................................................30
SECTION 302. Denominations.............................................................................31
SECTION 303. Execution, Authentication, Delivery and Dating............................................31
SECTION 304. Temporary Notes...........................................................................33
SECTION 305. Registration, Registration of Transfer and Exchange.......................................33
SECTION 306. Book-Entry Provisions for Global Notes....................................................34
SECTION 307. Special Transfer Provisions...............................................................36
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes...............................................39
SECTION 309. Payment of Interest; Interest Rights Preserved............................................40
SECTION 310. Persons Deemed Owners.....................................................................41
SECTION 311. Cancellation..............................................................................42
SECTION 312. Issuance of Additional Notes..............................................................42
SECTION 313. Computation of Interest...................................................................42
ARTICLE FOUR SATISFACTION AND DISCHARGE..........................................................................42
SECTION 401. Satisfaction and Discharge of Indenture...................................................42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 402. Application of Trust Money................................................................43
ARTICLE FIVE REMEDIES............................................................................................44
SECTION 501. Events of Default.........................................................................44
SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................45
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................46
SECTION 504. Trustee May File Proofs of Claim..........................................................47
SECTION 505. Trustee May Enforce Claims Without Possession of Notes....................................48
SECTION 506. Application of Money Collected............................................................48
SECTION 507. Limitation on Suits.......................................................................49
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.................................................................................49
SECTION 509. Restoration of Rights and Remedies........................................................49
SECTION 510. Rights and Remedies Cumulative............................................................50
SECTION 511. Delay or Omission Not Waiver..............................................................50
SECTION 512. Control by Holders........................................................................50
SECTION 513. Waiver of Past Defaults...................................................................51
SECTION 514. Waiver of Stay or Extension Laws..........................................................51
SECTION 515. Waiver of Personal Liability of Directors, Officers,
Employees and Stockholders...............................................................51
ARTICLE SIX THE TRUSTEE..........................................................................................52
SECTION 601. Duties of Trustee.........................................................................52
SECTION 602. Notice of Defaults........................................................................53
SECTION 603. Certain Rights of Trustee.................................................................53
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes.................................55
SECTION 605. May Hold Notes............................................................................55
SECTION 606. Money Held in Trust.......................................................................55
SECTION 607. Compensation and Reimbursement............................................................55
SECTION 608. Corporate Trustee Required; Eligibility...................................................56
SECTION 609. Resignation and Removal; Appointment of Successor.........................................57
SECTION 610. Acceptance of Appointment by Successor....................................................58
SECTION 611. Merger, Conversion, Consolidation or Succession to Business...............................59
ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE...............................................................59
SECTION 701. Disclosure of Names and Addresses of Holders..............................................59
SECTION 702. Reports by Trustee........................................................................59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE.......................................................................................60
SECTION 801. Company May Consolidate, etc., Only on Certain Terms......................................60
SECTION 802. Successor Substituted.....................................................................61
ARTICLE NINE SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND SUBSIDIARY GUARANTEES...............................................................................62
SECTION 901. Without Consent of Holders................................................................62
SECTION 902. With Consent of Holders...................................................................63
SECTION 903. Execution of Supplemental Indentures......................................................64
SECTION 904. Effect of Supplemental Indentures.........................................................64
SECTION 905. Conformity with Trust Indenture Act.......................................................64
SECTION 906. Reference in Notes to Supplemental Indentures.............................................65
SECTION 907. Notice of Supplemental Indentures.........................................................65
ARTICLE TEN COVENANTS............................................................................................65
SECTION 1001. Payment of Principal, Premium, if any, and Interest......................................65
SECTION 1002. Maintenance of Office or Agency..........................................................65
SECTION 1003. Money for Note Payments to Be Held in Trust..............................................66
SECTION 1004. Corporate Existence......................................................................67
SECTION 1005. Payment of Taxes and Other Claims........................................................68
SECTION 1006. Maintenance of Properties................................................................68
SECTION 1007. Insurance................................................................................68
SECTION 1008. Statement by Officers As to Default......................................................68
SECTION 1009. Reports..................................................................................69
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Stock...................................................................................69
SECTION 1011. Limitation on Restricted Payments........................................................72
SECTION 1012. Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries............................................................................76
SECTION 1013. Limitation on Transactions with Affiliates...............................................76
SECTION 1014. Limitation on Liens......................................................................77
SECTION 1015. Purchase of Notes upon a Change of Control...............................................78
SECTION 1016. Limitation on Certain Asset Sales........................................................80
SECTION 1017. Unrestricted Subsidiaries................................................................81
SECTION 1018. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.......................................................82
SECTION 1019. Waiver of Certain Covenants..............................................................83
SECTION 1020. Payment for Consent......................................................................83
SECTION 1021. Limitation on Layering Debt..............................................................83
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1022. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries............................................................................84
ARTICLE ELEVEN REDEMPTION OF NOTES...............................................................................84
SECTION 1101. Right of Redemption......................................................................84
SECTION 1102. Applicability of Article.................................................................85
SECTION 1103. Election to Redeem; Notice to Trustee....................................................85
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.............................................86
SECTION 1105. Notice of Redemption.....................................................................86
SECTION 1106. Deposit of Redemption Price..............................................................87
SECTION 1107. Notes Payable on Redemption Date.........................................................87
SECTION 1108. Notes Redeemed in Part...................................................................88
ARTICLE TWELVE LEGAL DEFEASANCE AND COVENANT DEFEASANC...........................................................88
SECTION 1201. Company Option to Effect Legal Defeasance or Covenant
Defeasance.............................................................................88
SECTION 1202. Legal Defeasance and Discharge...........................................................88
SECTION 1203. Covenant Defeasance......................................................................89
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance....................................89
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions...........................................90
SECTION 1206. Reinstatement............................................................................91
ARTICLE THIRTEEN GUARANTEES......................................................................................91
SECTION 1301. Subsidiary Guarantees....................................................................91
SECTION 1302. Execution and Delivery of Subsidiary Guarantee...........................................93
SECTION 1303. Severability.............................................................................93
SECTION 1304. Seniority of Subsidiary Guarantees.......................................................93
SECTION 1305. Limitation of Subsidiary Guarantor's Liability...........................................94
SECTION 1306. Contribution.............................................................................94
SECTION 1307. Release of a Subsidiary Guarantor........................................................95
SECTION 1308. Benefits Acknowledged....................................................................95
SECTION 1309. Issuance of Subsidiary Guarantees by Certain New Restricted
Subsidiaries............................................................................96
ARTICLE FOURTEEN SUBORDINATION...................................................................................96
SECTION 1401. Notes Subordinate to Senior Indebtedness.................................................96
SECTION 1402. Payment over by the Company of Proceeds upon
Dissolution, etc........................................................................96
SECTION 1403. Suspension of Payment on Notes When Senior Indebtedness of the
Company in Default......................................................................97
SECTION 1404. Payment Over by Subsidiary Guarantors of Proceeds Upon
Dissolution, etc........................................................................98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1405. Suspension of Payment on Subsidiary Guarantees When Senior
Indebtedness of Subsidiary Guarantor in Default........................................100
SECTION 1406. Payment Permitted If No Default.........................................................100
SECTION 1407. Subrogation to Rights of Holders of Senior Indebtedness.................................101
SECTION 1408. Provisions Solely to Define Relative Rights.............................................101
SECTION 1409. Trustee to Effectuate Subordination.....................................................102
SECTION 1410. No Waiver of Subordination Provisions...................................................102
SECTION 1411. Notice to Trustee.......................................................................102
SECTION 1412. Reliance on Judicial Order or Certificate of Liquidating
Agent..................................................................................103
SECTION 1413. Rights of Trustee As a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.......................................................103
SECTION 1414. Article Applicable to Paying Agents.....................................................104
SECTION 1415. No Suspension of Remedies...............................................................104
SECTION 1416. Trust Moneys Not Subordinated...........................................................104
SECTION 1417. Trustee Not Fiduciary for Holders of Senior Indebtedness................................104
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Page
<S> <C>
Exhibit A - Form of Note........................................................................................A-1
Exhibit B - Form of Certificate to Be Delivered upon Termination of Restricted Period...........................B-1
Exhibit C - Form of Subsidiary Guarantee........................................................................C-1
Exhibit D - Form of Certificate to Be Delivered in Connection with Transfers
to Non-QIB Institutional Accredited Investors .....................................................D-1
Exhibit E - Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S...........................................................................E-1
</TABLE>
SCHEDULES
Schedule I - Existing Indebtedness
<PAGE>
CONFORMED COPY
INSIGHT HEALTH SERVICES CORP.
$100,000,000
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
June 9, 1998
NationsBanc Montgomery Securities LLC
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Sutro & Co. Incorporated
11150 Santa Monica Blvd.
Los Angeles, CA 90025
Ladies and Gentlemen:
InSight Health Services Corp., a Delaware corporation (the "Company"),
proposes to issue and sell (the "Initial Placement") to NationsBanc Montgomery
Securities LLC, Morgan Stanley & Co. Incorporated and Sutro & Co. Incorporated
(the "Initial Purchasers" and, individually, each an "Initial Purchaser")
$100,000,000 aggregate principal amount of its 9 5/8% Senior Subordinated Notes
Due 2008 (the "Notes"). The Notes are to be fully and unconditionally guaranteed
on an unsecured, senior subordinated basis (the "Note Guarantees") by all
existing and future United States subsidiaries of the Company (other than
Permitted Joint Ventures) (each such existing guarantor, a "Guarantor" and
collectively, the "Guarantors"). The Notes are to be issued under an indenture
(the "Indenture") dated as of June 1, 1998 between the Company, the Guarantors
and State Street Bank and Trust Company, N.A., as trustee (the "Trustee").
This Purchase Agreement (this "Agreement"), the Notes, the Note Guarantees,
the Indenture, the Registration Rights Agreement, dated as of June 12, 1998,
among the Company, the Guarantors and the Initial Purchasers (the "Registration
Rights Agreement") and the Credit Agreement, dated as of October 14, 1997, as
amended as of November 17, 1997,
<PAGE>
December 19, 1997 and March 23, 1998 (the "Credit Agreement") and to be amended
(as described in the Final Memorandum) concurrently with the issuance of the
Notes (the "Fourth Amendment"), among the Company, the lenders named therein and
NationsBank, N.A., as agent, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith (the
"Amended Credit Agreement") are herein collectively referred to as the
"Transaction Documents."
The sale of the Notes to the Initial Purchasers will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from the registration
requirements of the Securities Act. You have advised the Company that you will
offer and sell the Notes purchased by you hereunder in accordance with Section 4
hereof as soon as you deem advisable. The Notes will have the benefit of certain
registration rights, pursuant to the Registration Rights Agreement.
In connection with the sale of the Notes, the Company and the Guarantors
have prepared a preliminary offering memorandum, dated May 20, 1998 (the
"Preliminary Memorandum"), and a final offering memorandum, dated June 9, 1998
(the "Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company, the Guarantors
and the Notes. The Company and the Guarantors hereby confirm that they have
authorized the use of the Preliminary Memorandum and the Final Memorandum, and
any amendment or supplement thereto, in connection with the offer and sale of
the Notes by the Initial Purchasers. Unless stated to the contrary, all
references herein to the Final Memorandum are to the Final Memorandum at the
Execution Time (as defined below) and are not meant to include any amendment or
supplement subsequent to the Execution Time.
The Notes are being issued for purposes of refinancing certain indebtedness
outstanding under the Credit Agreement and for general corporate purposes. Prior
to the Closing Date, the Company will execute an amendment to the Credit
Agreement as described in the Final Memorandum. Capitalized terms used herein
without definition shall have their respective meanings set forth in the Final
Memorandum.
1. Representations and Warranties. The Company represents and warrants to
the Initial Purchasers that:
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Final Memorandum, at the
date hereof, does not, and at the Closing Date (as defined below) will not
(or, if amended or supplemented, the Final Memorandum as amended or
supplemented at the date of any such amendment or supplement and at the
Closing Date, will not), contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
<PAGE>
in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representation or
warranty as to the information contained in or omitted from the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of the Initial Purchasers specifically for
inclusion therein.
(b) Neither the Company, nor any "Affiliate" (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the
Company or any person acting on its or their behalf (other than the Initial
Purchasers, as to which no representation is made) has, directly or
indirectly, made offers or sales of any security, or solicited offers to
buy any security, under circumstances that would require the registration
of the Notes under the Securities Act.
(c) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf (other than the Initial Purchasers, as to
which no representation is made) has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Notes in the United States.
(d) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
under the Securities Act.
(e) With respect to those Notes sold in reliance upon Regulation S,
(i) none of the Company, its Affiliates or any person acting on its or
their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation or warranty) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S and (ii) each
of the Company and its Affiliates and any person acting on its or their
behalf (other than the Initial Purchasers, as to whom the Company makes no
representation or warranty) has complied and will comply with the offering
restrictions set forth in Regulation S.
(f) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), without taking account of any exemption arising out of the number of
holders of the securities of the Company.
(g) Neither the Company nor any of its Affiliates has paid or agreed
to pay to any person any compensation for soliciting another to purchase
any securities of the Company (except as contemplated by this Agreement).
(h) Assuming that the representations and warranties of the Initial
Purchasers contained in Section 4 hereof are true and correct in all
material respects
<PAGE>
and that the Initial Purchasers comply in all material respects with all of
their covenants and agreements contained herein, it is not required in
connection with the offer, sale and delivery of the Notes in the manner
contemplated by this Agreement and the Final Memorandum to register any of
such securities under the Securities Act or to qualify the Indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
(i) The Company has been advised by the National Association of
Securities Dealers, Inc. (the "NASD") Private Offerings, Resales and
Trading through Automated Linkages market ("PORTAL") that the Notes have
been designated PORTAL eligible securities in accordance with the rules and
regulations of the NASD.
(j) The consolidated financial statements (including the notes
thereto) and schedules of the Company and its subsidiaries and Signal
Medical Services, Inc., a Delaware corporation ("Signal") and its
subsidiaries, each set forth in the Final Memorandum, present fairly in all
material respects the financial position, results of operations and cash
flows of the Company and its subsidiaries and Signal and its subsidiaries,
respectively, as of the dates and for the periods specified therein; since
the date of the latest of such financial statements, there has been no
change or any development or event involving a prospective change which has
had a material adverse effect on (i) the business, operations, properties,
assets, liabilities, net worth, condition (financial or otherwise) or
prospects of the Company and its subsidiaries (including Signal and its
subsidiaries), taken as a whole, or (ii) the ability of the Company to
perform any of its obligations under the Transaction Documents (a "Material
Adverse Effect"); such financial statements and schedules have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
expressly noted in the Final Memorandum); the other financial and
statistical information and data (other than market-related information)
set forth in the Final Memorandum (and any amendment or supplement thereto)
is, in all material respects, accurately presented and prepared on a basis
consistent with such financial statements, except as otherwise stated
therein; and the statistical and marketrelated data included in the Final
Memorandum are based on or derived from sources which the Company believes
to be reliable and accurate and are based upon assumptions and
qualifications which the Company considers reasonable and appropriate in
all material respects.
(k) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final
Memorandum (i) comply as to form in all material respects with the
applicable requirements of Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (ii) have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and (iii) have been properly
computed on the bases described therein; the assumptions used in the
preparation of the
<PAGE>
pro forma financial data and other pro forma financial information included
in the Final Memorandum are reasonable in all material respects and the
adjustments used therein are appropriate in all material respects to give
effect to the transactions or circumstances referred to therein.
(l) Subsequent to the respective dates as of which information is
given in the Preliminary Memorandum and the Final Memorandum, and except in
each case as described in or contemplated by the Preliminary Memorandum or
the Final Memorandum, as the case may be, (i) the Company and its
subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company and its subsidiaries have not
purchased any of their outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on their capital
stock; and (iii) there has not been any material change in the capital
stock, short-term debt or long-term debt of the Company or its
subsidiaries.
(m) Each of the Company and its corporate subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or organized
with full power (corporate and other) to own or lease its properties,
conduct its business as described in the Final Memorandum and to enter into
each Transaction Document to which it is a party and carry out the terms
and provisions of each such Transaction Document to be carried out by it;
the Company and each of its corporate subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction which requires such qualification wherein it owns or
leases properties or conducts business, except in such jurisdictions in
which the failure to so qualify, singly or in the aggregate, would not have
a Material Adverse Effect.
(n) Each of the subsidiaries of the Company that are limited
partnerships or limited liability companies are and, as of the Closing
Date, will be duly formed, validly existing and in good standing as a
limited partnership or limited liability company, as the case may be, under
the laws of the jurisdiction of its organization or formation, as the case
may be, and each has all requisite limited liability company or partnership
power and authority, as the case may be, under such laws to own, lease and
operate its properties and conduct its business as described in the Final
Memorandum; and each is and, as of the Closing Date, will be duly qualified
to transact business and in good standing in each other jurisdiction which
requires such qualification, whether by reason of the ownership or leasing
of property or the conduct of business, except in such jurisdictions in
which the failure to so qualify, singly or in the aggregate, would not have
a Material Adverse Effect.
(o) The Company has the authorized, and, as of March 31, 1998 issued
and outstanding capitalization as set forth in the Final Memorandum under
the caption
<PAGE>
"Capitalization." All of the issued shares of capital stock of the Company
have been duly authorized, validly issued, fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights.
(p) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire from the Company
any shares of capital stock of, or other ownership interest in, the Company
or any of its subsidiaries except pursuant to existing stock option plans,
a warrant to purchase 15,000 shares of the Company's common stock held by
Anthony LeVecchio and as otherwise disclosed in the Final Memorandum.
(q) The issued shares of capital stock of each of the Company's
corporate subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and, except for directors' qualifying shares
and except as otherwise set forth in the Final Memorandum, are owned of
record and beneficially by the Company, either directly or through wholly
owned subsidiaries, free and clear of any pledge, lien, encumbrance,
security interest, restriction on voting or transfer, preemptive rights or
claim of any third party. No subsidiary of the Company is prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from the
Company or from transferring any of such subsidiary's property or assets to
the Company or any other subsidiary of the Company, except as described in
or contemplated by the Final Memorandum.
(r) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or bylaws (or similar organizational documents),
(ii) in breach or violation of any law, ordinance, governmental or
administrative rule or regulation or court decree or (iii) in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which it is a party or by which its
respective properties may be bound, except to the extent that any such
breach or violation in the case of (ii) or any such default in the case of
(iii) would not have a Material Adverse Effect.
(s) The issuance, offering and sale of the Notes to the Initial
Purchasers pursuant to this Agreement, the delivery of the Notes under this
Agreement, the compliance by the Company and the Guarantors with the
provisions of each of the Transaction Documents to which it is a party and
the consummation of the other transactions herein and therein contemplated
do not (i) require the consent, approval, authorization, order,
registration or qualification of or with any governmental authority or
court, except such as may be required under state securities or blue sky
laws or except as may be contemplated by the Registration Rights Agreement
or except to the
<PAGE>
extent that the absence or failure to obtain such consent, approval,
authorization, order, registration or qualification would not have a
Material Adverse Effect, or (ii) conflict with, result in a breach or
violation of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to, any material
contract, loan agreement, note, indenture, mortgage, deed of trust, lease
or other agreement or instrument to which the Company or any of its
subsidiaries is a party, or by which the Company or any of its subsidiaries
or any of their respective properties is bound, or the charter or by-laws
of the Company or any of its subsidiaries or any statute, rule or
regulation or any judgment, order or decree of any governmental authority
or court or arbitrator applicable to the Company or any of its
subsidiaries, except to the extent that any such conflict, breach,
violation or default would not have a Material Adverse Effect (other than
with respect to the Charter and by-laws of the Company and the Guarantors)
or except for such consents that have already been obtained.
(t) The Company and its subsidiaries possess all certificates,
authorizations and permits (including environmental permits) issued by the
appropriate federal, state or foreign regulatory authorities or bodies
necessary to conduct their respective businesses, except for those the lack
of which would not cause a Material Adverse Effect, and neither the Company
nor any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, is reasonably likely to result in
a Material Adverse Effect. Without limiting the generality of the
foregoing, all facilities owned or operated as continuing operations by the
Company or its subsidiaries (the "Company Facilities"), to the extent
described in the Final Memorandum, (i) are certified for participation or
enrollment in the Medicare and Medicaid programs, except where failure to
do so, singly or in the aggregate, would not have a Material Adverse
Effect, (ii) have a current and valid provider contract with the Medicare
and Medicaid programs, except where failure to have such contract, singly
or in the aggregate, would not have a Material Adverse Effect, and (iii)
are in substantial compliance with the terms and conditions of
participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of the Company's assets
except, in each case, where the failure to be so certified, to have such
contracts, to be in such compliance or to have such approvals or
qualifications, singly or in the aggregate, would not have a Material
Adverse Effect. Except as set forth in the Final Memorandum, neither the
Company nor any of its subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in respect
of the Medicare or Medicaid programs of any pending or threatened
investigations, surveys (other than routine surveys) or decertification
proceedings, and the Company has reasonably concluded that no such
investigations, surveys or other proceedings which are pending threatened
or imminent are likely to have a Material Adverse Effect.
<PAGE>
(u) No legal or governmental proceedings or investigations are pending
to which the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are not
described in the Final Memorandum, and no such proceedings or
investigations, to the best knowledge of the Company, have been threatened
against the Company or any of its subsidiaries, or with respect to any of
their respective properties, except in each case for such proceedings or
investigations that, singly or in the aggregate, are not reasonably likely
to result in a Material Adverse Effect.
(v) The Company and each of its subsidiaries have valid title in fee
simple to all items of real property and title to all personal property
owned by each of them, in each case free and clear of any pledge, lien,
encumbrance, security interest or other defect or claim of any third party,
except (i) such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made of
such property by the Company or such subsidiary to an extent that such
interference would have a Material Adverse Effect, and (ii) permitted liens
set forth in the Final Memorandum. Any real property and buildings held
under lease by the Company or any such subsidiary are held under valid,
subsisting and enforceable leases, with such exceptions as do not
materially interfere with the use made or proposed to be made of such
property and buildings by the Company or such subsidiary.
(w) This Agreement has been duly authorized, executed and delivered by
the Company.
(x) The Registration Rights Agreement, the Amended Credit Agreement
and the Indenture have been duly authorized by all necessary actions of the
Company and, when duly executed and delivered by the Company (and its
subsidiaries, as applicable) and the other parties thereto, will constitute
legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except as the same may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, including
without limitation the effect of statutory or other laws regarding
fraudulent conveyances or transfers or preferential transfers, or (ii)
general principles of equity, whether considered at law or in equity, and
except as the enforceability of rights of indemnification or contribution
may be limited by or under federal or state securities laws or public
policy.
(y) The Notes and the Note Guarantees have been duly authorized by all
necessary action for issuance and sale pursuant to this Agreement and, when
the Notes are executed, authenticated, issued and delivered in the manner
provided for in the Indenture and sold and paid for as provided in this
Agreement, the Notes will constitute legal, valid and binding obligations
of the Company and the Guarantors, respectively,
<PAGE>
entitled to the benefits of the Indenture and enforceable against the
Company and the Guarantors, respectively, in accordance with their terms,
except as the same may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally, including without limitation the effect of statutory or other
laws regarding fraudulent conveyances or transfers or preferential
transfers, or (ii) general principles of equity, whether considered at law
or in equity, and except as the enforceability of rights of indemnification
or contribution may be limited by or under federal or state securities laws
or public policy.
(z) Arthur Andersen LLP ("Arthur Andersen"), which has audited certain
financial statements of the Company and its consolidated subsidiaries and
delivered its reports with respect to the audited consolidated financial
statements of the Company in the Final Memorandum, are independent public
accountants within the meaning of the Securities Act and the applicable
rules and regulations thereunder. KPMG Peat Marwick LLP ("KPMG Peat"),
which has audited certain financial statements of Signal and its
consolidated subsidiaries and delivered its reports with respect to the
consolidated audited financial statements of Signal in the Final
Memorandum, are independent public accountants within the meaning of the
Securities Act and the applicable rules and regulations thereunder.
(aa) Each of the Company and Signal and each of their respective
subsidiaries maintains a system of internal accounting controls sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(bb) Neither the Company nor any of its subsidiaries is now or, after
giving effect to the issuance of the Notes and the consummation of the
transactions contemplated by the Final Memorandum will be (i) insolvent,
(ii) left with unreasonably small capital with which to engage in its
anticipated businesses or (iii) incurring debts beyond its ability to pay
such debts as they become due.
(cc) The Company and its subsidiaries own or otherwise possess the
right to use all patents, trademarks, service marks, trade names and
copyrights, all applications and registrations for each of the foregoing,
and all other proprietary rights and confidential information used in the
conduct of their respective businesses as currently conducted, except to
the extent the absence thereof would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice, or is otherwise aware, of any infringement of or conflict with the
rights of any third party
<PAGE>
with respect to any of the foregoing which, singly or in the aggregate, is
reasonably likely to result in a Material Adverse Effect.
(dd) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility (or by appropriate self-insurance)
against such losses and risks and in such amounts as are prudent and
customary in the businesses and in the locations in or at which they are
engaged; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(ee) ERISA:
(i) Definitions:
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) that for purposes of Title IV of ERISA is a
member of the controlled group of the Company, or under common
control with the Company, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a)(i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect
to any Plan unless the 30-day notice requirement with respect to
such event has been waived by the PBGC, or (ii) the requirements
of subsection (1) of Section 4043(b) of ERISA are met with
respect to a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of
ERISA is reasonably expected to occur with respect to such Plan
within the following 30 days; (b) the application for a minimum
funding waiver with respect to a Plan; (c) the provision by the
administrator of any Plan of a notice of intent to terminate such
Plan, pursuant to Section 4041(a)(2) of ERISA (including any such
notice with respect to a plan amendment referred to in Section
4041(e) of ERISA); (d) the cessation of operations at a facility
of the Company or any ERISA Affiliate in the circumstances
described in Section 4062(e) of ERISA; (e) the
<PAGE>
withdrawal by the Company or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the
conditions for imposition of a lien under Section 302(f) of ERISA
shall have been met with respect to any Plan; (g) the adoption of
an amendment to a Plan requiring the provision of security to
such Plan pursuant to Section 307 of ERISA; or (h) the
institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event
or condition described in Section 4042 of ERISA that constitutes
grounds for the termination of, or the appointment of a trustee
to administer, such Plan.
"Multiemployer Plan" means a multiemployer plan, as defined
in Section 4001(a)(3) of ERISA, to which the Company or any ERISA
Affiliate is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years
made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained
for employees of the Company or any ERISA Affiliate and at least
one trade or business (whether or not incorporated) other than
the Company and the ERISA Affiliates or (b) was so maintained and
in respect of which the Company or any ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such
plan has been or were to be terminated.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained
for employees of the Company or any ERISA Affiliate and no trade
or business (whether or not incorporated) other than the Company
and the ERISA Affiliates or (b) was so maintained and in respect
of which the Company or any ERISA Affiliate could have liability
under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
<PAGE>
"Underfunding" means, with respect to any Plan, the excess,
if any, of the "projected benefit obligations" (within the
meaning of Statement of Financial Accounting Standards 87) under
such Plan (determined using the actuarial assumptions used for
purposes of calculating funding requirements in the most recent
actuarial report for such plan) over the fair market value of the
assets held under the Plan.
"Withdrawal Liability" has the meaning specified in Part I
of Subtitle E of Title IV of ERISA.
(ii) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan.
(iii) The aggregate Underfunding with respect to all Plans which
have any Underfunding does not exceed $100,000.
(iv) Neither the Company nor any ERISA Affiliate has incurred or
is reasonably expected to incur any Withdrawal Liability.
(v) Neither the Company nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or has been terminated, within the meaning of Title
IV of ERISA, and no such Multiemployer Plan is reasonably expected to
be in reorganization or to be terminated, within the meaning of Title
IV of ERISA.
(ff) There is (i) no unfair labor practice complaint pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against any of them, before the National Labor
Relations Board or any state or local labor relations board, and no
significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against any of them, and (ii) no significant strike,
labor dispute, slowdown or stoppage pending against the Company or any of
its subsidiaries or, to the best knowledge of the Company, threatened
against it or any of its subsidiaries which, in the case of (i) or (ii) is
likely to result in a Material Adverse Effect.
(gg) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed, except insofar as the failure to
file such returns, singly or in the aggregate, would not have a Material
Adverse Effect, or has requested extensions thereof and in each case has
paid all taxes required
<PAGE>
to be paid by it and any other assessment, fine or penalty levied against
it, to the extent that any of the foregoing is due and payable, other than
those being contested in good faith and for which adequate reserves have
been provided or those currently payable without penalty or interest.
(hh) Neither of the Company nor any Affiliate of the Company has
taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to cause or
result in, stabilization or manipulation (as such terms are defined under
the Exchange Act) of the price of any security of the Company to facilitate
the sale or resale of the Notes.
(ii) Except as disclosed in the Final Memorandum, and except as would
not individually or in the aggregate have a Material Adverse Effect (i) the
Company and each of its subsidiaries are in compliance with all applicable
Environmental Laws (as defined below), (ii) the Company and each of its
subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are in compliance with their
requirements, (iii) there are no pending or, to the best knowledge of the
Company, threatened Environmental Claims (as defined below) against the
Company or any of its subsidiaries and (iv) the Company and each of its
subsidiaries do not have knowledge of any circumstances with respect to any
of their respective properties or operations that could reasonably be
anticipated to form the basis of an Environmental Claim against the Company
or any of its subsidiaries or any of their respective properties or
operations and the business operations relating thereto that would have a
Material Adverse Effect. For purposes of this Agreement, the following
terms shall have the following meanings: "Environmental Law" means, with
respect to any person, any federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any
published judicial or administrative interpretation thereof including any
judicial or administrative order, consent decree or judgment binding on
such person or any of its subsidiaries, relating to the environment,
health, safety or any chemical, material or substance, exposure to which is
prohibited, limited or regulated by any such governmental authority.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any
way to any Environmental Law.
(jj) The Company has reasonably concluded that any and all costs and
liabilities incurred or reasonably expected to be incurred pursuant to any
Environmental Law (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with
<PAGE>
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and potential liabilities to third
parties) would not, singly or in the aggregate, have a Material Adverse
Effect.
(kk) Each certificate signed by any officer of the Company and
delivered to the Initial Purchasers or their counsel shall be deemed to be
a representation and warranty by the Company to the Initial Purchasers as
to the matters covered thereby.
(ll) The Note Guarantees by the subsidiaries have been duly authorized
by each of the Guarantors, and, when executed, will conform in all material
respects to the description thereof in the Final Memorandum, will be valid
and binding obligations of each of the Guarantors, will be entitled to the
benefits of the Indenture and will be enforceable in accordance with their
terms, except as the same may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers or preferential
transfers, or (ii) general principles of equity, whether considered at law
or in equity, and except as the enforceability of rights of indemnification
or contribution may be limited by or under federal or state securities laws
or public policy.
(mm) The sale of the Notes to the Initial Purchasers does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
2. Purchase and Sale. Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company agrees to
sell to the Initial Purchasers, and each Initial Purchaser agrees, severally and
not jointly, to purchase from the Company at a purchase price of 97.25% of the
principal amount thereof the principal amount of Notes set forth opposite such
Initial Purchaser's name in Schedule I attached here.
3. Delivery and Payment. Delivery of and payment for the Notes shall be
made at 10:00 a.m. New York City time, on June 12, 1998, or such later date as
the Initial Purchasers shall designate (but in no event later than June 19,
1998), which later date and time may be postponed by agreement between the
Initial Purchasers and the Company (such date and time of delivery and payment
for the Notes being herein called the "Closing Date"). Delivery of the Notes
shall be made to the Initial Purchasers against payment by the Initial
Purchasers of the purchase price thereof to or upon the order of the Company in
immediately available funds or such other manner of payment as may be agreed by
the Company and the Initial Purchasers. Delivery of the Notes shall be made at
such location as the Initial Purchasers shall reasonably designate not later
than 1:00 p.m. on the business day prior to the Closing Date and payment for the
Notes shall be made at the offices of Shearman & Sterling
<PAGE>
("Counsel for the Initial Purchasers"), 599 Lexington Avenue, New York, New
York, with any transfer taxes payable in connection with the transfer of the
Notes fully paid, against payment of the purchase price therefor. Certificates
for the Notes shall be registered in such names and in such denominations as the
Initial Purchasers may request not less than two full business days in advance
of the Closing Date.
The Company agrees to have the Notes available for inspection, checking and
packaging by the Initial Purchasers in New York, New York, not later than 1:00
p.m. on the business day prior to the Closing Date.
4. Offering of Notes by the Initial Purchasers. Each Initial Purchaser,
severally and not jointly, represents and warrants to and agrees with the
Company that:
(a) It and any person acting on its behalf has not solicited any offer
to purchase, offered or sold, and will not solicit any offer to purchase,
offer or sell, any Notes except to those it reasonably believes to be (i)
"qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) and that, in connection with each such sale, it has taken
or will take reasonable steps to ensure that the purchaser of such Notes is
aware that such sale is being made in reliance on Rule 144A, (ii) other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2),
(3) or (7) of Regulation D) that, prior to their purchase of the Notes,
deliver to the Initial Purchaser a letter containing the representations
and agreements set forth in the form of Annex A to the Final Memorandum or
(iii) non-U.S. persons outside the United States to whom offers and sales
of the Notes may be made in reliance on Regulation S under the Securities
Act.
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Notes in the United States by means of any form
of general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
(c) The Notes offered and sold by the Initial Purchasers in reliance
on Regulation S have been and will be offered and sold only in offshore
transactions (within the meaning of Regulation S) and without any directed
selling efforts (as defined in Regulation S) within the United States, and
the sale of such Notes in reliance on Regulation S is not part of a plan or
scheme to avoid the registration provisions of the Act. It and any person
acting on its behalf has complied and will comply, in all material
respects, with the offering restrictions set forth in Regulation S.
(d) The Initial Purchasers' acquisition of the Notes does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
<PAGE>
(e) It and any person acting on its behalf will offer the Notes for
the initial resale to investors only upon the terms and conditions set
forth in this Agreement and in the Final Memorandum.
(f) Unless prohibited by applicable law, it will furnish to each
person to whom it offers any Notes a copy of the Preliminary Memorandum (as
amended or supplemented) or the Final Memorandum (as amended or
supplemented) and it will furnish to each person to whom it sells any Notes
a copy of the Final Memorandum (as amended or supplemented).
(g) (i) It has not offered or sold and will not offer or sell any
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which do not constitute an offer to the public
in the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995, (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of Great Britain with respect
to anything done by it in relation to the Notes in, from or otherwise
involving the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document in connection
with the issue of the notes to a person who is of a kind described in
Article 8 of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) (No. 2) Order 1996 of Great Britain or is a person to whom
such document may otherwise lawfully be issued or passed on.
5. Agreements. The Company agrees with each Initial Purchaser that:
(a) The Company will furnish to each Initial Purchaser and to counsel
for the Initial Purchasers, without charge, during the period referred to
in paragraph (c) below, as many copies of the Final Memorandum and any
amendments and supplements thereto as they may reasonably request. The
Company will pay the expenses of printing of all documents relating to the
Offering and will reimburse the Initial Purchasers for payment of the
required PORTAL filing fee.
(b) The Company will not amend or supplement the Final Memorandum
unless the Initial Purchasers shall previously have been advised thereof
and shall not have objected thereto in writing within five business days
after being furnished a copy thereof.
(c) Prior to the consummation of the exchange offer made pursuant to
the Registration Rights Agreement or the effectiveness of an applicable
shelf registration statement if, in the reasonable judgment of the Initial
Purchasers, the Initial Purchasers or any of their Affiliates are required
to deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Notes, (A) the Company
<PAGE>
will periodically amend or supplement the Final Memorandum so that the
information contained in the Final Memorandum complies with the
requirements of Rule 144A of the Securities Act, (B) the Company will amend
or supplement the Final Memorandum when necessary to reflect any material
changes in the information provided therein so that the Final Memorandum
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is
so delivered, not misleading and (C) the Company will provide the Initial
Purchasers with copies of each such amended or supplemented Final
Memorandum, as the Initial Purchasers may reasonably request. The Company
hereby expressly acknowledges that the indemnification and contribution
provisions of Section 8 hereof are specifically applicable and relate to
each offering memorandum, registration statement, prospectus, amendment or
supplement referred to in this Section 5(c).
(d) The Company will arrange for the qualification of the Notes for
sale by the Initial Purchasers under the laws of such jurisdictions as the
Initial Purchasers may reasonably designate and will maintain such
qualifications in effect as long as required for the sale of the Notes.
Notwithstanding the foregoing, the Company shall not be obligated to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to file general consent to service of process or to subject
itself to taxation in any jurisdiction in which it is not otherwise
subject. The Company will promptly advise the Initial Purchasers of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(e) Whenever the Company publishes or makes available to the public
(by filing with any regulatory authority or securities exchange or by
publishing a press release or otherwise) any information that could
reasonably be expected to be material in the context of the offer and sale
of Notes under this Agreement, the Company shall immediately notify the
Initial Purchasers as to the nature of such information or event. Until the
third anniversary of the Closing Date, the Company will notify the Initial
Purchasers of (i) any decrease in the rating of the Notes or any other debt
securities of the Company by any nationally recognized statistical rating
organization (as defined in Rule 436(g) under the Securities Act) or (ii)
any notice given of any intended or potential decrease in any such rating
or of a possible change in any such rating which does not indicate the
direction of the possible change, promptly after the Company becomes aware
of any such decrease or notice. For a period of two years after the Closing
Date, the Company will also deliver to the Initial Purchasers, as soon as
available and to the extent individually prepared, and without request,
copies of its latest annual report and quarterly statement and any reports
of its auditors thereon.
(f) Neither the Company, any of its Affiliates, nor any person acting
on its or their behalf other than the Initial Purchasers, as to which no
agreement is made,
<PAGE>
will, directly or indirectly, make offers or sales of any security, or
solicit offers to buy any security, under circumstances that would require
the registration of the Notes under the Securities Act (other than pursuant
to the Registration Rights Agreement).
(g) Neither the Company, any of its Affiliates, nor any person acting
on its or their behalf other than the Initial Purchasers, as to which no
agreement is made, will engage, in connection with the offering of the
Notes, (i) in any form of general solicitation or general advertising
(within the meaning of Regulation D) or (ii) in any public offering within
the meaning of Section 4(2) of the Securities Act.
(h) So long as any of the Notes are "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act, the Company will,
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by
such holder) of such restricted securities, upon the request of such holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. Such information, at the date of its
provision by the Company to such holders or prospective purchasers, will
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. This covenant is
intended to be for the benefit of the holders and the prospective
purchasers designated by such holders from time to time of such restricted
securities.
(i) The Company will cooperate with the Initial Purchasers and use its
best efforts to permit the Notes (i) to be eligible for clearance and
settlement through The Depository Trust Company and (ii) to be designated
PORTAL-eligible securities in accordance with the rules and regulations of
the NASD.
(j) The Company will not, until 180 days following the Closing Date,
without the prior written consent of the Initial Purchasers, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, any debt securities issued or guaranteed by the
Company (other than the Notes).
(k) The Company will apply the net proceeds from the sale of the Notes
as set forth in the Final Memorandum under the caption "Use of Proceeds."
6. Conditions to the Obligations of the Initial Purchasers. The obligations
of the Initial Purchasers to purchase the Notes shall be subject to the accuracy
in all material respects of the representations and warranties on the part of
the Company contained herein at the date and time that this Agreement is
executed and delivered by the parties hereto (the "Execution Time"), and at the
Closing Date as specified in Section 6(e), to the accuracy in all material
respects of the statements of the Company made in any certificates pursuant to
the
<PAGE>
provisions hereof, to the performance by the Company of its obligations
hereunder at or prior to the Closing Date and to the following additional
conditions:
(a) The Company shall have entered into a Registration Rights
Agreement with the Initial Purchasers substantially in the form attached
hereto as Exhibit A.
(b) The Company shall have furnished to the Initial Purchasers the
opinion of Arent Fox, Counsel for the Company, dated the Closing Date,
substantially to the effect that:
(i) the Company is a corporation validly existing and in good
standing under the laws of Delaware and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it
owns or leases properties or conducts business, except in such
jurisdictions in which the failure to so qualify, singly or in the
aggregate, would not have a Material Adverse Effect;
(ii) each of the Guarantors is a corporation validly existing and
in good standing under the laws of the jurisdiction in which it is
chartered or organized and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases properties or conducts business, except in such jurisdictions
in which the failure to so qualify, singly or in the aggregate, would
not have a Material Adverse Effect;
(iii) the Company has the authorized, and, to such counsel's
knowledge, as of March 31, 1998 issued and outstanding capitalization
as set forth in the Final Memorandum under the caption
"Capitalization." All of the issued shares of capital stock of the
Company have been duly authorized and, to such counsel's knowledge,
have been validly issued and are fully paid and nonassessable and were
not, to such counsel's knowledge, issued in violation of any
preemptive or similar rights;
(iv) the issued shares of capital stock of each of the Guarantors
have been duly authorized and, to such counsel's knowledge, have been
validly issued and are fully paid and nonassessable and, except for
directors qualifying shares and as otherwise set forth in the Final
Memorandum are owned of record by the Company, either directly or
through wholly owned subsidiaries, free and clear, to such counsel's
knowledge, of any pledge, lien, encumbrance, security interest,
restriction on voting or transfer, preemptive rights or claim of any
third party;
(v) this Agreement has been duly authorized, executed and
delivered
<PAGE>
by the Company;
(vi) the Registration Rights Agreement and the Indenture have
been duly authorized, executed and delivered by the Company and the
Guarantors and constitute legal, valid and binding obligations of the
Company and the Guarantors, enforceable against the Company in
accordance with their terms, except as the same may be limited by (A)
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally, including without
limitation the effect of statutory or other laws regarding fraudulent
conveyances or transfers, preferential transfers or distributions by
corporations to shareholders; (B) general principles of equity,
whether considered at law or at equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing;
or (C) other customary limitations or qualifications stated by such
counsel in the Opinion and reasonably satisfactory to counsel for
Initial Purchasers;
(vii) the Notes and the Note Guarantees have been duly authorized
and, when the Notes are executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers pursuant to this Agreement, will constitute legal,
valid and binding obligations of the Company and the Guarantors,
respectively, entitled to the benefits of the Indenture and
enforceable against the Company and the Guarantors, respectively, in
accordance with their terms, except as may be limited by (A)
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally, including without
limitation the effect of statutory or other laws regarding fraudulent
conveyances or transfers, preferential transfers or distributions by
corporations to shareholders; (B) general principles of equity,
whether considered at law or at equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing;
or (C) other customary limitations or qualifications stated by such
counsel in the Opinion and reasonably satisfactory to counsel for
Initial Purchasers;
(viii) the statements set forth under the headings "Description
of Senior Credit Facilities," "Description of Preferred Stock,"
"Description of Notes," "Certain United States Federal Tax
Considerations for Non-United States Holders," and "Notice to
Investors" in the Final Memorandum, insofar as such statements
constitute summaries of the law, documents and proceedings referred to
therein, fairly summarize the matters referred to therein;
(ix) to the knowledge of such counsel, there are no pending or
threatened legal or governmental proceedings to which the Company is a
party that would be required under the Securities Act to be described
in a registration
<PAGE>
statement or a prospectus delivered at the time of the confirmation of
the sale of an offering of securities registered under the Securities
Act that are not described in the Final Memorandum, or, to such
counsel's knowledge that seek to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the
Notes to the Initial Purchasers;
(x) assuming that the representations and warranties of the
Initial Purchasers are true and correct in all material respects and
that they comply, in all material respects, with all of their
covenants and agreements contained herein, no registration of the
Notes under the Securities Act is required, and no qualification of
the Indenture under the Trust Indenture Act is necessary, for the
offer and sale by the Initial Purchasers of the Notes in the manner
contemplated by this Agreement; and
(xi) the Company is not an "investment company" within the
meaning of the Investment Company Act without taking account of any
exemption arising out of the number of holders of securities of the
Company.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the
Company and the Initial Purchasers at which the contents of the Final
Memorandum and related matters were discussed, and no facts have come to
the attention of such counsel that lead such counsel to believe that the
Final Memorandum, as of its date or as of the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with respect
to the financial statements and other financial data included therein).
All references in this Section 6(b) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.
(c) The Initial Purchasers shall have received from Marilyn U.
MacNivenYoung, General Counsel for the Company, an opinion, dated the
Closing Date, substantially to the effect that:
(i) the statements set forth under the headings "Risk Factors
-Government Regulation," "-- Reimbursement of Health Care Costs," "--
Risk Inherent in the Provision of Diagnostic Imaging Services," "--
Potential Control by GE and Carlyle,""Business -- Government
Regulation," "Legal Proceedings," and "Certain Relationships and
Related Transactions" in the Final Memorandum, insofar as such
statements constitute summaries of the legal
<PAGE>
matters, documents and proceedings referred to therein, fairly
summarize the matters referred to therein;
(ii) that the Company and each of its subsidiaries has such
permits, licenses, franchises and authorizations (collectively,
"Authorizations") from all regulatory or governmental officials,
bodies or tribunals as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner
described in the Final Memorandum and such certifications,
accreditations, and eligibility to participate in the Medicare and
Medicaid programs as and to the extent described in the Final
Memorandum and that, to such counsel's knowledge, the Company and each
of its subsidiaries has fulfilled and performed all of its material
obligations with respect to such Authorizations, certifications,
accreditations or eligibility and no event has occurred which allows,
or after notice or lapse of time would allow, revocation or
termination thereof except where such revocation or termination would
not have a Material Adverse Effect;
(iii) the issuance, offering and sale and delivery of the Notes
to the Initial Purchasers pursuant to this Agreement, the delivery of
the Notes under this Agreement, the compliance by the Company and the
Guarantors with the other provisions of this Agreement and the
provisions of the Registration Rights Agreement, the Indenture and the
Notes and the consummation of the other transactions herein and
therein contemplated and the consummation of the other transactions
contemplated hereby and in the Final Memorandum do not (i) to such
counsel's knowledge, require the consent, approval, authorization,
order, registration or qualification of or with any governmental
authority or court, except such as may be required under state
securities or blue sky laws or except as may be contemplated by the
Registration Rights Agreement or (ii) (a) violate, result in a breach
or violation of, or constitute a default under the charter or by-laws
of the Company or any of the subsidiaries of the Company or, (b)
result in a breach or violation of, or constitute a default under or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to (1) any contract, loan agreement, note,
indenture, mortgage, deed of trust, lease or other agreement or
instrument filed by the Company with the Commission, or, (2) to such
Counsel's knowledge, any statute, rule or regulation or any judgment,
order or decree of any governmental authority or court or arbitrator
applicable to the Company or any of the subsidiaries of the Company.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the
Company and the Initial Purchasers at which the contents of the Final
Memorandum and related matters were discussed, and no facts have come to
the attention of such counsel that lead such counsel to believe that the
<PAGE>
Final Memorandum, as of its date or as of the Closing Date, contained or
contains an untrue statement of a material fact or omitted or omits to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with respect
to the financial statements and other financial data included therein).
(d) The Initial Purchasers shall have received from Shearman &
Sterling, counsel for the Initial Purchasers such opinion or opinions,
dated the Closing Date, with respect to the issuance and sale of the Notes
and other related matters as the Initial Purchasers may reasonably require,
and the Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters;
(e) (i) the representations and warranties on the part of the Company
and in this Agreement shall be true and correct in all material respects on
and as of the Closing Date with the same effect as if made on the Closing
Date, and the Company shall have complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date;
(ii) since the date of the most recent financial statements included
in the Final Memorandum, there shall have been no change nor any
development or event involving a prospective change constituting a Material
Adverse Effect; and
(iii) the Company shall have furnished to the Initial Purchasers a
certificate of the Company signed by the chief executive officer and the
principal financial or accounting officer of the Company dated the Closing
Date, to the effect that the signers of such certificate have carefully
examined the Final Memorandum, any amendment or supplement to the Final
Memorandum and this Agreement and to the effect set forth in clauses (i)
and (ii) above.
(f) At the Execution Time and at the Closing Date, Arthur Andersen,
independent accountants for the Company, shall have furnished to the
Initial Purchasers a letter or letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance
satisfactory to the Initial Purchasers, confirming that they are
independent accountants within the meaning of the Securities Act and the
Exchange Act, and the applicable rules and regulations thereunder and Rule
101 of the Code of Professional Conduct of the American Institute of
Certified Public Accountants (the "AICPA"), and otherwise satisfactory in
form and substance to the Initial Purchasers and Counsel to the Initial
Purchasers.
(g) At the Execution Time and at the Closing Date, KPMG Peat,
independent accountants for Signal, shall have furnished to the Initial
Purchasers a
<PAGE>
letter or letters, dated respectively as of the Execution Time and as of
the Closing Date, in form and substance satisfactory to the Initial
Purchasers, confirming that they are independent accountants within the
meaning of the Securities Act and the Exchange Act, and the applicable
rules and regulations thereunder and Rule 101 of the Code of Professional
Conduct of the AICPA and otherwise satisfactory in form and substance to
the Initial Purchasers and Counsel to the Initial Purchasers.
(h) The Notes shall have been designated PORTAL-eligible securities in
accordance with the rules and regulations of the NASD.
(i) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Final Memorandum losses or interferences with their
businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Final Memorandum or (ii) since such date, there
shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Final Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
reasonable judgment of the Initial Purchasers, so material and adverse as
to make it impracticable or inadvisable to proceed with the offering or the
delivery of the Notes being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(j) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or The Nasdaq National Market, or
in the over-the-counter market shall have been suspended or materially
limited, or minimum prices shall have been established on such exchange;
(ii) a banking moratorium shall have been declared by federal or New York
State authorities; (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States; or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the
reasonable judgment of the Initial Purchasers, impracticable or inadvisable
to proceed with the offering or delivery of the Notes being delivered on
the Closing Date on the terms and in the manner contemplated herein and in
the Final Memorandum.
(k) None of the issuance and sale of the Notes pursuant to this
Agreement or
<PAGE>
any of the other transactions contemplated by any of the Transaction
Documents or the Final Memorandum shall be enjoined (temporarily or
permanently) and no restraining order or other injunctive order shall have
been issued or any action, suit or proceeding shall have been commenced
with respect to this Agreement or any of the other transactions
contemplated by the Final Memorandum, before any court or governmental
authority.
(l) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act) or any notice given of
any intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(m) The Fourth Amendment shall have been duly executed and delivered
by the parties thereto.
(n) Prior to the Closing Date, the Company shall have furnished to the
Initial Purchasers such further information, certificates and documents as
the Initial Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchasers and counsel for the Initial Purchasers,
this Agreement and all obligations of the Initial Purchasers hereunder may be
canceled at the Closing Date by the Initial Purchasers. Notice of such
cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
The documents required to be delivered by this Section 6 will be delivered
at the office of Counsel for the Initial Purchasers, at 599 Lexington Avenue,
New York, New York, on the Closing Date.
7. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay all expenses incident to
the performance of its obligations under this Agreement, including the fees and
disbursements of its accountants and counsel, the cost of printing and delivery
of the Preliminary Memorandum, the Final Memorandum, all amendments thereof and
supplements thereto, this Agreement and all other documents relating to the
offering, the cost of preparing, printing, packaging and delivering the Notes,
the fees and disbursements, including fees of counsel incurred in compliance
with Section 5(d), the fees and disbursements of the Trustee, the fees of any
agency that rates the Notes and the fees and expenses incurred in connection
with the admission of the Notes for trading in the PORTAL system. If the sale of
the Notes provided for herein is not consummated because any condition to the
obligations of the Initial
<PAGE>
Purchasers set forth in Section 6 hereof is not satisfied or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of
default by any of the Initial Purchasers in the purchase of and payment for the
Notes on the Closing Date, the Company will reimburse the Initial Purchasers
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Notes.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Initial Purchaser, the directors, officers, employees and
agents of each Initial Purchaser and each person who controls any Initial
Purchaser within the meaning of either the Securities Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Preliminary
Memorandum, the Final Memorandum or any information provided by the Company or
any of its Affiliates or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agree to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will 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 such untrue statement or alleged
untrue statement or omission or alleged omission (i) made in the Preliminary
Memorandum or the Final Memorandum, or in any amendment thereof or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Initial Purchasers specifically for
inclusion therein or (ii) made in the Preliminary Memorandum if a copy of the
Final Memorandum was not delivered by or on behalf of the Initial Purchasers to
the person asserting any claim against any of the Initial Purchasers, the Final
Memorandum was required by law to have been so delivered by the Initial
Purchasers and the untrue statement contained in or omission from such
Preliminary Memorandum was corrected in the Final Memorandum. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) Each Initial Purchaser, severally and jointly, agrees to indemnify and
hold harmless the Company, its directors, its officers, its employees, its
agents and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Company to such Initial Purchaser, but only with reference to
written information relating to such Initial Purchaser furnished to the Company
by or on behalf of such Initial Purchaser specifically for inclusion in the
Preliminary Memorandum or the Final Memorandum (or in any amendment or
supplement
<PAGE>
thereto). This indemnity agreement will be in addition to any liability that
such Initial Purchaser may otherwise have. The Company acknowledges that the
statements set forth in the last paragraph of the cover page, the first
paragraph on page ii and the information in the third paragraph, the fifth
paragraph, the seventh paragraph and the ninth paragraph under the heading "Plan
of Distribution" in the Preliminary Memorandum and the Final Memorandum
constitute the only information furnished in writing by or on behalf of the
Initial Purchasers for inclusion in the Preliminary Memorandum or the Final
Memorandum (or any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party and the indemnifying party shall not have
appointed separate counsel reasonably acceptable to the indemnified party to
represent the indemnified party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and expenses
shall be reimbursed within a reasonable time after they are incurred and billed
but in no event to exceed forty-five days after such date, provided that
reasonable supporting
<PAGE>
documentation is furnished to the indemnifying party. Such firm shall be
designated in writing by NationsBanc Montgomery Securities LLC in the case of
parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent (not to be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment to the extent required by
paragraph (a) or (b) above, as applicable. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the third and fourth sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least five business days prior to such
settlement being entered into and (iii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company, on the one hand, and each Initial Purchaser
severally and not jointly, on the other, agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same)
(collectively, "Losses") to which the Company, on the one hand, and the Initial
Purchasers, on the other, may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and by
such Initial Purchaser, on the other, from the offering of the Notes; provided,
however, that in no case shall any Initial Purchaser be responsible for any
amount in excess of the purchase discount or commission applicable to the Notes
purchased by such Initial Purchaser hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company, on
the one hand and each Initial Purchaser, on the other, shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, on the one hand, and of such Initial
Purchaser, on the other, in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses), and benefits received by
such Initial
<PAGE>
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions received by such Initial Purchaser from the Company in connection
with the purchase of the Notes hereunder. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or such Initial Purchaser. The Company and
the Initial Purchasers agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take into account the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this
Section 8, each person who controls an Initial Purchaser within the meaning of
either the Securities Act or the Exchange Act and each director, officer,
employee and agent of such Initial Purchaser shall have the same rights to
contribution as such Initial Purchaser, and each person who controls the Company
within the meaning of either the Securities Act or Exchange Act and each
officer, director, employee and agent of the Company shall have the same rights
to contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
9. Default by an Initial Purchaser. If any Initial Purchaser shall fail to
purchase and pay for any of the Notes agreed to be purchased by such Initial
Purchaser hereunder and such failure to purchase shall constitute a default in
the performance of its obligations under this Agreement, the remaining Initial
Purchasers shall be obligated severally to take up and pay for the Notes which
the defaulting Initial Purchaser agreed but failed to purchase; provided,
however, that in the event that the aggregate principal amount of Notes which
the defaulting Initial Purchaser agreed but failed to purchase shall exceed 10%
of the aggregate principal amount of Notes set forth in Schedule I hereto, the
remaining Initial Purchasers shall have the right to purchase all, but shall not
be under any obligation to purchase any, of the Notes, and if the non-defaulting
Initial Purchasers do not purchase all the Notes, this Agreement will terminate
without liability to the non-defaulting Initial Purchasers or the Company. In
the event of a default by any Initial Purchaser as set forth in this Section 9,
the Closing Date shall be postponed for such period, not exceeding seven days,
as the non-defaulting Initial Purchasers shall determine in order that the
required changes in the Final Memorandum or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Initial Purchaser of its liability, if any, to the Company or any
non-defaulting Initial Purchaser for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Initial Purchasers, by notice given to the Company
prior to delivery of and payment for the Notes, if prior to such time any of the
events described in Section 6(j) or 6(k) shall have occurred or if the Initial
Purchasers shall decline to purchase the Notes for any reason permitted under
this Agreement.
<PAGE>
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company, or
their officers and of the Initial Purchasers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Initial Purchasers or the Company or
any of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Notes. The provisions
of Sections 7, 8 and 9 hereof shall survive the termination or cancellation of
this Agreement.
12. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Initial Purchasers, will be mailed,
delivered or telecopied and confirmed to it at 767 Fifth Avenue, Floor 12A, New
York, New York 10153, Attention: David Stith, or, if sent to the Company, will
be mailed, delivered or telecopied and confirmed to the Company at 4400
MacArthur Blvd., Suite 800, Newport Beach, California 92660, Attention: General
Counsel.
13. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors. In addition, the
indemnification and contribution provisions in Section 8 hereof are for the
benefit of the directors, officers, employees, agents and controlling persons
referred to in Section 8 hereof, and no other person will have any right or
obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
15. Business Day. For purposes of this Agreement, "business day" means each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
<PAGE>
If the foregoing correctly states the agreement between the Company
and the Initial Purchasers, please sign and return to us the enclosed duplicate
hereof, whereupon this Agreement and your acceptance shall represent a binding
agreement between the Company and the Initial Purchasers.
Very truly yours,
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
INSIGHT HEALTH CORP.
By:
Name:
Title:
RADIOLOGY SERVICES CORP.
By:
Name:
Title:
OPEN MRI, INC.
By:
Name:
Title:
MAXUM HEALTH CORP.
By:
Name:
<PAGE>
Title:
SIGNAL MEDICAL SERVICES, INC.
By:
Name:
Title:
QUEST FINANCIAL SERVICES, INC.
By:
Name:
Title:
RADIOSURGERY CENTERS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES CORP.
By:
Name:
Title:
MTS ENTERPRISES, INC.
By:
Name:
Title:
<PAGE>
DIAGNOSTEMPS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF
NORTH TEXAS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF
ARLINGTON, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF DALLAS, INC.
By:
Name:
Title:
NDDC, INC.
By:
Name:
Title:
DIAGNOSTIC SOLUTIONS CORP.
<PAGE>
By:
Name:
Title:
MISSISSIPPI MOBILE TECHNOLOGY, INC.
By:
Name:
Title:
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:
Name:
Title:
SUTRO & CO. INCORPORATED
By:
Name:
Title:
<PAGE>
Schedule I
<TABLE>
<CAPTION>
Principal Amount of
Name of Initial Purchaser Notes to be Purchased
- ------------------------- ---------------------
<S> <C>
NationsBanc Montgomery Securities LLC $ 65,000,000
Morgan Stanley & Co. Incorporated 25,000,000
Sutro & Co. Incorporated 10,000,000
--------------
Total $100,000,000
</TABLE>
<PAGE>
Exhibit A
Registration Rights Agreement
<PAGE>
1
Exhibit 4.5
EXECUTION COPY
INSIGHT HEALTH SERVICES CORP.
$100,000,000
95/8% SENIOR SUBORDINATED NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
June 12, 1998
NationsBanc Montgomery Securities LLC
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255-0001
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Sutro & Co. Incorporated
11150 Santa Monica Blvd.
Los Angeles, CA 90025
Ladies and Gentlemen:
InSight Health Services Corp., a Delaware corporation (the
"Company"), proposes to issue and sell (the "Initial Placement") to NationsBanc
Montgomery Securities, Inc., Morgan Stanley & Co. Incorporated and Sutro & Co.
Incorporated (the "Initial Purchasers" and, individually, each an "Initial
Purchaser") upon terms set forth in a purchase agreement dated June 9, 1998 (the
"Purchase Agreement") among the Company, the Initial Purchasers and the
Subsidiary Guarantors named therein, its 95/8% Senior Subordinated Notes due
2008 (the "Notes"). The Notes are to be fully and unconditionally guaranteed
jointly and severally on an unsecured, senior subordinated basis by all existing
and future United States subsidiaries of the Company (other than Permitted Joint
Ventures) (each such existing guarantor, a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement and purchase the Notes and in
satisfaction of a condition to your obligations under the Purchase Agreement,
the Company and the Subsidiary Guarantors agree with you for the benefit of the
holders from time to time of the Notes (including the Initial Purchasers) (each
of the foregoing a "Holder" and together the "Holders"), as follows:
<PAGE>
2
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized defined terms shall have the following
meanings:
"Affiliate" of any specified person means any other person
that, directly or indirectly, is in control of, is controlled by, or is
under common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such
person whether by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preamble hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Exchange Notes" means debt securities issued by the Company
and guaranteed by the Subsidiary Guarantors, identical in all material
respects to the Notes (except that (i) interest thereon shall accrue
from the last date on which interest was paid on the Notes or, if no
such interest has been paid, from June 12, 1998 and (ii) the liquidated
damages provisions and the transfer restrictions pertaining to the
Notes will be modified or eliminated, as appropriate, in the Exchange
Notes), to be issued under the Indenture.
"Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Notes, a like
principal amount of Exchange Notes.
"Exchange Offer Registration Period" means the longer of (A)
the period until the consummation of the Exchange Offer and (B) two
years after effectiveness of the Exchange Offer Registration Statement,
exclusive of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration
Statement; provided, however, that in the event that all resales of
Exchange Notes (including, subject to the time periods set forth
herein, any resales by Exchanging Dealers) covered by such Exchange
Offer Registration Statement have been made, the Exchange Offer
Registration Statement need not remain continuously effective for the
period set forth in clause (B) above.
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Securities
Act with respect to the Exchange
<PAGE>
3
Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
Initial Purchasers) that is a broker-dealer, electing to exchange Notes
acquired for its own account as a result of market-making activities or
other trading activities for Exchange Notes.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the indenture relating to the Notes and the
Exchange Notes, dated as of June 1, 1998, among the Company and all
existing and future subsidiaries of the Company (other than Permitted
Joint Ventures), as Subsidiary Guarantors, and State Street Bank and
Trust Company, N.A., as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Initial Purchasers" has the meaning set forth in the Purchase
Agreement.
"Losses" has the meaning set forth in Section 6(d) hereto.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of Notes registered under a Registration
Statement.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an
underwritten offering under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
"Permitted Joint Ventures" has the meaning set forth in the
Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective Registration Statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by
<PAGE>
4
any prospectus supplement, with respect to the terms of the offering of
any portion of the Notes or the Exchange Notes covered by such
Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments.
"Purchase Agreement" has the meaning set forth in the preamble
hereto.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Notes
or the Exchange Notes (including the Subsidiary Guarantees thereon)
pursuant to the provisions of this Agreement, amendments and
supplements to such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto, and all material incorporated by reference
therein.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3
hereof, which covers some or all of the Notes or Exchange Notes, as
applicable (including the Subsidiary Guarantees thereon), on an
appropriate form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Subsidiary Guarantees" has the meaning set forth in the
Purchase Agreement.
"Subsidiary Guarantors" has the meaning set forth in the
preamble hereto.
"Trustee" means the trustee with respect to the Notes or
Exchange Notes, as applicable, under the Indenture.
"underwriter" means any underwriter of Notes in connection
with an offering thereof under a Shelf Registration Statement.
2. Exchange Offer; Resales of Exchange Notes by Exchanging
Dealers; Private Exchange.
(a) The Company and the Subsidiary Guarantors shall prepare
and, on or
<PAGE>
5
prior to the 60th calendar day following the Closing Date, shall file with the
Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer. The Company and the Subsidiary Guarantors shall use their best
efforts (i) to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or prior to the 150th calendar day
following the Closing Date and remain effective until the closing of the
Exchange Offer and (ii) to consummate the Exchange Offer on or prior to the
180th calendar day following the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors shall promptly commence the
Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder electing to exchange Notes for Exchange Notes (assuming that such Holder
(x) is not an "affiliate" of the Company within the meaning of the Securities
Act, (y) is not a broker-dealer that acquired the Notes in a transaction other
than as a part of its market-making or other trading activities and (z) if such
Holder is not a broker-dealer, acquires the Exchange Notes in the ordinary
course of such Holder's business, is not participating in the distribution of
the Exchange Notes and has no arrangements or understandings with any person to
participate in the distribution of the Exchange Notes) to resell such Exchange
Notes from and after their receipt without any limitations or restrictions under
the Securities Act and without material restrictions under the securities laws
of a substantial proportion of the several states of the United States.
(c) In connection with the Exchange Offer, the Company shall
mail to each Holder a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of transmittal and
related documents, stating, in addition to such other disclosures as are
required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Agreement and that all Notes validly tendered will be accepted for
exchange;
(ii) the dates of acceptance for exchange;
(iii) that any Note not tendered will remain outstanding and
continue to accrue interest, but will not retain any rights under this
Agreement;
(iv) that Holders electing to have a Note exchanged pursuant
to the Exchange Offer will be required to surrender such Note, together
with the enclosed letters of transmittal, to the institution and at the
address (located in the Borough of Manhattan, The City of New York)
specified in the notice prior to the close of business on the last day
of acceptance for exchange; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last day of acceptance for
exchange, by sending to the institution and at the address (located in
the Borough of Manhattan, The City of New
<PAGE>
6
York) specified in the notice a telegram, telex, facsimile transmission
or letter setting forth the name of such Holder, the principal amount
of Notes delivered for exchange and a statement that such Holder is
withdrawing its election to have such Notes exchanged; and shall keep
the Exchange Offer open for acceptance for not less than 30 days and
not more than 45 days (or longer if required by applicable law) after
the date notice thereof is mailed to the Holders; utilize the services
of a depositary for the Exchange Offer with an address in the Borough
of Manhattan, The City of New York; and comply in all respects with all
applicable laws relating to the Exchange Offer.
(d) As soon as practicable after the close of the Exchange
Offer, the Company shall:
(i) accept for exchange all Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
to each Holder Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(e) The Initial Purchasers, the Company and the Subsidiary
Guarantors acknowledge that, pursuant to interpretations by the staff of the
Commission of Section 5 of the Securities Act, and in the absence of an
applicable exemption therefrom, each Exchanging Dealer is required to deliver a
Prospectus in connection with a sale of any Exchange Notes received by such
Exchanging Dealer pursuant to the Exchange Offer in exchange for Notes acquired
for its own account as a result of market-making activities or other trading
activities. Accordingly, the Company and the Subsidiary Guarantors shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto
in the forepart of the Exchange Offer Registration Statement in a
section setting forth details of the Exchange Offer, in Annex C hereto
in the underwriting or plan of distribution section of the Prospectus
forming a part of the Exchange Offer Registration Statement, and in
Annex D hereto in the letter of transmittal delivered pursuant to the
Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Securities Act
during the Exchange Offer Registration Period for delivery of the
prospectus included therein by Exchanging Dealers in connection with
sales of Exchange Notes received pursuant to the Exchange Offer, as
contemplated by Section 4(h) below; provided, however, that the Company
shall not be required to maintain the effectiveness of the Exchange
Offer Registration Statement for
<PAGE>
7
more than 60 days following the consummation of the Exchange Offer
unless the Company has been notified in writing on or prior to the 60th
day following the consummation of the Exchange Offer by one or more
Exchanging Dealers that such Holder has received Exchange Notes as to
which it will be required to deliver a prospectus upon resale.
(f) In the event that the Initial Purchasers determine that
they are not eligible to participate in the Exchange Offer with respect to the
exchange of Notes constituting any portion of an unsold allotment, upon the
effectiveness of the Shelf Registration Statement as contemplated by Section 3
hereof and at the request of the Initial Purchasers, the Company shall issue and
deliver to the Initial Purchasers, or to the party purchasing Exchange Notes
registered under the Shelf Registration Statement from the Initial Purchasers,
in exchange for such Notes, a like principal amount of Exchange Notes. The
Company shall use its best efforts to cause the CUSIP Service Bureau to issue
the same CUSIP number for such Exchange Notes as for Exchange Notes issued
pursuant to the Exchange Offer.
(g) The Company and the Subsidiary Guarantors shall use their
best efforts to complete the Exchange Offer as provided above and shall comply
with the applicable requirements of the Securities Act, the Exchange Act and
other applicable laws and regulations in connection with the Exchange Offer. The
Exchange Offer shall not be subject to any conditions, other than that (i) the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission, (ii) no action or proceeding shall have been
instituted or threatened in any court or by any governmental agency which might
materially impair the ability of the Company to proceed with the Exchange Offer,
and no material adverse development shall have occurred in any existing action
or proceeding with respect to the Company and (iii) all governmental approvals
shall have been obtained, which approvals the Company deems necessary for the
consummation of the Exchange Offer. The Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Notes in the Exchange Offer.
3. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Exchange Offer as contemplated by Section 2 hereof, or (ii) for any reason
other than those specified in clause (i) above, the Exchange Offer is not
consummated within 180 days of the Closing Date unless the Exchange Offer has
commenced, in which case, the Exchange Offer is not consummated within 30 days
after the date on which the Exchange Offer was commenced, or (iii) any Initial
Purchaser so requests with respect to Notes held by it within 120 days following
consummation of the Exchange Offer, or (iv) any Holder (other than the Initial
Purchasers) is not eligible to participate in the Exchange Offer or has
participated in the Exchange Offer and has received Exchange Notes that are not
freely tradeable (for reasons other than outlined in Section 2(d) and so
notifies the
<PAGE>
8
Company within 60 days of becoming aware of such restrictions or
(v) in the case where the Initial Purchasers participate in the Exchange Offer
or acquire Exchange Notes pursuant to Section 2(f) hereof, the Initial
Purchasers do not receive freely tradeable Exchange Notes in exchange for Notes
constituting any portion of an unsold allotment (it being understood that, for
purposes of this Section 3, (x) the requirement that the Initial Purchaser
deliver a Prospectus containing the information required by Items 507 and/or 508
of Regulation S-K under the Securities Act in connection with sales of Exchange
Notes acquired in exchange for such Notes shall result in such Exchange Notes
being not "freely tradeable" and (y) the requirement that an Exchanging Dealer
deliver a Prospectus in connection with sales of Exchange Notes acquired in the
Exchange Offer in exchange for Notes acquired as a result of market-making
activities or other trading activities shall not result in such Exchange Notes
being not "freely tradeable"), the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall, as
promptly as practicable, file with the Commission a Shelf Registration
Statement relating to the offer and sale of the Notes or the Exchange
Notes, as applicable, by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth
in such Shelf Registration Statement and Rule 415 under the Securities
Act, provided that, with respect to Exchange Notes received by the
Initial Purchasers in exchange for Notes constituting any portion of an
unsold allotment, the Company and the Subsidiary Guarantors may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of its obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as,
and governed by the provisions herein applicable to, a Shelf
Registration Statement.
(b) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act as promptly as possible on or prior
to 45 days after filing such Shelf Registration Statement pursuant to
this Section 3 and to keep such Shelf Registration Statement
continuously effective in order to permit the Prospectus contained
therein to be usable by Holders for a period of two years from the date
the Shelf Registration Statement is declared effective by the
Commission or such shorter period that will terminate when all the
Notes or Exchange Notes, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any
action that would result in Holders of Notes covered thereby not being
able to offer and sell such Notes during that period, unless (i) such
action is required by applicable law, (ii) the Company complies with
this Agreement or (iii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the
Company's obligations
<PAGE>
9
hereunder), including the acquisition or divestiture of assets, so long
as the Company promptly thereafter complies with the requirements of
Section 4(l) hereof, if applicable.
(c) No Holder may include any of its Notes in any Shelf
Registration Statement pursuant to this Agreement unless and until such
holder furnishes to the Company in writing, within 20 business days
after receipt of a request therefor, such information as required by
the rules and practices of the Commission for use in connection with
any Shelf Registration Statement or Prospectus or preliminary
prospectus included therein. No Holder shall be entitled to Liquidated
Damages pursuant to Section 5(b) hereof unless and until such Holder
shall have provided all such required information. Each Holder as to
which any Shelf Registration Statement is being effected will be
required to agree to furnish promptly to the Company all information
required to be disclosed in order to make information previously
furnished to the Company by such Holder not materially misleading.
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall prior to
the filing of any Registration Statement, any Prospectus, any amendment
to a Registration Statement or amendment or supplement to a Prospectus
or any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the Initial
Purchasers and their counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) and make such representatives
of the Company and the Subsidiary Guarantors as shall be reasonably
requested by the Initial Purchasers or their counsel (and, in the case
of a Shelf Registration Statement, the Majority Holders or their
counsel) available for discussion of such document, and shall not at
any time file or make any amendment to the Registration Statement, any
Prospectus or any amendment of or supplement to a Registration
Statement or a Prospectus or any document which is to be incorporated
by reference into a Registration Statement or a Prospectus, of which
the Initial Purchasers and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not have
previously been advised and furnished a copy or to which the Initial
Purchaser or its counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall reasonably object,
except for any amendment or supplement or document (a copy of which has
been previously furnished to the Initial Purchasers and their counsel
(and, in the case of a Shelf Registration Statement, the Majority
Holders and their counsel)) which counsel to the Company and the
Subsidiary Guarantors shall advise the Company and the Subsidiary
Guarantors is required in order to comply with applicable law; each of
the Initial Purchasers agrees that, if it receives timely notice and
drafts under this clause (a), it will not take actions or make
objections pursuant to this clause (a) such
<PAGE>
10
that the Company and the Subsidiary Guarantors are unable to comply
with their obligations under Section 2.
(b) The Company and the Subsidiary Guarantors shall:
(i) use their best efforts to prepare any
Registration Statement and any amendment thereto and any
Prospectus contained therein and any amendment or supplement
thereto to comply in all material respects with the Securities
Act and the rules and regulations thereunder;
(ii) use their best efforts to prepare any
Registration Statement and any amendment thereto such that it
does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading; and
(iii) use their best efforts to prepare any
Prospectus forming part of any Registration Statement,
including any amendment or supplement to such Prospectus, such
that it does not include an untrue statement of a material
fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) (1) The Company shall advise the Initial Purchasers and,
in the case of a Shelf Registration Statement, the Holders of Notes
covered thereby, and, if requested by the Initial Purchasers or any
such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments
or supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Company shall advise the
Initial Purchasers and, in the case of a Shelf Registration Statement,
the Holders of Notes covered thereby, and, in the case of an Exchange
Offer Registration Statement, any Exchanging Dealer that has provided
in writing to the Company a telephone or facsimile number and address
for notices, and, if requested by the Initial Purchasers or any such
Holder or Exchanging Dealer, confirm such advice in writing:
<PAGE>
11
(i) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that
purpose;
(ii) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Notes included therein for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(iii) of the happening of any event that requires the
making of any changes in the Registration Statement or the
Prospectus so that, as of such date, the Registration
Statement or the Prospectus does not include an untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they
were made) not misleading (which advice shall be accompanied
by an instruction to suspend the use of the Prospectus until
the requisite changes have been made).
(d) The Company and the Subsidiary Guarantors shall use their
best efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible
time.
(e) The Company shall furnish to each Holder of Notes covered
by any Shelf Registration Statement, without charge, at least one copy
of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the
Holder so requests in writing, all exhibits thereto.
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Notes covered by any Shelf Registration
Statement, without charge, as many copies of the Prospectus (including
each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may
reasonably request; and the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the
selling Holders of Notes in connection with the offering and sale of
the Notes covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer that
so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents
incorporated by reference therein and, if the Exchanging Dealer so
requests in writing, all exhibits thereto.
(h) The Company shall, during the Exchange Offer Registration
Period,
<PAGE>
12
promptly deliver to each Exchanging Dealer, without charge, as many
copies of the Prospectus included in such Exchange Offer Registration
Statement and any amendment or supplement thereto as such Exchanging
Dealer may reasonably request for delivery by such Exchanging Dealer in
connection with a sale of Exchange Notes received by it pursuant to the
Exchange Offer; and the Company consents to the use of the Prospectus
or any amendment or supplement thereto by any such Exchanging Dealer,
as provided in Section 2(e) above.
(i) Each Holder of Notes and each Exchange Dealer agrees by
its acquisition of such Notes or Exchange Notes to be sold by such
Exchange Dealer, as the case may be, that, upon actual receipt of
any notice from the Company of the happening of any event of the
kind described in paragraphs (c)(2)(i), (c)(2)(ii), or (c)(2)(iii)
of this Section 4, such Holder will forthwith discontinue
disposition of such Notes covered by such Registration Statement or
Prospectus or Exchange Notes to be sold by such Holder or Exchange
Dealer, as the case may be, until such Holder's or Exchange Dealer's
receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(l) hereof, or until it is advised in
writing by the Company that the use of the applicable Prospectus may
be resumed, and has received copies of any amendments or supplements
thereto. In the event that the Company shall give any such notice,
the Exchange Offer Registration Period shall be extended by the
number of days during such periods from and including the date of
the giving of such notice to and including the date when each seller
of Exchange Notes covered by such Registration Statement or Exchange
Notes to be sold by such Exchange Dealer, as the case may be, shall
have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 4(l) hereof or (y) the advice in
writing.
(j) Prior to the Exchange Offer or any other offering of Notes
pursuant to any Registration Statement, the Company and the Subsidiary
Guarantors shall register or qualify or cooperate with the Holders of
Notes included therein and their respective counsel in connection with
the registration or qualification of such Notes for offer and sale
under the securities or blue sky laws of such states as any such
Holders reasonably request in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such
states of the Notes covered by such Registration Statement; provided,
however, that the Company and the Subsidiary Guarantors will not be
required to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not then so qualified, to
file any general consent to service of process or to take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(k) The Company shall cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Notes
to be sold pursuant to any Registration Statement free of any
restrictive legends and in denominations of $1,000
<PAGE>
13
or an integral multiple thereof and registered in such names as Holders
may request prior to sales of Notes pursuant to such Registration
Statement.
(l) Upon the occurrence of any event contemplated by
paragraph (c)(2)(iii) of this Section 4, the Company and the
Subsidiary Guarantors shall promptly prepare and file a
post-effective amendment to any Registration Statement or an
amendment or supplement to the related Prospectus or any other
required document so that, as thereafter delivered to purchasers of
the Notes included therein, the Prospectus will not include an
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and, in the
case of a Shelf Registration Statement, notify the Holders to
suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event. Notwithstanding the foregoing, the
Company shall not be required to amend or supplement a Shelf
Registration Statement, any related Prospectus or any document
incorporated therein by reference, for a period not to exceed an
aggregate of 30 days in any calendar year, if (i) an event occurs
and is continuing as a result of which the Shelf Registration would,
in the Company's good faith judgment, contain an untrue statement of
a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (ii) the Company
determines in its good faith judgment that the disclosure of such
event at such time would have a material adverse effect on the
business, operations, or prospects of the Company or the disclosure
otherwise related to a pending material business transaction that
has not yet been publicly disclosed.
(m) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Notes or Exchange Notes, as the case may be, registered under such
Registration Statement, and provide the Trustee with certificates for
such Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(n) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable
after the effective date of the applicable Registration Statement an
earnings statement meeting the requirements of Rule 158 under the
Securities Act.
(o) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), in a timely manner.
(p) The Company may require each Holder of Notes to be sold
pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of such
Notes as the Company may from time to time
<PAGE>
14
reasonably require for inclusion in such Registration Statement.
(q) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters,
if any, and Majority Holders reasonably agree should be included
therein, and shall make all required filings of such Prospectus
supplement or post-effective amendment promptly upon notification of
the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(r) In the case of any Shelf Registration Statement, the
Company and the Subsidiary Guarantors shall enter into such
agreements (including underwriting agreements) and take all other
appropriate actions in order to expedite or to facilitate the
registration or the disposition of any Notes included therein, and
in connection therewith, if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 6 (or
such other provisions and procedures acceptable to the Majority
Holders and the Managing Underwriters, if any) with respect to all
parties to be indemnified pursuant to Section 6.
(s) In the case of any Shelf Registration Statement, the
Company and the Subsidiary Guarantors shall:
(i) subject to having received reasonable
confidentiality assurance, make reasonably available for
inspection by the Holders of Notes to be registered
thereunder, any underwriter participating in any disposition
pursuant to such Shelf Registration Statement, and any
attorney, accountant or other agent retained by the Holders or
any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company
and any of its subsidiaries;
(ii) cause the Company's and the Subsidiary
Guarantors' officers, directors and employees to supply all
relevant information reasonably requested by the Holders or
any such underwriter, attorney, accountant or agent in
connection with any such Registration Statement as is
customary for similar due diligence examinations and make such
representatives of the Company and the Subsidiary Guarantors
as shall be reasonably requested by the Initial Purchasers or
Managing Underwriters, if any, available for discussion of any
such Registration Statement; provided, however, that all such
non-public information shall be kept confidential by the
Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a
court proceeding or required by law, (provided that the
Company must be given prior written notice of such disclosure)
or such information becomes available to the public generally
or through a third party without an accompanying obligation of
<PAGE>
15
confidentiality other than as a result of a disclosure of such
information by any such Holder, underwriter, attorney,
accountant or agent;
(iii) make such representations and warranties to the
Holders of Notes registered thereunder and the underwriters,
if any, in form, substance and scope as are customarily made
by issuers to underwriters in similar underwritten offerings
as may be reasonably requested by them;
(iv) use its best efforts to obtain opinions of
counsel to the Company and the Subsidiary Guarantors and
updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling
Holder and the underwriters, if any, covering such matters
as are customarily covered in opinions requested in similar
underwritten offerings and such other matters as may be
reasonably requested by such Holders and underwriters;
(v) use its best efforts to obtain "cold comfort"
letters and updates thereof from the independent certified
public accountants of the Company and the Subsidiary
Guarantors (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial
statements and financial data are, or are required to be,
included in the Registration Statement), addressed to the
underwriters, if any, and use reasonable efforts to have such
letter addressed to the selling Holders of Notes registered
thereunder (to the extent consistent with Statement on
Auditing Standards No. 72 of the American Institute of
Certified Public Accountants (AICPA) ("SAS 72")), in customary
form and covering matters of the type customarily covered in
"cold comfort" letters in connection with similar underwritten
offerings, or if the provision of such "cold comfort" letters
is not permitted by SAS No. 72 or if requested by the Initial
Purchasers or their counsel in lieu of a "cold comfort"
letter, an agreed-upon procedures letter under Statement on
Auditing Standards No. 35 of the AICPA, covering matters
requested by the Initial Purchasers or their counsel; and
(vi) deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the
Managing Underwriters, if any, and customarily delivered in
similar offerings, including those to evidence compliance with
Section 4(k) and with any conditions contained in the
underwriting agreement or other agreement entered into by the
Company.
The foregoing actions set forth in clauses (iii), (iv), (v)
and (vi) of this Section 4(s) shall be performed at (A) the
effectiveness of such Shelf Registration Statement and each
post-effective amendment thereto and (B) each closing under any
underwriting or similar agreement as and to the extent required
thereunder.
<PAGE>
16
(t) The Company and the Subsidiary Guarantors shall, in the
case of a Shelf Registration, use their best efforts to cause all Notes
to be listed on any securities exchange or any automated quotation
system on which similar securities issued by the Company are then
listed if requested by the Majority Holders, to the extent such Notes
satisfy applicable listing requirements.
(u) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Exchange Notes or Notes, as the case may be,
to be rated by two nationally recognized statistical rating
organizations (as such term is defined in Rule 436(g)(2) under the
Securities Act).
5. Registration Expenses; Remedies. (a) The Company and the
Subsidiary Guarantors shall bear all expenses incurred in connection with the
performance of their obligations under Sections 2, 3 and 4 hereof, including
without limitation: (i) all Commission, stock exchange or National Association
of Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Exchange Notes or Notes in no event to exceed $5,000), (iii) all expenses of any
persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, if any, (v) all fees and disbursements
relating to the qualification of the Indenture under applicable securities laws,
(vi) the reasonable fees and disbursements of the Trustee and its counsel, (vii)
the fees and disbursements of counsel for the Company and the Subsidiary
Guarantors and, in the case of a Shelf Registration Statement, the reasonable
fees and disbursements of one counsel for the Holders (which counsel shall be
selected by the Majority Holders and which counsel may also be counsel for the
Initial Purchasers) and in the case of any Exchange Offer Registration
Statement, the reasonable fees and expenses of counsel to the Initial Purchasers
acting in connection therewith and (viii) the fees and disbursements of the
independent public accountants of the Company and the Subsidiary Guarantors,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters (other than fees and expenses set forth
in clause (ii) above) or the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Notes by a
Holder.
(b) The Notes provide that if (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 60th
calendar day following the Closing Date or (b) the Exchange Offer Registration
Statement is not declared effective on or prior to the 150th calendar day
following the Closing Date or the Exchange Offer is not consummated on or prior
to the 180th calendar day following the Closing Date or (c) a Shelf Registration
<PAGE>
17
Statement is not declared effective when required, the Company shall pay
liquidated damages ("Liquidated Damages") to each Holder of Notes with respect
to the first 30-day period following the 60-day period referred to in clause (a)
above or the first 90-day period following the periods referred to in clauses
(b) or (c) above in an amount equal to $0.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of Liquidated Damages
shall increase by an additional $0.05 per week per $1,000 principal amount of
Notes at the beginning of each subsequent 30-day period in the case of clause
(a) above or 90-day period in the case of clauses (b) or (c) above, up to a
maximum amount of Liquidated Damages of $0.30 per week per $1,000 principal
amount of Notes. Upon the filing of the Exchange Offer Registration Statement,
the effectiveness of the Exchange Offer Registration Statement, the consummation
of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as
the case may be, Liquidated Damages shall cease to accrue from the date of such
filing, consummation or effectiveness, as the case may be; provided, however,
that, if after the date such Liquidated Damages cease to accrue, a different
event specified in clause (a), (b) or (c) above occurs, Liquidated Damages may
again commence accruing pursuant to the foregoing provisions.
(c) Without limiting the remedies available to the Initial
Purchasers and the Holders, the Company and the Subsidiary Guarantors
acknowledge that any failure by the Company and the Subsidiary Guarantors to
comply with their respective obligations under Sections 2 and 3 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's and the Subsidiary Guarantors'
obligations under Sections 2 and 3 hereof.
6. Indemnification and Contribution. (a) In connection with
any Registration Statement, the Company and each Subsidiary Guarantor jointly
and severally agree to indemnify and hold harmless each Holder of Notes covered
thereby (including the Initial Purchasers and, with respect to any Prospectus
delivery as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging
Dealer) the directors, officers, employees and agents of such Holder and each
person who controls such Holder within the meaning of either the Securities Act
or the Exchange Act, against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
<PAGE>
18
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); provided, however, that the Company and each Subsidiary Guarantor will
not be liable in any case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such indemnified party
specifically for inclusion therein; provided further, however, that the Company
and each Subsidiary Guarantor will not be liable in any case with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary Prospectus or Prospectus, or in any amendment thereof or supplement
thereto to the extent that any such loss, claim, damage or liability (or action
in respect thereof) resulted from the fact that any indemnified party sold Notes
or Exchange Notes to a person to whom there was not sent or given, at or prior
to the written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented, if the Company had previously complied with the
provisions of Section 4(c)(2) and 4(f) or 4(h) hereof and if the untrue
statement contained in or omission from such preliminary Prospectus or
Prospectus was corrected in the Prospectus as then amended or supplemented. This
indemnity agreement will be in addition to any liability that the Company or any
Subsidiary Guarantor may otherwise have.
The Company and each Subsidiary Guarantor also agree jointly
and severally to indemnify or contribute to Losses of, as provided in Section
6(d) hereof, any underwriters of Notes registered under a Shelf Registration
Statement, their employees, officers, directors and agents and each person who
controls such underwriters on the same basis as that of the indemnification of
the Initial Purchasers and the selling Holders provided in this Section 6(a) and
shall, if requested by any Holder, enter into an underwriting agreement
reflecting such agreement, as provided in Section 4(q) hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging Dealer)
severally (with respect to each of the Holders (other than the Initial
Purchasers)) and jointly and severally (with respect to the Initial Purchasers)
agrees to indemnify and hold harmless (i) the Company and each Subsidiary
Guarantor, (ii) each of the directors of the Company and each Subsidiary
Guarantor, (iii) each of the officers of the Company and the Subsidiary
Guarantors who signs such Registration Statement and (iv) each Person who
controls the Company or any Subsidiary Guarantor within the meaning of either
the Securities Act or the Exchange Act to the same extent as the foregoing
indemnity from the Company and each Subsidiary Guarantor to each such Holder,
but only with respect to written information furnished to the Company by or on
behalf of such Holder specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability that any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of
<PAGE>
19
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve the
indemnifying party from liability under paragraph (a) or (b) above unless and to
the extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses, and
(ii) will not, in any event, relieve the indemnifying party from any obligations
to any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel (including local counsel) of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party and the indemnifying party shall not have appointed separate
counsel reasonably acceptable to the indemnified party to represent the
indemnified party, (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. It is understood that
the indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed
within a reasonable time after they are incurred and billed but in no event to
exceed forty-five days after such date, provided that reasonable supporting
documentation is furnished to the indemnified party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this
<PAGE>
20
Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending the same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement that resulted in such Losses; provided, however, that in
no case shall any Initial Purchaser or any subsequent Holder of any Note or
Exchange Note be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Note, or in the case of an
Exchange Note, applicable to the Note that was exchangeable into such Exchange
Note, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the Notes purchased by such underwriter under the
Registration Statement that resulted in such Losses. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company and the Subsidiary Guarantors shall be deemed
to be equal to the sum of (x) the total net proceeds from the Initial Placement
(before deducting expenses) as set forth on the cover page of the Final
Memorandum and (y) the total amount of additional interest (such interest
accruing 180 days following the Closing Date) that the Company was not required
to pay as a result of registering the Notes covered by the Registration
Statement that resulted in such losses. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Notes or Exchange Notes, as applicable, registered under the
Securities Act. Benefits received by any underwriter shall be deemed to be equal
to the total underwriting discounts and commissions, as set forth on the cover
page of the Prospectus forming a part of the Registration Statement that
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the indemnifying party, on the one hand, or by the indemnified party, on the
other hand. The parties agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that did not take account of the equitable considerations referred to
above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each director, officer, employee and agent of such
Holder shall have the same rights to contribution as such
<PAGE>
21
Holder, and each person who controls the Company or any Subsidiary
Guarantor within the meaning of either the Securities Act or the Exchange Act,
each officer of the Company or any Subsidiary Guarantor who shall have signed
the Registration Statement and each director of the Company and each Subsidiary
Guarantor shall have the same rights to contribution as the Company and each
Subsidiary Guarantor, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any Subsidiary Guarantor or any of the officers, directors or
controlling persons referred to in Section 6 hereof, and will survive the sale
by a Holder of Notes covered by a Registration Statement.
7. Miscellaneous.
(a) No Inconsistent Agreement. The Company and the Subsidiary
Guarantors have not, as of the date hereof, entered into, nor shall any of them,
on or after the date hereof, enter into, any agreement that conflicts with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount of Notes (or, after the consummation of any Exchange Offer in
accordance with Section 2 hereof, of Exchange Notes); provided that, with
respect to any matter that directly or indirectly affects the rights of the
Initial Purchasers hereunder, the Company shall obtain the written consent of
the Initial Purchasers. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Notes are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of Notes being sold rather than
registered under such Registration Statement.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section
7(c), which address initially is, with respect to each Holder, the
address of such Holder maintained by the Registrar under the Indenture,
with a copy in like manner to NationsBanc Montgomery Securities LLC;
<PAGE>
23
(ii) if to the Initial Purchasers, at NationsBanc Montgomery
Securities LLC, 767 Fifth Avenue, Floor 12A, New York, New York 10153,
Attention: David Stith; and
(iii) if to the Company or any Subsidiary Guarantor, InSight
Health Services Corp., 4400 MacArthur Boulevard, Suite 800, Newport
Beach, California 92660, Attention: General Counsel.
All such notices and communications shall be deemed to have
been duly given when received. The Initial Purchasers, on the one hand, or the
Company or any Subsidiary Guarantor, on the other, by notice to the other party
or parties may designate additional or different addresses for subsequent
notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company or any Subsidiary Guarantor thereto, subsequent Holders of Notes
and/or Exchange Notes. The Company and the Subsidiary Guarantors hereby agree to
extend the benefits of this Agreement to any Holder of Notes and/or Exchange
Notes and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, Etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Notes or
Exchange Notes is required
<PAGE>
24
hereunder, Notes or Exchange Notes, as applicable,
held by the Company or its Affiliates (other than subsequent Holders of Notes or
Exchange Notes if such subsequent Holders are deemed to be Affiliates solely by
reason of their holdings of such Notes or Exchange Notes) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE>
25
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Subsidiary Guarantors and you.
Very truly yours,
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
INSIGHT HEALTH CORP.
By:
Name:
Title:
RADIOLOGY SERVICES CORP.
By:
Name:
Title:
OPEN MRI, INC.
By:
Name:
Title:
MAXUM HEALTH CORP.
By:
Name:
Title:
SIGNAL MEDICAL SERVICES, INC.
<PAGE>
26
By:
Name:
Title:
QUEST FINANCIAL SERVICES, INC.
By:
Name:
Title:
RADIOSURGERY CENTERS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES CORP.
By:
Name:
Title:
MTS ENTERPRISES, INC.
By:
Name:
Title:
DIAGNOSTEMPS, INC.
By:
Name:
<PAGE>
27
Title:
MAXUM HEALTH SERVICES OF
NORTH TEXAS, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF
ARLINGTON, INC.
By:
Name:
Title:
MAXUM HEALTH SERVICES OF DALLAS, INC.
By:
Name:
Title:
NDDC, INC.
By:
Name:
Title:
DIAGNOSTIC SOLUTIONS CORP.
By:
Name:
Title:
<PAGE>
28
MISSISSIPPI MOBILE TECHNOLOGY, INC.
By:
Name:
Title:
<PAGE>
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:
Name:
Title:
SUTRO & CO. INCORPORATED
By:
Name:
Title:
<PAGE>
29
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date (as defined herein) and
ending on the close of business one year after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
30
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
<PAGE>
31
ANNEX C
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business one
year after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until such date all dealers effecting transactions
in the Exchange Notes may be required to deliver a prospectus.
ANNEX D
If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes, it represents that the Notes
to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE>
Exhibit 10.1
INSIGHT HEALTH SERVICES CORP.
1998 EMPLOYEE STOCK OPTION PLAN
InSight Health Services Corp., a Delaware corporation
("Corporation") sets forth herein the terms of the InSight Health Services
Corp. 1998 Employee Stock Option Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing the individuals listed in Attachment 1 hereto ("Optionees") an
inducement essential to enter into executive employment agreements with the
Corporation and with an opportunity to develop a proprietary interest in the
Corporation, which will thereby create strong performance incentives for such
individuals to maximize the growth and success of the Corporation and its
subsidiaries, and will encourage such individuals to remain in the employ of
the Corporation, or any of its subsidiaries. Options granted under the Plan
("Options") shall not constitute "incentive stock options" within the meaning
of section 422 of the Internal Revenue Code of 1986, as amended from time to
time ("Code").
2. ADMINISTRATION
Except as otherwise specifically provided herein, the Plan shall be
administered by the Compensation Committee ("Committee") of the Board of
Directors ("Board") of the Corporation, which shall have the full power and
authority to take all actions, and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 5 below) entered into hereunder, and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate
to the administration of the Plan or any Option granted or Option Agreement
entered into hereunder; provided however, that the Committee may not alter,
amend or modify the express provisions of the Plan. The interpretation and
construction by the Committee of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final, binding
and conclusive.
The Board may remove members, add members, and fill vacancies on the
Committee from time to time, all in accordance with the Corporation's
Certificate of Incorporation and Amended and Restated Bylaws, and with
applicable law. No member of the Board or of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan
or any Option granted or Option Agreement entered into hereunder.
3. COMMON STOCK
The stock that may be issued pursuant to Options granted under the
Plan shall be shares of common stock, par value $0.001 per share, of the
Corporation ("Common Stock"), which shares may be treasury shares or
authorized but unissued shares. The number of shares of Common Stock that may
be issued pursuant to Options granted under the Plan shall not exceed in the
aggregate 250,000 shares, which number of shares is subject to adjustment as
hereinafter provided in Section 12 below.
1998 EMPLOYEE STOCK OPTION PLAN PAGE 1
<PAGE>
4. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall be effective as of the date on which the merger
described in that certain Agreement and Plan of Merger dated as of April 15,
1998, by and among the Corporation, SMSI Acquisition Company, Signal Medical
Services, Inc.. and its stockholders becomes effective ("Effective Date") and
shall continue in effect for a term of ten (10) years. Any Options outstanding
under the Plan on such date shall continue to be exercisable pursuant to their
terms, except as otherwise provided herein.
5. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, each Optionee is
hereby granted as of the Effective Date, Options to purchase such number of
shares of the Common Stock listed on Attachment 1 hereto at a purchase price of
$ _____ per share, on the terms and conditions set forth in the written
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in the form of Attachment 2 hereto.
6. TERM AND EXERCISE OF OPTIONS
(a) Method of Exercise and Payment. An Option that is exercisable
hereunder may be exercised by delivery to the Corporation on any business
day, at its principal office, addressed to the attention of the Corporate
Secretary, of written notice of exercise in the form attached to the Option
Agreement as Exhibit A, which notice shall specify the number of shares with
respect to which the Option is being exercised, and shall be accompanied by
payment in full of the Option Price of the shares for which the Option is
being exercised. The minimum number of shares of Common Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be
the lesser of 100 shares or the maximum number of shares available for
purchase under the Option at the time of exercise. Payment of the Option
Price for the shares of Common Stock purchased pursuant to the exercise of an
Option shall be made (i) in cash or in cash equivalents; (ii) with the
consent of the Committee, through the tender to the Corporation of shares of
Common Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their Fair Market
Value (as defined below) on the date of exercise; or (iii) by a combination
of the methods described in (i) and (ii). If shares of Common Stock are
surrendered by an officer of the Corporation (as the term "officer" is
defined in Section 10(c) below) for payment and the Common Stock surrendered
was acquired pursuant to an Option of the Corporation, then six (6) months
must have elapsed since the date of grant of such Option. The payment in full
of the Option Price need not accompany the written notice of exercise
provided the notice of exercise directs that the Common Stock certificate or
certificates for the shares for which the Option is exercised be delivered to
a licensed broker acceptable to the Corporation as the agent for the
individual exercising the Option and, at the time such Common Stock
certificate or certificates are delivered, the broker shall tender to the
Corporation cash (or cash equivalents acceptable to the Corporation) equal to
the Option Price for the shares of Common Stock purchased pursuant to the
exercise of the Option plus the amount (if any) of federal and/or other taxes
which the Corporation, may, in its judgment, be required to withhold with
respect to the exercise of the Option. Any attempt to exercise any Option
granted hereunder other than as set forth above shall be invalid and of no
force and effect. Promptly after the exercise of an Option and the payment in
full of the Option Price of the shares of Common Stock covered thereby, the
individual exercising the Option shall be entitled to the issuance of a
Common Stock certificate or certificates evidencing his ownership of such
shares. An individual holding or exercising an Option shall have none of the
rights of a stockholder until the shares of Common Stock covered thereby are
fully paid and issued to him, and except as provided in Section 12 below, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
(b) Fair Market Value. "Fair Market Value" means the value of each
share of Common Stock subject to the Plan determined as follows: If on the
date of exercise the Common Stock is listed on an
1998 EMPLOYEE STOCK OPTION PLAN PAGE 2
<PAGE>
established national or regional stock exchange, is admitted to quotation on
The Nasdaq Stock Market, or is publicly traded on an established securities
market, the Fair Market Value of the Common Stock shall be the closing price
of the Common Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the date
of exercise or on the trading day immediately preceding the date of exercise
if the date of exercise is not a trading day (or, if there is no such
reported closing price, the Fair Market Value shall be the mean between the
highest bid and lowest asked prices or between the high and low sale prices
on such trading day), or, if no sale of the Common Stock is reported for such
trading day, on the next preceding day on which any sale shall have been
reported. If the Common Stock is not listed on such an exchange, quoted on
such Stock Market or traded on such a market, Fair Market Value shall be
determined by the Committee in good faith.
(c) Withholding. The Corporation shall have the right to withhold,
or require an Optionee to remit to the Corporation, an amount sufficient to
satisfy any applicable federal, state, local or foreign withholding tax
requirements imposed with respect to the exercise of Options. Subject to the
consent of the Committee which may be withheld in its sole and absolute
discretion, and to the extent permissible under applicable tax, securities,
and other laws, an Optionee may (a) have shares of Common Stock otherwise
issuable to the Optionee hereunder withheld, or (b) tender to the Corporation
previously acquired shares of Common Stock, having a Fair Market Value
sufficient to satisfy all or part of the Optionee's federal, state and local
tax obligations associated with the exercise of Options.
7. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Option is granted,
only such Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise the Option. No
Option shall be assignable or transferable by the Optionee to whom it is
granted, other than by will, the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in section 414 of
the Code, or such other transfers as may be permitted by the Committee and no
Option shall be pledged or hypothecated (by operation of law or otherwise),
or subject to execution, attachment or similar process.
8. TERMINATION OF EMPLOYMENT
Upon the termination of the employment of an Optionee with the
Corporation or a subsidiary of the Corporation, other than by reason of the
death or "permanent and total disability" (within the meaning of section
22(e)(3) of the Code) of such Optionee, any Option granted to an Optionee
pursuant to the Plan shall terminate thirty (30) days after the date of such
termination of employment, unless otherwise provided pursuant to the Option
Agreement. A leave of absence or leave on military or government service
approved by the Committee shall not constitute a termination of employment
for purposes of the Plan. For purposes of the Plan, a termination of
employment with the Corporation or a subsidiary of the Corporation shall not
be deemed to occur if the Optionee is immediately thereafter employed with
the Corporation or any subsidiary of the Corporation.
9. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Common
Stock pursuant to Options granted under the Plan shall constitute general
funds of the Corporation.
10. REQUIREMENTS OF LAW
(a) Violations of Law. The Corporation shall not be required to sell
or issue any shares of Common Stock under any Option if the sale or issuance
of such shares would constitute a violation by the individual exercising the
Option or the Corporation of any provisions of any law or regulation of any
1998 EMPLOYEE STOCK OPTION PLAN PAGE 3
<PAGE>
governmental authority, including without limitation any federal or state
securities laws or regulations. Specifically in connection with the
Securities Act of 1933, as amended ("1933 Act"), upon exercise of any Option,
unless a registration statement under the 1933 Act is in effect with respect
to the shares of Common Stock covered by such Option, the Corporation shall
not be required to sell or issue such shares unless the Committee has
received evidence satisfactory to it that the holder of such Option may
acquire such shares pursuant to an exemption from registration under the 1933
Act. Any determination in this connection by the Committee shall be final,
binding and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the 1933
Act. The Corporation shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or the issuance of shares of Common
Stock pursuant thereto to comply with any law or regulation of any
governmental authority, except the Corporation shall timely file for
registration, on Form S-8 under the 1933 Act, of the shares of Common Stock
to be issued upon exercise of the Options granted under the Plan. As to any
jurisdiction that expressly imposes the requirement that an Option shall not
be exercisable unless and until the shares of Common Stock covered by such
Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the
laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
(b) Compliance with Rule 16b-3. The Plan is intended to comply with
Rule 16b-3 or its successor rule., promulgated under the Securities Exchange
Act of 1934 ("1934 Act"). With respect to persons subject to Section 16 of
the 1934 Act, any provision of the Plan or action of the Committee that is
inconsistent with such Rule shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee.
(c) Holding Period for Officers. With respect to Options granted to
officers of the Corporation (as the term "officer" is defined in the rules
promulgated under Section 16 of the 1934 Act) and except as may be approved
by the Committee, at least six (6) months must elapse from the date of grant
of the Option and (i) any disposition of the Option (not including its
exercise), or (ii) any disposition of the underlying Common Stock.
11. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan; provided however, that no amendment, suspension or
termination of the Plan by the Board may, without the consent of the holder
of the Option, adversely affect any rights or obligations under any Option
theretofore granted under the Plan.
1998 EMPLOYEE STOCK OPTION PLAN PAGE 4
<PAGE>
12. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Common Stock. If the outstanding shares of Common
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Corporation by reason of
any recapitalization, reclassification, stock split-up, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease affecting such outstanding
shares generally that is effected without receipt of consideration by the
Corporation, occurring after the Effective Date, the number and kinds of
shares for the purchase of which Options may be granted under the Plan shall
be adjusted proportionately and accordingly by the Committee. In addition,
the number and kind of shares for which Options are outstanding shall be
adjusted proportionately and accordingly so that the proportionate ownership
interest of the holder of the Option immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event.
Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised
portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share. If there is a
distribution payable in the capital stock of a subsidiary corporation of the
Corporation ("Spin-off Shares"), to the extent consistent with Treasury
Regulation section 1.425-1(a)(6) or the corresponding provision of any
subsequent regulation, each outstanding Option shall thereafter additionally
pertain to the number of Spin-off Shares that would have been received in
such distribution by a stockholder of the Corporation who owned a number of
shares of Common Stock equal to the number of shares that are subject to the
Option at the time of such distribution, and the aggregate Option Price of
the Option shall be allocated between the Spin-off Shares and the Common
Stock in proportion to the relative Fair Market Values of a Spin-off Share
and a share of Common Stock immediately after the distribution of Spin-off
Shares.
(b) Reorganization in Which the Corporation Is the Surviving
Corporation. If the Corporation shall be the surviving corporation in any
reorganization, merger, or consolidation of the Corporation with one or more
other corporations, any Option theretofore granted pursuant to the Plan shall
pertain to and apply to the securities to which a holder of the number of
shares of Common Stock subject to such Option would have been entitled
immediately following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the Option Price per share so that
the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior
to such reorganization, merger, or consolidation.
(c) Reorganization in Which the Corporation Is Not the Surviving
Corporation; Sale of Assets or Stock. Upon the dissolution or liquidation of
the Corporation, or upon a merger, consolidation or reorganization of the
Corporation with one or more other corporations in which the Corporation is
not the surviving corporation, or upon a sale of substantially all of the
assets of the Corporation to another corporation, or upon any transaction
(including, without limitation, a merger or reorganization in which the
Corporation is the surviving corporation) approved by the Board which results
in any person or entity owning eighty percent or more of the combined voting
power of all classes of stock of the Corporation, the Plan and all Options
outstanding hereunder shall terminate, except to the extent provision is made
in writing in connection with such transaction for the continuation of the
Plan and/or the assumption of the Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices, to
preserve the then excess, if any, of the aggregate Fair Market Value of the
shares subject to Options over the purchase price for the shares under the
Options, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. In the event of any
such termination of the Plan, each individual holding an Option shall have
the right, immediately prior to the occurrence of such termination and during
such period occurring prior to such termination as the Board in its sole
discretion shall determine and designate, to exercise such Option in whole or
in part, whether or not such Option was otherwise exercisable at the time
such termination occurs
1998 EMPLOYEE STOCK OPTION PLAN PAGE 5
<PAGE>
and without regard to any installment limitation on exercise imposed pursuant
to the Option Agreement. The Board shall send written notice of an event that
will result in such a termination to all individuals who hold Options not
later than the time at which the Corporation gives notice thereof to its
stockholders. Notwithstanding the foregoing, the occurrence of any event
described in this Section 12(c) which also constitutes a Change of Control
(as defined below) shall cause the exercisability in full of all Options
whether or not (i) all conditions to exercise have been satisfied and (ii)
the Plan is terminated pursuant to this Section 12(c).
(d) Adjustments. Adjustments under this Section 12 related to stock
or securities of the Corporation shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. No
fractional shares of Common Stock or units of other securities shall be
issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share or unit.
(e) No Limitations on the Corporation. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the right or power
of the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate,
dissolve or liquidate, or to sell or transfer all or any part of its business
or assets.
13. CHANGE OF CONTROL
"Change of Control" means the Corporation or its stockholders enter
into an agreement or agreements, in one or a series of related transactions,
to dispose of, whether by sale, exchange, merger, consolidation,
reorganization, recapitalization, dissolution or liquidation (a) not less
than 80% of the assets of the Corporation or (b) a portion of the outstanding
Common Stock such that after the transaction or transactions one person or
"group" (as defined by the Securities and Exchange Commission) owns, of
record or beneficially, 50% or more of the outstanding capital stock of the
Corporation, or the right (by whatever means) or the voting power to elect
50% or more of the directors of the Corporation.
14. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ of the Corporation or any
subsidiary of the Corporation, or to interfere in any way with the right and
authority of the Corporation or any subsidiary of the Corporation either to
increase or decrease the compensation of any individual at any time, or to
terminate any employment or other relationship between any individual and the
Corporation or any subsidiary of the Corporation.
15. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
16. GOVERNING LAW
THE VALIDITY, INTERPRETATION AND EFFECT OF THE PLAN, AND THE RIGHTS
OF ALL PERSONS HEREUNDER, SHALL BE GOVERNED BY AND DETERMINED IN ACCORDANCE
WITH THE LAWS OF DELAWARE, OTHER THAN THE CHOICE OF LAW RULES THEREOF.
1998 EMPLOYEE STOCK OPTION PLAN PAGE 6
<PAGE>
17. HEADINGS
The headings herein are for convenience only and shall not be used
in interpreting the Plan.
1998 EMPLOYEE STOCK OPTION PLAN PAGE 7
<PAGE>
ATTACHMENT 1
<TABLE>
<CAPTION>
Optionee Name Number of Option Shares
- ------------- -----------------------
<S> <C>
Brian P. Stone 107,160
Thomas W. Crucitti 74,600
David M. Karchner 68,240
</TABLE>
1998 EMPLOYEE STOCK OPTION PLAN PAGE 8
<PAGE>
Exhibit 10.2
INSIGHT HEALTH SERVICES CORP.
1997 MANAGEMENT STOCK OPTION PLAN
InSight Health Services Corp., a Delaware corporation ("Corporation")
sets forth herein the terms of the InSight Health Services Corp. 1997 Management
Stock Option Plan ("Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation by
providing the individuals listed in Attachment 1 hereto ("Optionees") with an
opportunity to develop a proprietary interest in the Corporation, which will
thereby create strong performance incentives for such individuals to maximize
the growth and success of the Corporation and its subsidiaries, and will
encourage such individuals to remain in the employ of the Corporation, or any of
its subsidiaries. Options granted under the Plan ("Options") shall not
constitute "incentive stock options" within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended from time to time ("Code").
2. ADMINISTRATION
Except as otherwise specifically provided herein, the Plan shall be
administered by the Compensation Committee ("Committee") of the Board of
Directors ("Board") of the Corporation, which shall have the full power and
authority to take all actions, and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 5 below) entered into hereunder, and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Committee to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder; provided however, that the Committee may not alter, amend or
modify the express provisions of the Plan. The interpretation and construction
by the Committee of any provision of the Plan or of any Option granted or Option
Agreement entered into hereunder shall be final, binding and conclusive.
The Board may remove members, add members, and fill vacancies on the
Committee from time to time, all in accordance with the Corporation's
Certificate of Incorporation and Amended and Restated Bylaws, and with
applicable law. No member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
3. COMMON STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of common stock, par value $0.001 per share, of the Corporation
("Common Stock"), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Common Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 500,000 shares,
which number of shares is subject to adjustment as hereinafter provided in
Section 12 below.
4. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan became effective upon its adoption by the Board on November 7,
1997 ("Effective Date") and shall continue in effect for a term of ten (10)
years. Any Options outstanding under the Plan on such date shall continue to be
exercisable pursuant to their terms, except as otherwise provided herein.
1997 MANAGEMENT STOCK OPTION PLAN PAGE 1
<PAGE>
5. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, each Optionee is
hereby granted as of the Effective Date, Options to purchase such number of
shares of the Common Stock listed on Attachment 1 hereto at a purchase price
("Option Price") of $8.375 per share, on the terms and conditions set forth in
the written agreements ("Option Agreements"), executed by the Corporation and by
the Optionee, in the form of Attachment 2 hereto. The Option Price is greater
than the Fair Market Value (as defined in Section 6(b)) as of the Effective
Date.
6. TERM AND EXERCISE OF OPTIONS
(a) Method of Exercise and Payment. An Option that is exercisable
hereunder may be exercised by delivery to the Corporation on any business day,
at its principal office, addressed to the attention of the Corporate Secretary,
of written notice of exercise in the form attached to the Option Agreement as
Exhibit A, which notice shall specify the number of shares with respect to which
the Option is being exercised, and shall be accompanied by payment in full of
the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Common Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of 100 shares or
the maximum number of shares available for purchase under the Option at the time
of exercise. Payment of the Option Price for the shares of Common Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) with the consent of the Committee, through the tender to
the Corporation of shares of Common Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their Fair Market Value (as defined below) on the date of exercise;
or (iii) by a combination of the methods described in (i) and (ii). If shares of
Common Stock are surrendered by an officer of the Corporation (as the term
"officer" is defined in Section 10(c) below) for payment and the Common Stock
surrendered was acquired pursuant to an Option of the Corporation, then six (6)
months must have elapsed since the date of grant of such Option. The payment in
full of the Option Price need not accompany the written notice of exercise
provided the notice of exercise directs that the Common Stock certificate or
certificates for the shares for which the Option is exercised be delivered to a
licensed broker acceptable to the Corporation as the agent for the individual
exercising the Option and, at the time such Common Stock certificate or
certificates are delivered, the broker shall tender to the Corporation cash (or
cash equivalents acceptable to the Corporation) equal to the Option Price for
the shares of Common Stock purchased pursuant to the exercise of the Option plus
the amount (if any) of federal and/or other taxes which the Corporation, may, in
its judgment, be required to withhold with respect to the exercise of the
Option. Any attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Common Stock covered thereby, the individual exercising the Option shall be
entitled to the issuance of a Common Stock certificate or certificates
evidencing his ownership of such shares. An individual holding or exercising an
Option shall have none of the rights of a stockholder until the shares of Common
Stock covered thereby are fully paid and issued to him, and except as provided
in Section 12 below, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date of such issuance.
(b) Fair Market Value. "Fair Market Value" means the value of each
share of Common Stock subject to the Plan determined as follows: If on the date
of exercise the Common Stock is listed on an established national or regional
stock exchange, is admitted to quotation on The Nasdaq Stock Market, or is
publicly traded on an established securities market, the Fair Market Value of
the Common Stock shall be the closing price of the Common Stock on such exchange
or in such market (the highest such closing price if there is more than one such
exchange or market) on the date of exercise or on the trading day immediately
preceding the date of exercise if the date of exercise is not a trading day (or,
if there is no such reported closing price, the Fair Market Value shall be the
mean between the highest bid and lowest asked prices or
1997 MANAGEMENT STOCK OPTION PLAN PAGE 2
<PAGE>
between the high and low sale prices on such trading day), or, if no sale of the
Common Stock is reported for such trading day, on the next preceding day on
which any sale shall have been reported. If the Common Stock is not listed on
such an exchange, quoted on such Stock Market or traded on such a market, Fair
Market Value shall be determined by the Committee in good faith.
(c) Withholding. The Corporation shall have the right to withhold, or
require an Optionee to remit to the Corporation, an amount sufficient to satisfy
any applicable federal, state, local or foreign withholding tax requirements
imposed with respect to the exercise of Options. Subject to the consent of the
Committee which may be withheld in its sole and absolute discretion, and to the
extent permissible under applicable tax, securities, and other laws, an Optionee
may (a) have shares of Common Stock otherwise issuable to the Optionee hereunder
withheld, or (b) tender to the Corporation previously acquired shares of Common
Stock, having a Fair Market Value sufficient to satisfy all or part of the
Optionee's federal, state and local tax obligations associated with the exercise
of Options.
7. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Option is granted, only
such Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise the Option. No Option
shall be assignable or transferable by the Optionee to whom it is granted, other
than by will, the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined in section 414 of the Code, or such other
transfers as may be permitted by the Committee, and no Option shall be pledged
or hypothecated (by operation of law or otherwise), or subject to execution,
attachment or similar process.
8. TERMINATION OF EMPLOYMENT
Upon the termination of the employment of an Optionee with the
Corporation or a subsidiary of the Corporation, other than by reason of the
death or "permanent and total disability" (within the meaning of section
22(e)(3) of the Code) of such Optionee, any Option granted to an Optionee
pursuant to the Plan shall terminate three (3) months after the date of such
termination of employment, unless otherwise provided pursuant to the Option
Agreement. A leave of absence or leave on military or government service
approved by the Committee shall not constitute a termination of employment for
purposes of the Plan. For purposes of the Plan, a termination of employment with
the Corporation or a subsidiary of the Corporation shall not be deemed to occur
if the Optionee is immediately thereafter employed with the Corporation or any
subsidiary of the Corporation.
9. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Corporation.
10. REQUIREMENTS OF LAW
(a) Violations of Law. The Corporation shall not be required to sell or
issue any shares of Common Stock under any Option if the sale or issuance of
such shares would constitute a violation by the individual exercising the Option
or the Corporation of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. Specifically in connection with the Securities
Act of 1933, as amended ("1933 Act"), upon exercise of any Option, unless a
registration statement under the 1933 Act is in effect with respect to the
shares of Common Stock covered by such Option, the Corporation shall not be
required to sell or issue such shares unless the Committee has received evidence
satisfactory to it that the holder of such Option may acquire such shares
pursuant to an exemption from registration under the 1933 Act. Any determination
in this connection by the
1997 MANAGEMENT STOCK OPTION PLAN PAGE 3
<PAGE>
Committee shall be final, binding and conclusive. The Corporation may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the 1933 Act. The Corporation shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares of
Common Stock pursuant thereto to comply with any law or regulation of any
governmental authority, except the Corporation shall timely file for
registration, on Form S-8 under the 1933 Act, the shares of Common Stock to be
issued upon exercise of the Options granted under the Plan. As to any
jurisdiction that expressly imposes the requirement that an Option shall not be
exercisable unless and until the shares of Common Stock covered by such Option
are registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
(b) Compliance with Rule 16b-3. The Plan is intended to comply with
Rule 16b-3 or its successor rule, promulgated under the Securities Exchange Act
of 1934 ("1934 Act"). With respect to persons subject to Section 16 of the 1934
Act, any provision of the Plan or action of the Committee that is inconsistent
with such Rule shall be deemed null and void to the extent permitted by law and
deemed advisable by the Committee.
(c) Holding Period for Officers. With respect to Options granted to
officers of the Corporation (as the term "officer" is defined in the rules
promulgated under Section 16 of the 1934 Act) and except as may be approved by
the Committee, at least six (6) months must elapse from the date of grant of the
Option and (i) any disposition of the Option (not including its exercise), or
(ii) any disposition of the underlying Common Stock.
11. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan; provided however, that no amendment, suspension or
termination of the Plan by the Board may, without the consent of the holder of
the Option, adversely affect any rights or obligations under any Option
theretofore granted under the Plan.
12. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Common Stock. If the outstanding shares of Common Stock
are increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease affecting such outstanding shares generally
that is effected without receipt of consideration by the Corporation, occurring
after the Effective Date, the number and kinds of shares for the purchase of
which Options may be granted under the Plan shall be adjusted proportionately
and accordingly by the Committee. In addition, the number and kind of shares for
which Options are outstanding shall be adjusted proportionately and accordingly
so that the proportionate ownership interest of the holder of the Option
immediately following such event shall, to the extent practicable, be the same
as immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding but shall include a
corresponding proportionate adjustment in the Option Price per share. If there
is a distribution payable in the capital stock of a subsidiary corporation of
the Corporation ("Spin-off Shares"), to the extent consistent with Treasury
Regulation section 1.425-1(a)(6) or the corresponding provision of any
subsequent regulation, each outstanding Option shall thereafter additionally
pertain to the number of Spin-off Shares that would have been received in such
distribution by a stockholder of the Corporation who owned a number of shares of
Common Stock equal to the number of shares that are subject to the Option at the
time of such distribution, and the aggregate Option Price of the Option shall be
allocated between the Spin-off Shares and
1997 MANAGEMENT STOCK OPTION PLAN PAGE 4
<PAGE>
the Common Stock in proportion to the relative Fair Market Values of a Spin-off
Share and a share of Common Stock immediately after the distribution of Spin-off
Shares.
(b) Reorganization in Which the Corporation Is the Surviving
Corporation. If the Corporation shall be the surviving corporation in any
reorganization, merger, or consolidation of the Corporation with one or more
other corporations, any Option theretofore granted pursuant to the Plan shall
pertain to and apply to the securities to which a holder of the number of shares
of Common Stock subject to such Option would have been entitled immediately
following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation.
(c) Reorganization in Which the Corporation Is Not the Surviving
Corporation; Sale of Assets or Stock. Upon the dissolution or liquidation of the
Corporation, or upon a merger, consolidation or reorganization of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or upon a sale of substantially all of the assets of
the Corporation to another corporation, or upon any transaction (including,
without limitation, a merger or reorganization in which the Corporation is the
surviving corporation) approved by the Board which results in any person or
entity owning eighty percent (80%) or more of the combined voting power of all
classes of stock of the Corporation, the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and exercise prices, to preserve the then excess, if any, of the
aggregate Fair Market Value of the shares subject to Options over the purchase
price for the shares under the Options, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan, each individual
holding an Option shall have the right, immediately prior to the occurrence of
such termination and during such period occurring prior to such termination as
the Board in its sole discretion shall determine and designate, to exercise such
Option in whole or in part, whether or not such Option was otherwise exercisable
at the time such termination occurs and without regard to any installment
limitation on exercise imposed pursuant to the Option Agreement. The Board shall
send written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Corporation
gives notice thereof to its stockholders. Notwithstanding the foregoing, the
occurrence of any event described in this Section 12(c) which also constitutes a
Change of Control (as defined below) shall cause the exercisability in full of
all Options whether or not (i) all conditions to exercise have been satisfied
and (ii) the Plan is terminated pursuant to this Section 12(c).
(d) Adjustments. Adjustments under this Section 12 related to stock or
securities of the Corporation shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. No fractional shares of
Common Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) No Limitations on the Corporation. The grant of an Option pursuant
to the Plan shall not affect or limit in any way the right or power of the
Corporation to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or assets.
1997 MANAGEMENT STOCK OPTION PLAN PAGE 5
<PAGE>
13. CHANGE OF CONTROL
If a Change of Control (as defined below) occurs, all Options shall be
exercisable in full regardless of whether all conditions of exercise have been
satisfied. A "Change of Control" shall be deemed to occur (i) at such time as
any person (as defined in the Section 13(d)(3) of the 1934 Act, but excluding
General Electric Company ("GE") and the entities to whom shares of the
Corporation's Convertible Preferred Stock, Series B ("Series B Preferred Stock")
were initially issued ("Carlyle"), and successors and permitted assigns of GE
and Carlyle, individually and collectively) at any time shall directly or
indirectly acquire more than forty percent (40%) of the voting power of the
Common Stock, (ii) at such time as during any one (1) year period, individuals
who at the beginning of such period constitute the Board (together with any new
directors (i) whose election by such Board or whose nomination for election by
the stockholders of the Corporation was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved or (ii) elected or appointed by Carlyle, GE or their successors and
permitted assigns) cease to constitute at least a majority of such Board
(provided, however, that a change in directors upon a Type B Event Date (as
defined in the Corporation's Certificate of Designation, Preferences and Rights
of Convertible Preferred Stock, Series B ("Series B Certificate of
Designation")) shall not be deemed to cause a Change of Control pursuant to this
clause (ii), (iii) upon consummation of a merger or consolidation of the
Corporation into or with another Person (as defined below) in which the
stockholders of the Corporation immediately prior to the consummation of such
transaction shall own fifty percent (50%) or less of the voting securities of
the surviving corporation (or the parent corporation of the surviving
corporation where the surviving corporation is wholly owned by the parent
corporation) immediately following the consummation of such transaction, or (iv)
the sale, transfer or lease of all or substantially all of the assets of the
Corporation, in any of cases (i), (ii), (iii) or (iv) in a single transaction or
series of related transactions; provided, that no Change of Control hereunder
with respect to the Corporation shall be deemed to occur solely by reason of (x)
the ownership of the Corporation's capital stock by any of Carlyle, TC Group,
L.L.C., any investor in any entity comprising Carlyle or TC Group, L.L.C. as of
October 14, 1997, GE or its Affiliates (as defined in the Series B Certificate
of Designation), (y) the conversion of shares of Series B Preferred Stock into
either the Corporation's Convertible Preferred Stock, Series D ("Series D
Preferred Stock") (and any change in the Board incident thereto) or Common
Stock, or (z) the conversion of shares of Series D Preferred Stock into Common
Stock. "Person" means any corporation, partnership, limited partnership, limited
liability partnership, joint venture, association, limited liability company,
joint-stock company, trust or unincorporated organization.
14. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Corporation or any
subsidiary of the Corporation, or to interfere in any way with the right and
authority of the Corporation or any subsidiary of the Corporation either to
increase or decrease the compensation of any individual at any time, or to
terminate any employment or other relationship between any individual and the
Corporation or any subsidiary of the Corporation.
15. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
1997 MANAGEMENT STOCK OPTION PLAN PAGE 6
<PAGE>
16. GOVERNING LAW
THE VALIDITY, INTERPRETATION AND EFFECT OF THE PLAN, AND THE RIGHTS OF
ALL PERSONS HEREUNDER, SHALL BE GOVERNED BY AND DETERMINED IN ACCORDANCE WITH
THE LAWS OF DELAWARE, OTHER THAN THE CHOICE OF LAW RULES THEREOF.
17. HEADINGS
The headings herein are for convenience only and shall not be used in
interpreting the Plan.
1997 MANAGEMENT STOCK OPTION PLAN PAGE 7
<PAGE>
ATTACHMENT 1
<TABLE>
<CAPTION>
Optionee Name Number of Option Shares
- ------------- -----------------------
<S> <C>
E. Larry Atkins 150,000
Thomas V. Croal 140,000
Glenn P. Cato 80,000
Michael A. Boylan 50,000
Robert N. LaDouceur 50,000
Michael D. Cragin 30,000
</TABLE>
1997 MANAGEMENT STOCK OPTION PLAN PAGE 8
<PAGE>
Exh. 10.3
[EXECUTION COPY]
FOURTH AMENDMENT AND RESTATEMENT
OF
CREDIT AGREEMENT
Dated as of June 12, 1998
among
INSIGHT HEALTH SERVICES CORP.,
as Borrower,
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
AND
NATIONSBANK, N. A.,
as Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 DEFINITIONS............................................................................................1
1.1 Definitions..........................................................................................1
1.2 Computation of Time Periods.........................................................................22
1.3 Accounting Terms....................................................................................32
SECTION 2 CREDIT FACILITIES.....................................................................................23
2.1 Revolving Loans.....................................................................................23
2.2 Letter of Credit Subfacility........................................................................24
2.3 Acquisition Loans...................................................................................28
2.4 Tranche A Term Loan.................................................................................30
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES........................................................31
3.1 Default Rate........................................................................................31
3.2 Extension and Conversion............................................................................32
3.3 Prepayments.........................................................................................32
3.4 Termination and Reduction of Committed Amounts......................................................34
3.5 Fees................................................................................................35
3.6 Capital Adequacy....................................................................................36
3.7 Limitation on Eurodollar Loans......................................................................36
3.8 Illegality..........................................................................................37
3.9 Requirements of Law.................................................................................37
3.10 Treatment of Affected Loans........................................................................38
3.11 Taxes..............................................................................................38
3.12 Compensation.......................................................................................38
3.13 Pro Rata Treatment.................................................................................39
3.14 Sharing of Payments................................................................................40
3.15 Payments, Computations, Etc........................................................................41
3.16 Evidence of Debt...................................................................................42
3.17 Mandatory Assignment...............................................................................43
SECTION 4 GUARANTY..............................................................................................43
4.1 The Guaranty........................................................................................43
4.2 Obligations Unconditional...........................................................................43
4.3 Reinstatement.......................................................................................44
4.4 Certain Additional Waivers..........................................................................44
4.5 Remedies............................................................................................44
4.6 Rights of Contribution..............................................................................45
4.7 Continuing Guarantee................................................................................45
SECTION 5 CONDITIONS............................................................................................46
5.1 Closing Conditions..................................................................................46
5.2 Conditions to all Extensions of Credit..............................................................47
SECTION 6 REPRESENTATIONS AND WARRANTIES........................................................................48
6.1 Financial Condition.................................................................................48
6.2 No Material Change..................................................................................48
6.3 Organization and Good Standing......................................................................48
6.4 Power; Authorization; Enforceable Obligations.......................................................49
6.5 No Conflicts........................................................................................49
6.6 No Default..........................................................................................49
6.7 Ownership...........................................................................................49
6.8 Indebtedness........................................................................................49
6.9 Litigation..........................................................................................49
6.10 Taxes..............................................................................................50
6.11 Compliance with Law................................................................................50
6.12 ERISA..............................................................................................50
6.13 Subsidiaries.......................................................................................51
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6.14 Governmental Regulations, Etc......................................................................51
6.15 Purpose of Loans and Letters of Credit.............................................................52
6.16 Environmental Matters..............................................................................52
6.17 Intellectual Property..............................................................................52
6.18 Solvency...........................................................................................53
6.19 Investments........................................................................................53
6.20 Location of Collateral.............................................................................53
6.21 Disclosure.........................................................................................53
6.22 No Burdensome Restrictions.........................................................................53
6.23 Brokers' Fees......................................................................................53
6.24 Labor Matters......................................................................................53
6.25 Nature of Business.................................................................................53
6.26 Year 2000 Compliance...............................................................................53
SECTION 7 AFFIRMATIVE COVENANTS.................................................................................54
7.1 Information Covenants...............................................................................54
7.2 Preservation of Existence and Franchises............................................................56
7.3 Books and Records...................................................................................56
7.4 Compliance with Law.................................................................................56
7.5 Payment of Taxes and Other Indebtedness.............................................................56
7.6 Insurance...........................................................................................56
7.7 Maintenance of Property.............................................................................57
7.8 Performance of Obligations..........................................................................57
7.9 Use of Proceeds.....................................................................................57
7.10 Audits/Inspections.................................................................................57
7.11 Financial Covenants................................................................................58
7.12 Additional Credit Parties..........................................................................59
7.13 Pledged Assets.....................................................................................59
7.14 Upstreaming of Income from Joint Ventures..........................................................60
7.15 Further Assurances.................................................................................60
SECTION 8 NEGATIVE COVENANTS....................................................................................61
8.1 Indebtedness........................................................................................61
8.2 Liens...............................................................................................62
8.3 Nature of Business..................................................................................62
8.4 Consolidation, Merger, Dissolution, etc.............................................................62
8.5 Asset Dispositions..................................................................................63
8.6 Investments.........................................................................................63
8.7 Restricted Payments.................................................................................63
8.8 Prepayments of Indebtedness, etc....................................................................64
8.9 Transactions with Affiliates........................................................................64
8.10 Fiscal Year; Organizational Documents..............................................................64
8.11 Limitation on Restricted Actions...................................................................64
8.12 Ownership of Subsidiaries..........................................................................65
8.13 Sale Leasebacks....................................................................................65
8.14 Capital Expenditures...............................................................................65
8.15 No Further Negative Pledges........................................................................65
8.16 Operating Lease Obligations........................................................................65
8.17 No Foreign Subsidiaries............................................................................66
8.18 Joint Venture Operations...........................................................................66
SECTION 9 EVENTS OF DEFAULT.....................................................................................66
9.1 Events of Default...................................................................................66
9.2 Acceleration; Remedies..............................................................................68
SECTION 10 AGENCY PROVISIONS....................................................................................68
10.1 Appointment, Powers and Immunities.................................................................68
10.2 Reliance by Agent..................................................................................69
10.3 Defaults...........................................................................................69
</TABLE>
ii
<TABLE>
<CAPTION>
<S> <C>
10.4 Rights as a Lender.................................................................................69
10.5 Indemnification....................................................................................69
10.6 Non-Reliance on Agent and Other Lenders............................................................70
10.7 Successor Agent....................................................................................70
SECTION 11 MISCELLANEOUS........................................................................................70
11.1 Notices............................................................................................70
11.2 Right of Set-Off; Adjustments......................................................................71
11.3 Benefit of Agreement...............................................................................72
11.4 No Waiver; Remedies Cumulative.....................................................................73
11.5 Expenses; Indemnification..........................................................................73
11.6 Amendments, Waivers and Consents...................................................................74
11.7 Counterparts.......................................................................................75
11.8 Headings...........................................................................................75
11.9 Survival...........................................................................................75
11.10 Governing Law; Submission to Jurisdiction; Venue..................................................75
11.11 Severability......................................................................................76
11.12 Entirety..........................................................................................76
11.13 Binding Effect; Termination; Acknowledgement......................................................76
11.14 Source of Funds...................................................................................77
11.15 Conflict..........................................................................................77
11.16 Confidentiality...................................................................................77
</TABLE>
iii
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.1A Joint Ventures
Schedule 1.1B Investments
Schedule 1.1C Liens
Schedule 1.1D GE Equipment
Schedule 2.1(a) Lenders
Schedule 3.3(b)(vii) Special Asset Dispositions
Schedule 5.2(c) Form of Legal Opinion of McDermott, Will & Emery
Schedule 5.1(d) Corporate Structure
Schedule 6.1(c) Absence of Undisclosed Liabilities
Schedule 6.4 Required Consents, Authorizations, Notices
and Filings
Schedule 6.9 Litigation
Schedule 6.12 ERISA
Schedule 6.13 Subsidiaries
Schedule 6.15 Funded Indebtedness to be Refinanced
Schedule 6.16 Environmental Disclosures
Schedule 6.17 Intellectual Property
Schedule 6.20(a)(i) Primary Real Properties
Schedule 6.20(a)(ii) Secondary Real Properties
Schedule 6.20(b) Collateral Locations
Schedule 6.20(c) Chief Executive Offices/Principal Places
of Business
Schedule 6.23 Broker's Fees
Schedule 7.6 Insurance
Schedule 8.1 Indebtedness
Schedule 8.16 Existing Operating Leases
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1.1A Form of Pledge Agreement
Exhibit 1.1B Form of Security Agreement
Exhibit 1.1C Form of Subordination Agreement
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3(e) Form of Acquisition Loan Note
Exhibit 2.4(f) Form of Tranche A Term Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment and Acceptance
</TABLE>
i
<PAGE>
FOURTH AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS FOURTH AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT, dated as of June
12, 1998 (the "Amendment"), is by and among INSIGHT HEALTH SERVICES CORP., a
Delaware corporation (the "Borrower"), the Guarantors (as defined herein), the
Lenders (as defined herein) and NATIONSBANK, N. A., as Agent for the Lenders (in
such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent entered
into that certain Credit Agreement dated as of October 14, 1997 as amended by
the First Amendment to Credit Agreement dated as of November 17, 1997, the
Second Amendment to Credit Agreement dated as of December 19, 1997 and the Third
Amendment to Credit Agreement dated as of March 23, 1998 (the "Existing Credit
Agreement");
WHEREAS, the parties to the Existing Credit Agreement have agreed upon a
fourth amendment to the Existing Credit Agreement and for ease of reference have
agreed to set forth the entire agreement evidenced by the Existing Credit
Agreement as amended by such fourth amendment in this Amendment as a single
document;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition", by any Person, means an acquisition by such
Person, to the extent not constituting a capital expenditure under
GAAP, of all or a majority of the Capital Stock or all or
substantially all of the Property of another Person, whether or not
involving a merger or consolidation with such Person.
"Acquisition Loan Commitment" means, with respect to each Lender,
the commitment of such Lender in an aggregate principal amount at any
time outstanding of up to such Lender's Acquisition Loan Commitment
Percentage of the Acquisition Loan Committed Amount, to make
Acquisition Loans in accordance with the provisions of Section 2.3(a).
"Acquisition Loan Commitment Percentage" means, for any Lender,
the percentage identified as its Acquisition Loan Commitment
Percentage on Schedule 2.1(a), as such percentage may be modified in
connection with any assignment made in accordance with the provisions
of Section 11.3.
"Acquisition Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.3(a).
"Acquisition Loan Unused Fee" shall have the meaning assigned to
such term in Section 3.5(a)(ii).
"Acquisition Loan Unused Fee Calculation Period" shall have the
meaning assigned to such term in Section 3.5(a)(ii).
"Acquisition Loans" shall have the meaning assigned to such term
in Section 2.3(a).
"Acquisition Note" or "Acquisition Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Acquisition Loans provided pursuant to Section 2.3(e), individually or
1
<PAGE>
collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from
time to time.
"Additional Credit Party" means each Person that becomes a
Guarantor after the Closing Date by execution of a Joinder Agreement.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Affiliate" means, with respect to any Person, any other Person
(i) directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the Capital
Stock in such Person. For purposes of this definition, "control" when
used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agency Services Address" means NationsBank, N. A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina
28255, Attn: Agency Services, or such other address as may be
identified by written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the
heading hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement, dated
as of [April __, 1998], between the Agent and the Borrower, as
amended, modified, restated or supplemented from time to time.
"Agent's Fees" shall have the meaning assigned to such term in
Section 3.5(c).
"Amendment No. 4 Effective Date" means the date the conditions
set forth in Section 5.1 have been satisfied.
"Applicable Lending Office" means, for each Lender, the office of
such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower by written
notice as the office by which its Eurodollar Loans are made and
maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Revolving Loan, any
Acquisition Loan or any Tranche A Term Loan, the applicable rate of
the Revolving Unused Fee for any day for purposes of Section
3.5(a)(i), the applicable rate of the Acquisition Loan Unused Fee for
any day for purposes of Section 3.5(a)(ii), the applicable rate of the
Standby Letter of Credit Fee for any day for purposes of Section
3.5(b)(i) or the applicable rate of the Trade Letter of Credit Fee for
any day for purposes of Section 3.5(b)(ii), the appropriate applicable
percentage corresponding to the Senior Leverage Ratio in effect as of
the most recent Calculation Date:
<TABLE>
<CAPTION>
Applicable
Applicable Applicable Applicable Percentage
Senior Percentage Percentage Applicable Percentage Applicable for
Pricing Leverage For Base For Percentage for Trade Percentage Acquisition
Level Ratio Rate Loans Eurodollar For Standby Letter of for Loan Unused
Loans Letter of Credit Fee Revolving Fees
Credit Fee Unused Fees
- -------- --------- ------------ ------------ ------------ ---------- ------------- --------------
Revolving Revolving
Loans, Loans,
Acquisition Acquisition
Loans and Loans and
Tranche A Tranche A
Term Loans Term Loans
------------ -------------
2
<PAGE>
<S> <C> <C> <C> <C> <C> <C> <C>
I less than 0.75% 1.75% 1.75% 0.875% 0.375% 0.50%
or equal to
2.00 to 1.00
II greater than 1.00% 2.00% 2.00% 1.00% 0.50% 0.50%
2.00 to 1.00
but
less than
2.00 to 1.00
III greater than 1.25% 2.25% 2.25% 1.125% 0.50% 0.50%
2.50 to 1.00
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly
on the date (each a "Calculation Date") five Business Days after the
date by which the Borrower is required to provide the officer's
certificate in accordance with the provisions of Section 7.1(c) for
the most recently ended fiscal quarter of the Consolidated Parties;
provided, however, that (i) the initial Applicable Percentages shall
be based on Pricing Level I (as shown above) and shall remain at
Pricing Level I until the earlier of (i) the Calculation Date
occurring on September 30, 1998 or (ii) the date of any Permitted
Acquisition, and, thereafter, the Pricing Level shall be determined by
the Senior Leverage Ratio as of the last day of the most recently
ended fiscal quarter of the Consolidated Parties preceding the
applicable Calculation Date, and (ii) if the Borrower fails to provide
the officer's certificate to the Agency Services Address as required
by Section 7.1(c) for the last day of the most recently ended fiscal
quarter of the Consolidated Parties preceding the applicable
Calculation Date, the Applicable Percentage from such Calculation Date
shall be based on Pricing Level III until such time as an appropriate
officer's certificate is provided, whereupon the Pricing Level shall
be determined by the Senior Leverage Ratio as of the last day of the
most recently ended fiscal quarter of the Consolidated Parties
preceding such Calculation Date. Each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation Date.
Any adjustment in the Applicable Percentages shall be applicable to
all existing Loans as well as any new Loans made or issued.
"Application Period", in respect of any Asset Disposition, shall
have the meaning assigned to such term in Section 8.5.
"Asset Disposition" means the disposition of any or all of the
assets (including without limitation the Capital Stock of a
Subsidiary) of any Consolidated Party, whether by sale, lease,
transfer or otherwise, other than (a) the sale of inventory in the
ordinary course of business for fair consideration, (b) the sale or
disposition of machinery and equipment no longer used or useful in the
conduct of such Person's business and (c) any Equity Transaction.
"Asset Disposition Prepayment Event" means, with respect to any
Asset Disposition other than an Excluded Asset Disposition, the
failure of the Borrower to apply (or cause to be applied) the Net Cash
Proceeds of such Asset Disposition to the purchase, acquisition or
construction of Eligible Assets during the Application Period for such
Asset Disposition.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property
or ordering the winding up or liquidation of its affairs; or (ii)
there shall be commenced against such Person an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or any case, proceeding or other action for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation
of its affairs, and such involuntary case or other case, proceeding or
other action
3
<PAGE>
shall remain undismissed, undischarged or unbonded for a period of
ninety (90) consecutive days; or (iii) such Person shall commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of its Property or make any
general assignment for the benefit of creditors; or (iv) such Person
shall be unable to, or shall admit in writing its inability to, pay
its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one
percent (0.5%) and (b) the Prime Rate for such day. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime
Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New
York, New York are authorized or required by law to close, except
that, when used in connection with a Eurodollar Loan, such day shall
also be a day on which dealings between banks are carried on in U.S.
dollar deposits in London, England.
"Calculation Date" has the meaning set forth in the definition of
"Applicable Percentage" set forth in this Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, capital
stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of capital stock, (iii) in the case of a
partnership, partnership interests (whether general or limited), (iv)
in the case of a limited liability company, membership interests and
(v) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar denominated time deposits and
certificates of deposit of (i) any Lender, (ii) any domestic
commercial bank of recognized standing having capital and surplus in
excess of $500,000,000 or (iii) any bank whose short-term commercial
paper rating from S&P is at least A-1 or the equivalent thereof or
from Moody's is at least P-1 or the equivalent thereof (any such bank
being an "Approved Bank"), in each case with maturities of not more
than 270 days from the date of acquisition, (c) commercial paper and
variable or fixed rate notes issued by any Approved Bank (or by the
parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better
by Moody's and maturing within six months of the date of acquisition,
(d) repurchase agreements with a bank or trust company (including any
of the Lenders) or recognized securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which any Credit
Party shall have a perfected first priority security interest (subject
to no other Liens) and having, on the date of purchase thereof, a fair
market value of at least 100% of the amount of the repurchase
obligations and (e) Investments, classified in accordance with GAAP as
current assets, in money market investment programs registered under
the Investment Company Act of 1940, as amended, which are administered
by
4
<PAGE>
reputable financial institutions having capital of at least
$500,000,000 and the portfolios of which are limited to Investments of
the character described in the foregoing subdivisions (a) through (d).
"Central Coast" means a direct or indirect Subsidiary of the
Borrower to be created subsequent to the Closing Date for the purpose
of operating a diagnostic imaging center project in California.
"Certificates of Designation" means a collective reference to the
Series B Certificate of Designation and the Series C Certificate of
Designation.
"Change of Control" means any of the following events: without
the prior written consent of the Required Lenders, (a) either the
Sponsor or GE shall transfer any Capital Stock in the Borrower in a
manner that requires approval of the Borrower's Board of Directors
pursuant to Section 6.14 of the Sponsor Investment Agreement or
Section 6.14 of the GE Investment Agreement, (b) any Person other than
the Sponsor or GE or two or more Persons other than the Sponsor or GE
acting in concert shall have acquired beneficial ownership, directly
or indirectly, of, or shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon
consummation, will result in its or their acquisition of, control
over, 33% or more of the Capital Stock of the Borrower, (c) during any
period of up to 24 consecutive months commencing after the Closing
Date, individuals who at the beginning of such 24 month period were
directors of the Borrower (together with any new director (i) whose
election by the Borrower's Board of Directors or whose nomination for
election by the Borrower's shareholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved or (ii) appointed
by the Sponsor and/or GE) cease for any reason to constitute a
majority of the directors of the Borrower then in office, (d) the
occurrence of (i) a breach by the Sponsor of Section 6.14 of the
Sponsor Investment Agreement or (ii) a breach by GE of Section 6.14 of
the GE Investment Agreement or (e) the occurrence of a "Change of
Control" under and as defined in the Subordinated Note Indenture. As
used herein, "beneficial ownership" shall have the meaning provided in
Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
"Closing Date" means October 14, 1997.
"Code" means the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
"Collateral" means a collective reference to the collateral which
is identified in, and at any time will be covered by, the Collateral
Documents.
"Collateral Documents" means a collective reference to the
Security Agreement, the Pledge Agreement, the Mortgage Instruments and
such other documents executed and delivered in connection with the
attachment and perfection of the Agent's security interests and liens
arising thereunder, including without limitation, UCC financing
statements and patent and trademark filings.
"Commitment" means (i) with respect to each Lender, the Revolving
Commitment of such Lender, the Acquisition Loan Commitment of such
Lender and the Tranche A Term Loan Commitment of such Lender and (ii)
with respect to the Issuing Lender, the LOC Commitment.
"Consolidated Capital Expenditures" means, for any period, all
capital expenditures of the Consolidated Parties on a consolidated
basis for such period, as determined in accordance with GAAP,
excluding capital expenditures incurred in connection with the buyout
of existing Operating Leases set forth on Schedule 8.16 hereto.
"Consolidated Cash Interest Expense" means, for any period, cash
interest expense (including the amortization of debt discount and
premium, the interest component under Capital Leases and the implied
interest component under Synthetic Leases) of the Consolidated Parties
on a consolidated basis for such period, as determined in accordance
with GAAP; provided, however, that, notwithstanding anything to the
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contrary set forth in this Credit Agreement, (i) for any calculation
as of the fiscal quarter ending March 31, 1998 for the twelve-month
period then ended, Consolidated Cash Interest Expense shall be
determined based on Consolidated Cash Interest Expense for the
one-quarter period then ended multiplied by 4, (ii) for any
calculation as of the fiscal quarter ending June 30, 1998 for the
twelve-month period then ended, Consolidated Cash Interest Expense
shall be determined based on Consolidated Cash Interest Expense for
the two-quarter period then ended multiplied by 2 and (iii) for any
calculation as of the fiscal quarter ending September 30, 1998 for the
twelve-month period then ended, Consolidated Cash Interest Expense
shall be determined based on Consolidated Cash Interest Expense for
the three-quarter period then ended multiplied by 1.33.
"Consolidated Cash Taxes" means, for any period, the aggregate of
all taxes of the Consolidated Parties on a consolidated basis for such
period, as determined in accordance with GAAP, to the extent the same
are paid in cash during such period.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (A) Consolidated Interest Expense, (B) total federal,
state, local and foreign income, value added and similar taxes, (C)
depreciation and amortization expense and (D) minority interests
(provided that minority interests shall not constitute more than 10%
of Consolidated EBITDA for any period), all as determined in
accordance with GAAP.
"Consolidated EBITDAR" means, for any period, the sum of (i)
Consolidated EBITDA for such period, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been
deducted for Consolidated Rental Expense, all as determined in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, interest
expense (including the amortization of debt discount and premium, the
interest component under Capital Leases and the implied interest
component under Synthetic Leases) of the Consolidated Parties on a
consolidated basis for such period, as determined in accordance with
GAAP; provided, however, that, notwithstanding anything to the
contrary set forth in this Credit Agreement, (i) for any calculation
as of the fiscal quarter ending March 31, 1998 for the twelve-month
period then ended, Consolidated Interest Expense shall be determined
based on Consolidated Interest Expense for the one-quarter period then
ended multiplied by 4, (ii) for any calculation as of the fiscal
quarter ending June 30, 1998 for the twelve-month period then ended,
Consolidated Interest Expense shall be determined based on
Consolidated Interest Expense for the two-quarter period then ended
multiplied by 2 and (iii) for any calculation as of the fiscal quarter
ending September 30, 1998 for the twelve-month period then ended,
Consolidated Interest Expense shall be determined based on
Consolidated Interest Expense for the three-quarter period then ended
multiplied by 1.33.
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary, unusual items and gains or losses on Asset
Dispositions) after taxes for such period of the Consolidated Parties
on a consolidated basis, as determined in accordance with GAAP.
"Consolidated Parties" means a collective reference to the
Borrower and its Subsidiaries, and "Consolidated Party" means any one
of them.
"Consolidated Rental Expense" means, for any period, rental
expense under Operating Leases of the Consolidated Parties on a
consolidated basis for such period, as determined in accordance with
GAAP.
"Consolidated Scheduled Funded Debt Payments" means, as of the
end of each fiscal quarter of the Consolidated Parties, for the
Consolidated Parties on a consolidated basis, the sum of all scheduled
payments of principal on Funded Indebtedness (other than Funded
Indebtedness retired in connection with the Recapitalization) for the
applicable period ending on such date (including the principal
component of payments due on Capital Leases during the applicable
period ending on such date); it being understood that Scheduled Funded
Debt Payments shall not include voluntary prepayments or the mandatory
prepayments required pursuant to Section 3.3.
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"Consolidated Total Assets" means, at any time, total assets of
the Consolidated Parties on a consolidated basis at such time, as
determined in accordance with GAAP.
"Consolidated Working Capital" means, at any time, the excess of
(a) the sum of all amounts (other than cash, Cash Equivalents and bank
overdrafts) that would, in conformity with GAAP, be set forth opposite
the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Consolidated Parties at such time
over (ii) the sum of all amounts that would, in conformity with GAAP,
be set forth opposite the caption "total current liabilities" (or any
like caption) on a consolidated balance sheet of the Consolidated
Parties at such time, but excluding (a) the current portion of any
Funded Indebtedness, and (b) the current portion of deferred income
taxes.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a
conversion pursuant to Section 3.2 or Sections 3.7 through 3.12,
inclusive, of a Base Rate Loan into a Eurodollar Loan.
"Credit Agreement" means the Existing Credit Agreement as amended
and restated by this Amendment.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the
Agent's Fee Letter, the Collateral Documents and all other related
agreements and documents issued or delivered hereunder or thereunder
or pursuant hereto or thereto (in each case as the same may be
amended, modified, restated, supplemented, extended, renewed or
replaced from time to time), and "Credit Document" means any one of
them.
"Credit Parties" means a collective reference to the Borrower and
the Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of
the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agent, whenever arising, under this Credit
Agreement, the Notes, the Collateral Documents or any of the other
Credit Documents (including, but not limited to, any interest accruing
after the occurrence of a Bankruptcy Event with respect to any Credit
Party, regardless of whether such interest is an allowed claim under
the Bankruptcy Code) and (ii) all liabilities and obligations,
whenever arising, owing from the Borrower to any Lender, or any
Affiliate of a Lender, arising under any Hedging Agreement.
"Debt Issuance" means the issuance of any Indebtedness for
borrowed money by any Consolidated Party.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a) has
failed to make a Loan or purchase a Participation Interest required
pursuant to the term of this Credit Agreement within one Business Day
of when due, (b) other than as set forth in (a) above, has failed to
pay to the Agent or any Lender an amount owed by such Lender pursuant
to the terms of this Credit Agreement within one Business Day of when
due, unless such amount is subject to a good faith dispute or (c) has
been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or with respect to which (or with respect to any
of assets of which) a receiver, trustee or similar official has been
appointed.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the
laws of any State of the United States or the District of Columbia.
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"Effective Date" means the date on which the conditions set forth
in Section 5.2 of the Existing Credit Agreement to the making of the
initial Loans and/or the issuance of the initial Letter of Credit, as
applicable,were fulfilled (or waived in the sole discretion of the
Lenders) and on which the initial Loans were made and/or the initial
Letters of Credit were issued.
"Eligible Assets" means another business or any substantial part
of another business or other long-term assets, in each case, in, or
used or useful in, the same or a similar line of business as the
Consolidated Parties were engaged in on the Closing Date or any
reasonable extensions or expansions thereof.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) any Approved Fund; and (iv) any other Person approved by
the Agent and, unless an Event of Default has occurred and is
continuing at the time any assignment is effected in accordance with
Section 11.3, the Borrower (such approval not to be unreasonably
withheld or delayed by the Borrower and such approval to be deemed
given by the Borrower if no objection is received by the assigning
Lender and the Agent from the Borrower within five Business Days after
notice of such proposed assignment has been provided by the assigning
Lender to the Borrower); provided, however, that neither the Borrower
nor an Affiliate of the Borrower shall qualify as an Eligible
Assignee. For the purposes of this definition, "Approved Fund" shall
mean, with respect to any Lender that is a fund that invests in bank
loans, any other fund that invests in bank loans which is managed or
advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes.
"Equity Issuance" means any issuance by any Consolidated Party to
any Person which is not a Credit Party of (a) shares of its Capital
Stock, (b) any shares of its Capital Stock pursuant to the exercise of
options or warrants or (c) any shares of its Capital Stock pursuant to
the conversion of any debt securities to equity.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common control
with any Consolidated Party within the meaning of Section 4001(a)(14)
of ERISA, or is a member of a group which includes the Borrower and
which is treated as a single employer under Sections 414(b) or (c) of
the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence
of a Reportable Event or the substantial cessation of operations
(within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal
by any Consolidated Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or
the termination of a Multiple Employer Plan; (iii) the distribution of
a notice of intent to terminate or the actual termination of a Plan
pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution
of proceedings to terminate or the actual termination of a Plan by the
PBGC under Section 4042 of ERISA; (v) any event or condition which
might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Plan; (vi) the complete or partial withdrawal of any Consolidated
Party or any ERISA Affiliate from a Multiemployer Plan; (vii) the
conditions for imposition of a lien under Section 302(f) of ERISA
exist with respect to any Plan; or (vii) the adoption of an amendment
to any Plan requiring the provision of security to such Plan pursuant
to Section 307 of ERISA.
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"Eurodollar Loan" means any Loan that bears interest at a rate
based upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the
quotient obtained by dividing (a) the Interbank Offered Rate for such
Eurodollar Loan for such Interest Period by (b) 1 minus the Eurodollar
Reserve Requirement for such Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum
rate at which reserves (including, without limitation, any marginal,
special, supplemental, or emergency reserves) are required to be
maintained under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the effect of
the foregoing, the Eurodollar Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by
reference to which the Adjusted Eurodollar Rate is to be determined,
or (ii) any category of extensions of credit or other assets which
include Eurodollar Loans. The Adjusted Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change
in the Eurodollar Reserve Requirement.
"Event of Default" means such term as defined in Section 9.1.
"Excess Cash Flow" means, with respect to any fiscal year period
of the Consolidated Parties on a consolidated basis, an amount equal
to (a) Consolidated EBITDA for such period minus (b) Consolidated
Capital Expenditures for such period minus (c) Consolidated Cash
Interest Expense for such period minus (d) Federal, state and other
income taxes actually paid by the Consolidated Parties on a
consolidated basis during such period minus (e) Consolidated Scheduled
Funded Debt Payments made during such period minus (f) total
consideration (including any assumption of liabilities (other than
current working capital liabilities not constituting Indebtedness),
but excluding consideration consisting of any Capital Stock of the
Borrower), fees and expenses actually paid by the Consolidated Parties
on a consolidated basis in connection with Permitted Acquisitions
during such period plus/minus (g) changes in Consolidated Working
Capital for such period.
"Excluded Asset Disposition" means any Asset Disposition by any
Consolidated Party to any Credit Party if (a) the Credit Parties shall
cause to be executed and delivered such documents, instruments and
certificates as the Agent may request so as to cause the Credit
Parties to be in compliance with the terms of Section 7.13 after
giving effect to such Asset Disposition and (b) after giving effect
such Asset Disposition, no Default or Event of Default exists.
"Excluded Equity Issuance" means (1) any Asset Disposition and
(2) any Equity Issuance to the Sponsor or GE, including without
limitation the issuance and sale by the Borrower of preferred capital
stock pursuant to Section 2.1 of the GE Investment Agreement or
Section 2.1 of the Sponsor Investment Agreement.
"Executive Officer" of any Person means any of the chief
executive officer, chief operating officer, president, vice president,
chief financial officer or treasurer of such Person.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day;
provided that (a) if such day is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent (in its individual capacity) on such day on
such transactions as determined by the Agent.
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"Fixed Charge Coverage Ratio" means, as of the end of any fiscal
quarter of the Consolidated Parties for the twelve month period ending
on such date, the ratio of (a) Consolidated EBITDAR for the applicable
period minus Consolidated Cash Taxes for the applicable period to (b)
Consolidated Cash Interest Expense for the applicable period plus
Consolidated Scheduled Funded Debt Payments for the applicable period
plus Consolidated Rental Expense for the applicable period.
"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is not a Domestic Subsidiary of such
Person.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than
Indebtedness of the types referred to in clause (e), (f), (g), (i),
(k) and (m) of the definition of "Indebtedness" set forth in this
Section 1.1, (b) all Indebtedness of another Person of the type
referred to in clause (a) above secured by (or for which the holder of
such Funded Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such
Person, whether or not the obligations secured thereby have been
assumed, (c) all Guaranty Obligations of such Person with respect to
Indebtedness of the type referred to in clause (a) above of another
Person and (d) Indebtedness of the type referred to in clause (a)
above of any partnership or unincorporated joint venture in which such
Person is legally obligated or has a reasonable expectation of being
liable with respect thereto.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms
of Section 1.3.
"GE" means General Electric Company, a New York corporation, and
its Affiliates.
"GE Equipment" shall have the meaning assigned to such term in
the definition of "MD Assets".
"GE Investment Agreement" means that certain Securities Purchase
Agreement dated as of October 14, 1997 by and among GE and the
Borrower.
"GE Payoff Letter" means the payoff letter dated October 14,
1997 delivered by GE to the Borrower and pursuant to which and GE
agrees to terminate the Master Debt Restructuring Agreement upon
payment by the Borrower to GE of certain indebtedness owing by the
Borrower to GE as of the date of such letter, all on the terms set
forth more fully therein.
"GE Registration Rights Agreement" means that certain
Registration Rights Agreement dated as of a date on or before the
Effective Date by and between the Borrower and GE.
"GE Warrant Agreement" means that certain Warrant Agreement dated
as of a date on or before the Effective Date by and between the
Borrower and GE.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantor" means each of the Persons identified as a "Guarantor"
on the signature pages hereto and each Additional Credit Party which
may hereafter execute a Joinder Agreement, together with their
successors and permitted assigns, and "Guarantor" means any one of
them
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements
in the ordinary course of business of negotiable instruments for
deposit or collection) guaranteeing or intended to guarantee any
Indebtedness of any other Person in any manner, whether direct or
indirect, and including without limitation any obligation, whether or
not contingent, (i) to purchase any such Indebtedness or any Property
constituting security therefor, (ii) to advance or provide funds or
other support for the payment or purchase of any such Indebtedness or
to maintain working capital, solvency or other balance sheet condition
of such other Person (including without limitation keep well
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agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase
Property, securities or services primarily for the purpose of assuring
the holder of such Indebtedness, or (iv) to otherwise assure or hold
harmless the holder of such Indebtedness against loss in respect
thereof. The amount of any Guaranty Obligation hereunder shall
(subject to any limitations set forth therein) be deemed to be an
amount equal to the outstanding principal amount (or maximum principal
amount, if larger) of the Indebtedness in respect of which such
Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection agreement
or foreign currency exchange agreement between any Consolidated Party
and any Lender, or any Affiliate of a Lender.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money,
(b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, or upon which interest payments are
customarily made, (c) all obligations of such Person under conditional
sale or other title retention agreements relating to Property
purchased by such Person (other than customary reservations or
retentions of title under agreements with suppliers entered into in
the ordinary course of business), (d) all obligations of such Person
issued or assumed as the deferred purchase price of Property or
services purchased by such Person (other than trade debt incurred in
the ordinary course of business and due within six months of the
incurrence thereof) which would appear as liabilities on a balance
sheet of such Person, (e) all obligations of such Person under
take-or-pay or similar arrangements or under commodities agreements,
(f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on, or payable out of the proceeds of
production from, Property owned or acquired by such Person, whether or
not the obligations secured thereby have been assumed, (g) all
Guaranty Obligations of such Person, (h) the principal portion of all
obligations of such Person under Capital Leases, (i) all obligations
of such Person under Hedging Agreements, (j) the maximum amount of all
standby letters of credit issued or bankers' acceptances facilities
created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent unreimbursed), (k) all
preferred Capital Stock issued by such Person and required by the
terms thereof to be redeemed, or for which mandatory sinking fund
payments are due, by a fixed date occurring prior to the Maturity Date
for the Tranche A Term Loan, (l) the principal portion of all
obligations of such Person under Synthetic Leases, (m) for purposes of
any calculation made under the financial covenants set forth in
Section 7.11 (including without limitation for purposes of the
definitions of "Applicable Percentage" and "Pro Forma Basis" set forth
in Section 1.1), the Indebtedness of any partnership or unincorporated
joint venture in which such Person is a general partner or a joint
venturer and (n) in the case of the Consolidated Parties for purposes
of any calculation made under the financial covenants set forth in
Section 7.11 (including without limitation for purposes of the
definitions of "Applicable Percentage" and "Pro Forma Basis" set forth
in Section 1.1) as of the end of any fiscal quarter of the
Consolidated Parties, the Indebtedness of any Person whose results of
operations would, in accordance with GAAP, be included in earnings of
unconsolidated Persons on an income statement of the Consolidated
Parties for any period ending on such fiscal quarter-end.
"Interbank Offered Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750
(or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period. If for any reason such rate
is not available, the term "Interbank Offered Rate" shall mean, for
any Eurodollar Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates (rounded upwards,
if necessary, to the nearest 1/100 of 1%).
"Interest Coverage Ratio" means, as of the end of any fiscal
quarter of the Consolidated Parties for the twelve month period ending
on such date, the ratio of (a) Consolidated EBITDA for such period to
(b) Consolidated Cash Interest Expense for such period.
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"Interest Payment Date" means (a) as to Base Rate Loans, the last
day of each fiscal quarter of the Borrower and the Maturity Date, and
(b) as to Eurodollar Loans, the last day of each applicable Interest
Period and the Maturity Date, and in addition where the applicable
Interest Period for a Eurodollar Loan is greater than three months,
then also the date three months from the beginning of the Interest
Period and each three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of one,
two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(b) no Interest Period shall extend beyond the Maturity Date, (c) with
regard to the Acquisition Loans, no Interest Period shall extend
beyond any Principal Amortization Payment Date unless the portion of
Acquisition Loans comprised of Base Rate Loans together with the
portion of Acquisition Loans comprised of Eurodollar Loans with
Interest Periods expiring prior to the date such Principal
Amortization Payment is due, is at least equal to the amount of such
Principal Amortization Payment due on such date, (d) with regard to
the Tranche A Term Loans, no Interest Period shall extend beyond any
Principal Amortization Payment Date unless the portion of Tranche A
Term Loans comprised of Base Rate Loans together with the portion of
Tranche A Term Loans comprised of Eurodollar Loans with Interest
Periods expiring prior to the date such Principal Amortization Payment
is due, is at least equal to the amount of such Principal Amortization
Payment due on such date and (e) where an Interest Period begins on a
day for which there is no numerically corresponding day in the
calendar month in which the Interest Period is to end, such Interest
Period shall end on the last Business Day of such calendar month.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of Capital Stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests
or other securities of such other Person or (b) any deposit with, or
advance, loan or other extension of credit to, such Person (other than
deposits made in connection with the purchase of equipment or other
assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without
limitation, any Guaranty Obligations (including any support for a
letter of credit issued on behalf of such Person) incurred for the
benefit of such Person, but excluding any Restricted Payment to such
Person.
"Investment Agreements" means a collective reference to the GE
Investment Agreement and the Sponsor Investment Agreement.
"Investment Documents" means a collective reference to the
Investment Agreements, the Registration Rights Agreements, the Warrant
Agreements and the Certificates of Designation.
"Issuing Lender" means NationsBank.
"Issuing Lender Fees" shall have the meaning assigned to such
term in Section 3.5(b)(ii).
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.12 hereto, executed and delivered by an
Additional Credit Party in accordance with the provisions of Section
7.12.
"Joint Venture" means an entity which meets the following
criteria:
(a) it was organized pursuant to an express joint venture,
partnership or limited liability company agreement;
(b) it is a venture among two or more Persons and, except
for purposes of the definition of "Indebtedness" set forth in
this Section 1.1, at least one of such Persons is, and one of
such Persons is not, the Borrower or a Wholly Owned Subsidiary of
the Borrower;
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(c) it operates a business for profit in which there is a
joint proprietary interest in the subject matter;
(d) the venture involves a right of mutual control of the
subject of the enterprise;
(e) each of the venturers has contributed or will contribute
capital, materials, services or knowledge;
(f) each of the venturers has a right to share in the
profits of the venture; and
(g) each of the venturers has a duty to share in the losses
of the venture.
The term "Joint Venture" shall in any event include the Persons
identified on Schedule 1.1A.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by
way of assignment in accordance with the terms hereof, together with
their successors and permitted assigns.
"Letter of Credit" means any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory
or otherwise), preference, priority or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any financing or similar statement or
notice filed under the Uniform Commercial Code as adopted and in
effect in the relevant jurisdiction or other similar recording or
notice statute, and any lease in the nature thereof); provided,
however, the term "Lien" in respect of any Property of any Person
shall not include any interest of title of a lessor (or any related
filing) under any Operating Lease of such Property under which such
Person is the lessee.
"Loan" or "Loans" means the Revolving Loans, the Acquisition
Loans and/or the Tranche A Term Loans (or a portion of any Revolving
Loan, any Acquisition Loan or any Tranche A Term Loan bearing interest
at the Adjusted Base Rate or the Adjusted Eurodollar Rate),
individually or collectively, as appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time
outstanding (together with the amounts of any unreimbursed drawings
thereon) of up to the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such
term in Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned
or at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance
with all requirements for drawings referred to in such Letters of
Credit plus (ii) the aggregate amount of all drawings under Letters of
Credit honored by the Issuing Lender but not theretofore reimbursed by
the Borrower.
"Master Debt Restructuring Agreement" means that certain Master
Debt Restructuring Agreement dated as of June 26, 1996 by and among
GE, the Borrower, American Health Services Corp., Maxum Health Corp.
and certain subsidiaries of Maxum Health Corp., as amended through the
Closing Date.
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"Material Adverse Effect" means a material adverse effect on (i)
the condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Consolidated Parties taken as a whole,
(ii) the ability of the Credit Parties taken as a whole to perform any
material obligation under the Credit Documents or (iii) the material
rights and remedies of the Lenders under the Credit Documents.
"Maturity Date" means (i) as to the Revolving Loans and Letters
of Credit (and the related LOC Obligations) June 12, 2003, (ii) as to
the Tranche A Term Loan, June 12, 2004 and (iii) as to the Acquisition
Loans, June 12, 2004.
"MD Assets" means (i) the assets of Mountain Diagnostics
purchased or acquired by InSight Health Corp. pursuant to the Order
Confirming Sale of Certain Assets of the Estate of Mountain
Diagnostics, Inc. (Case No. BK-S-96-2500-RCJ) entered by the Honorable
R. Clive Jones of the United States Bankruptcy Court for the District
of Nevada on November 14, 1997 and (ii) the equipment described in
Schedule attached hereto (the "GE Equipment").
"Moody's" means Moody's Investors Service, Inc., or any successor
or assignee of the business of such company in the business of rating
securities.
"Mortgage Instruments" shall have the meaning assigned such term
in Section 5.2(c) of the Existing Credit Agreement.
"Mortgage Policies" shall have the meaning assigned such term in
Section 5.2(c) of the Existing Credit Agreement.
"Mountain Diagnostics" means Mountain Diagnostics, Inc., a Nevada
corporation.
"Multiemployer Plan" means a Plan which is a multiemployer plan
as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which any Consolidated
Party or any ERISA Affiliate and at least one employer other than the
Consolidated Parties or any ERISA Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N. A. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by
the Consolidated Parties in respect of any Asset Disposition, Equity
Issuance or Debt Issuance, net of (a) direct costs (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and (b) taxes paid or payable as a result thereof; it
being understood that "Net Cash Proceeds" shall include, without
limitation, any cash received upon the sale or other disposition of
any non-cash consideration received by the Consolidated Parties in any
Asset Disposition, Equity Issuance or Debt Issuance.
"Note" or "Notes" means the Revolving Notes, the Acquisition
Notes and/or the Tranche A Term Notes, individually or collectively,
as appropriate.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i), Section 2.3(b)(i) or Section 2.4(b).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as
required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
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"Open MRI" means Open MRI, Inc., a Delaware corporation and a
Wholly Owned Subsidiary of the Borrower.
"Other Taxes" means such term as is defined in Section 3.11.
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2 or in any Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means (a) an Acquisition by the Borrower
or any Wholly Owned Subsidiary of the Borrower for the fair market
value of the Capital Stock or Property acquired, provided that (i) the
Capital Stock or Property acquired in such Acquisition relates to a
line of business similar to the business of the Borrower or any of its
Wholly Owned Subsidiaries engaged in on the Closing Date, (ii) the
Agent shall have received all items in respect of the Capital Stock or
Property acquired in such Acquisition (and/or the seller thereof)
required to be delivered by the terms of Section 7.12 and/or Section
7.13, (iii) in the case of an Acquisition of the Capital Stock of
another Person, the board of directors (or other comparable governing
body) of such other Person shall have duly approved such Acquisition,
(iv) the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect to such
Acquisition on a Pro Forma Basis, the Credit Parties shall be in
compliance with all of the covenants set forth in Section 7.11, (v)
the Agent shall be reasonably satisfied that, upon giving effect to
such Acquisition on a Pro Forma Basis, at least 80% of Consolidated
EBITDA for the 12 month period ended as of the most recent fiscal
quarter end preceding the date of such transaction with respect to
which the Agent has received the Required Financial Information shall
have been audited in accordance with GAAP by independent certified
public accountants of recognized national standing reasonably
acceptable to the Agent (whose opinion shall not be limited as to the
scope or qualified as to going concern status), it being acknowledged
and agreed that, for purposes of this clause (v), any portion of
Consolidated EBITDA attributable to any Person for any calculation
period shall be deemed to have been audited if a fiscal year end audit
for such Person has been prepared during such 12 month period, (vi)
the representations and warranties made by the Credit Parties in any
Credit Document shall be true and correct in all material respects at
and as if made as of the date of such Acquisition (after giving effect
thereto) except to the extent such representations and warranties
expressly relate to an earlier date, (vii) the proceeds of Acquisition
Loans used to finance such Acquisition shall not exceed $15,000,000
and the aggregate consideration for all such Acquisitions shall not
exceed $50,000,000 per fiscal year of the Borrower, (viii) if such
transaction involves the purchase of an interest in a partnership
between the Borrower (or a subsidiary of the Borrower) as a general
partner and entities unaffiliated with the Borrower as the other
partners, such transaction shall be effected by having such equity
interest acquired by a corporate holding company directly wholly-owned
by the Borrower newly formed for the sole purpose of effecting such
transaction and (ix) after giving effect to such Acquisition, the
Revolving Committed Amount shall be at least $5,000,000 greater than
the sum of the Revolving Loans outstanding plus LOC Obligations
outstanding or (b) subject to the terms of Section 7.13 and Section
7.15, the Acquisition by InSight Health Corp. of the MD Assets on or
before November 18, 1997.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents; (ii) accounts receivable created, acquired
or made by any Consolidated Party in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
(iii) Investments consisting of Capital Stock, obligations, securities
or other property received by any Consolidated Party in settlement of
accounts receivable (created in the ordinary course of business) from
bankrupt obligors; (iv) Investments existing as of the Closing Date
and set forth in Schedule 1.1B; (v) Guaranty Obligations permitted by
Section 8.1; (vi) transactions permitted by Section 8.9; (vii)
advances or loans to directors, officers, employees, agents, customers
or suppliers made in the ordinary course of business for reasonable
business and which do not exceed $1,000,000 in the aggregate at any
one time outstanding for all of the Consolidated Parties; (viii)
Investments in any Credit Party; (ix) Permitted Acquisitions; and (x)
Investments in Joint Ventures not to exceed $5,000,000.
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"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or
Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to
any such Lien is not yet subject to foreclosure, sale or loss on
account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens
imposed by law or pursuant to customary reservations or retentions of
title arising in the ordinary course of business, provided that such
Liens secure only amounts not yet due and payable or, if due and
payable, are unfiled and no other action has been taken to enforce the
same or are being contested in good faith by appropriate proceedings
for which adequate reserves determined in accordance with GAAP have
been established (and as to which the Property subject to any such
Lien is not yet subject to foreclosure, sale or loss on account
thereof);
(iv) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made by any Consolidated Party in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, bids,
leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(v) Liens in connection with attachments or judgments (including
judgment or appeal bonds) provided that the judgments secured shall,
within 60 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall have been discharged
within 60 days after the expiration of any such stay;
(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered Property for its intended
purposes;
(vii) Liens on Property securing purchase money Indebtedness
(including Capital Leases and Synthetic Leases) to the extent
permitted under Section 8.1(c), provided that any such Lien attaches
to such Property concurrently with or within 90 days after the
acquisition thereof;
(viii) leases or subleases granted to others not interfering in
any material respect with the business of any Consolidated Party;
(ix) any interest of title of a lessor under, and Liens arising
from UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to, leases permitted by
this Credit Agreement;
(x) Liens deemed to exist in connection with Investments in
repurchase agreements permitted under Section 8.6;
(xi) normal and customary rights of setoff upon deposits of cash
in favor of banks or other depository institutions;
(xii) Liens existing as of the Closing Date and set forth on
Schedule 1.1C; provided that no such Lien shall at any time be
extended to or cover any Property other than the Property subject
thereto on the Closing Date (other than a substitution of like
Property);
(xiii) Liens on any Property owned by any Subsidiary of the
Borrower which is a Joint Venture;
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(xiv) extensions, renewals or replacements of Liens referred to
in clause (i) through (xiii) above.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Consolidated Party or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed
to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Primary Real Properties" shall have the meaning assigned such
term in Section 7.15.
"Pledge Agreement" means the pledge agreement dated as of the
Closing Date in the form of Exhibit 1.1A to be executed in favor of
the Agent by each of the Credit Parties, as amended, modified,
restated or supplemented from time to time.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its
customers.
"Principal Amortization Payment" means a principal payment on the
Acquisition Loans as set forth in Section 2.3(c) or on the Tranche A
Term Loans as set forth in Section 2.4(d).
"Principal Amortization Payment Date" means the date a Principal
Amortization Payment is due.
"Principal Office" means the principal office of NationsBank,
presently located at Charlotte, North Carolina.
"Pro Forma Basis" means, with respect to any transaction, that
such transaction shall be deemed to have occurred (for purposes of
calculating compliance in respect of such transaction with each of the
financial covenants set forth in Section 7.11 as of the most recent
fiscal quarter end preceding the date of such transaction with respect
to which the Agent has received the Required Financial Information) as
of the first day of the four fiscal-quarter period ending as of such
fiscal quarter end. As used herein, "transaction" shall mean (i) any
incurrence or assumption of Indebtedness as referred to in Section
8.1(g), (ii) any merger or consolidation as referred to in Section
8.4, (iii) any Asset Disposition as referred to in Section 8.5 or (iv)
any Permitted Acquisition as referred to in Section 8.6 and clause
(ix) of the definition of "Permitted Investment" set forth in this
Section 1.1. With respect to any transaction of the type described in
clause (i) above regarding Indebtedness which has a floating or
formula rate, the implied rate of interest for such Indebtedness for
the applicable period for purposes of this definition shall be
determined by utilizing the rate which is or would be in effect with
respect to such Indebtedness as at the relevant date of determination.
With respect to any transaction of the type described in clause (ii)
or (iv) above, any Indebtedness incurred by the Borrower or any of its
Subsidiaries in order to consummate such transaction (A) shall be
deemed to have been incurred on the first day of the applicable period
four fiscal-quarter period and (B) if such Indebtedness has a floating
or formula rate, then the implied rate of interest for such
Indebtedness for the applicable period for purposes of this definition
shall be determined by utilizing the rate which is or would be in
effect with respect to such Indebtedness as at the relevant date of
determination. In connection with any calculation of the financial
covenants set forth in Section 7.11 upon giving effect to a
transaction on a Pro Forma Basis for purposes of Section 8.1(g),
Section 8.4, Section 8.5 or Section 8.6 and clause (ix) of the
definition of "Permitted Investment" set forth in this Section 1.1, as
applicable:
(A) for purposes of any such calculation in respect of any
incurrence or assumption of Indebtedness as referred to in
Section 8.1(g), any Indebtedness which is retired in connection
with such incurrence or assumption shall be excluded and deemed
to have been retired as of the first day of the applicable
period;
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(B) for purposes of any such calculation in respect of any
Asset Disposition as referred to in Section 8.5, (1) income
statement items (whether positive or negative) attributable to
the Property disposed of in such Asset Disposition shall be
excluded and (2) any Indebtedness which is retired in connection
with such Asset Disposition shall be excluded and deemed to have
been retired as of the first day of the applicable period;
(C) for purposes of any such calculation in respect of any
merger or consolidation as referred to in Section 8.4 or any
Permitted Acquisition as referred to in Section 8.6 and clause
(ix) of the definition of "Permitted Investment" set forth in
this Section 1.1, (1) any Indebtedness incurred by the Borrower
or any of its Subsidiaries in connection with such transaction
shall be deemed to have been incurred as of the first day of the
applicable period and (2) income statement items (whether
positive or negative) attributable to the Property acquired in
such transaction or to the Investment comprising such
transaction, as applicable, shall be included to the extent
relating to the relevant period; and
(D) for purposes of any such calculation, the principles set
forth in the second paragraph of Section 1.3 shall be applicable.
"Pro Forma Compliance Certificate" means a certificate of the
chief financial officer of the Borrower delivered to the Agent in
connection with (i) any incurrence, assumption or retirement of
Indebtedness as referred to in Section 8.1(g), (ii) any merger or
consolidation as referred to in Section 8.4, (iii) any Asset
Disposition as referred to in Section 8.5 or (iv) any Permitted
Acquisition as referred to in Section 8.6 and clause (ix) of the
definition of "Permitted Investment" set forth in this Section 1.1, as
applicable, and containing reasonably detailed calculations, upon
giving effect to the applicable transaction on a Pro Forma Basis, of
the Interest Coverage Ratio, the Fixed Charge Coverage Ratio, the
Leverage Ratio and the minimum Consolidated EBITDA covenant as of the
most recent fiscal quarter end preceding the date of the applicable
transaction with respect to which the Agent shall have received the
Required Financial Information.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Real Properties" shall have the meaning assigned such term in
Section 7.15.
"Recapitalization" means the recapitalization of the Borrower
pursuant to and as evidenced by the terms of the Investment Documents
(including without limitation the making by the Sponsor of a preferred
equity investment of at least $25 million in cash (less fees and
expenses) in the Borrower and the termination of the Supplemental
Service Fee (as defined in the GE Investment Agreement) in exchange
for 7,000 shares of Series C Preferred Stock in the Borrower) pursuant
to the GE Investment Agreement, the refinancing of the existing Funded
Indebtedness of the Borrower described on Schedule 6.15 in an
aggregate principal amount not to exceed $80 million (plus per diem
interest on such principal amount), the termination of the Master Debt
Restructuring Agreement pursuant to the terms of the GE Payoff Letter.
"Register" shall have the meaning given such term in Section
11.3(c).
"Registration Rights Agreements" means a collective reference to
the GE Registration Rights Agreement and the Sponsor Registration
Rights Agreement.
"Regulation G, T, U, or X" means Regulation G, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice
requirement has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the
Consolidated Parties required to be delivered pursuant to Section
7.1(a) or (b) for
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the fiscal period or quarter ending as of such Calculation Date, and
(ii) the certificate of the chief financial officer of the Borrower
required by Section 7.1(c) to be delivered with the financial
statements described in clause (i) above.
"Required Lenders" means, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the
Agent) and holding in the aggregate more than least 50% of (i) the sum
of (a) the Revolving Commitments (and Participation Interests
therein), (b) the Acquisition Loan Commitments (and Participation
Interests therein) and/or, after conversion of any portion of the
Acquisition Loans to a term loan, the outstanding term loan portion of
the Acquisition Loans and (c) the outstanding Tranche A Term Loans
(and Participation Interests therein) or (ii) if the Commitments have
been terminated, the outstanding Loans and Participation Interests
(including the Participation Interests of the Issuing Lender in any
Letters of Credit).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its material property is subject.
"Restricted Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any
class of Capital Stock of any Consolidated Party, now or hereafter
outstanding, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect,
of any shares of any class of Capital Stock of any Consolidated Party,
now or hereafter outstanding, (iii) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of Capital Stock of any
Consolidated Party, now or hereafter outstanding and (iv) any payment
or prepayment of principal of, premium, if any, or interest on,
redemption, purchase, retirement, defeasance, sinking fund or similar
payment with respect to, the Subordinated Notes.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage of
the Revolving Committed Amount, (i) to make Revolving Loans in
accordance with the provisions of Section 2.1(a) and (ii) to purchase
Participation Interests in Letters of Credit in accordance with the
provisions of Section 2.2(c).
"Revolving Commitment Percentage" means, for any Lender, the
percentage identified as its Revolving Commitment Percentage on
Schedule 2.1(a), as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" shall have the meaning assigned to
such term in Section 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes
of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1(e), individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, restated, supplemented, extended, renewed or replaced from
time to time.
"Revolving Unused Fee" shall have the meaning assigned to such
term in Section 3.5(a)(i).
"Revolving Unused Fee Calculation Period" shall have the meaning
assigned to such term in Section 3.5(a)(i).
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to any Consolidated Party of any Property,
whether owned by such Consolidated Party as of the Closing Date or
later acquired, which has been or is to be sold or
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transferred by such Consolidated Party to such Person or to any other
Person from whom funds have been, or are to be, advanced by such
Person on the security of such Property.
"Secondary Real Properties" shall have the meaning assigned such
term in Section 7.15.
"Security Agreement" means the security agreement dated as of the
Closing Date in the form of Exhibit 1.1B to be executed in favor of
the Agent by each of the Credit Parties, as amended, modified,
restated or supplemented from time to time.
"Senior Leverage Ratio" means, as of the end of any fiscal
quarter of the Consolidated Parties for the twelve month period ending
on such date, the ratio of (a) all Funded Indebtedness other than
Subordinated Indebtedness of the Consolidated Parties on a
consolidated basis on the last day of such period (but net of cash) to
(b) Consolidated EBITDA for such period.
"Series B Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of Convertible Preferred Stock,
Series B of the Borrower, to be filed with the Delaware Secretary of
State on or prior to the Closing Date.
"Series C Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of Series C Preferred of the
Borrower, to be filed with the Delaware Secretary of State on or prior
to the Closing Date.
"Signal Medical" means Signal Medical Services, Inc., a Delaware
corporation.
"Single Employer Plan" means any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize
upon its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course
of business, (ii) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability
to pay as such debts and liabilities mature in their ordinary course,
(iii) such Person is not engaged in a business or a transaction, and
is not about to engage in a business or a transaction, for which such
Person's Property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which such Person is engaged or is to engage, (iv) the fair value of
the Property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of
such Person and (v) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Sponsor" means TC Group, L.L.C., a Delaware Limited Liability
Company, and its Affiliates.
"Sponsor Investment Agreement" means that certain Securities
Purchase Agreement dated as of October 14, 1997 by and among the
Sponsor and the Borrower.
"Sponsor Registration Rights Agreement" means that certain
Registration Rights Agreement dated as of a date on or before the
Effective Date by and between the Borrower and the Sponsor.
"Sponsor Warrant Agreement" means that certain Warrant Agreement
dated as of a date on or before the Effective Date by and between the
Borrower and the Sponsor.
"Standby Letter of Credit Fee" shall have the meaning assigned to
such term in Section 3.5(b)(i).
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"Subordinated Indebtedness" means any Indebtedness incurred by
the Borrower which by its terms is specifically subordinated in right
of payment to the prior payment of the obligations of the Credit
Parties under this Credit Agreement and the other Credit Documents on
terms and conditions satisfactory to the Required Lenders.
"Subordinated Note" means any one of the [__]% Notes due 2008,
issued by the Borrower in favor of the Subordinated Noteholders
pursuant to the Subordinated Note Indenture, as such Subordinated
Notes may be amended, modified, restated or supplemented and in effect
from time to time.
"Subordinated Note Indenture" means the Indenture dated as of the
Amendment No. 4 Effective Date, by and between the Borrower and State
Street Bank and Trust Company in its capacity as trustee for the
Subordinated Noteholders, as such Subordinated Note Indenture may be
amended, modified, restated or supplemented and in effect from time to
time. "Subordinated Noteholder" means any one of the holders from time
to time of the Subordinated Notes.
"Subordination Agreement" means a subordination agreement in
substantially the form of Exhibit 1.1C by and between the Agent and
GE, pursuant to which the Agent agrees to the subordination, on the
terms and conditions set forth more fully therein, of the security
interest of the Agent in any Collateral consisting of Property (i)
leased by any Credit Party under any Capital Lease or Operating Lease
with respect to which GE is the lessor or (ii) subject to any other
conditional sale or other financing arrangement to which GE is a
party.
"Subsidiary" means, as to any Person at any time, (a) any
corporation more than 50% of whose Capital Stock of any class or
classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether
or not at such time, any class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at such time owned by such Person directly or
indirectly through Subsidiaries, and (b) any partnership, association,
joint venture or other entity of which such Person directly or
indirectly through Subsidiaries owns at such time more than 50% of the
Capital Stock.
"Synthetic Lease" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an Operating Lease.
"Taxes" means such term as is defined in Section 3.11.
"Total Leverage Ratio" means, as of the end of any fiscal quarter
of the Consolidated Parties for the twelve month period ending on such
date, the ratio of (a) all Funded Indebtedness (including without
limitation Subordinated Indebtedness) of the Consolidated Parties on a
consolidated basis on the last day of such period (but net of cash) to
(b) Consolidated EBITDA for such period.
"Trade Letter of Credit Fee" shall have the meaning assigned to
such term in Section 3.5(b)(ii).
"Tranche A Term Loan" shall have the meaning assigned to such
term in Section 2.4(a).
"Tranche A Term Loan Commitment" means, with respect to each
Lender, the commitment of such Lender to make its portion of the
Tranche A Term Loan in a principal amount equal to such Lender's
Tranche A Term Loan Commitment Percentage of the Tranche A Term Loan
Committed Amount.
"Tranche A Term Loan Commitment Percentage" means, for any
Lender, the percentage identified as its Tranche A Term Loan
Commitment Percentage on Schedule 2.1(a), as such percentage may be
modified in connection with any assignment made in accordance with the
provisions of Section 11.3.
"Tranche A Term Loan Committed Amount" shall have the meaning
assigned to such term in Section 2.4(a).
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"Tranche A Term Note" or "Tranche A Term Notes" means the
promissory notes of the Borrower in favor of each of the Lenders
evidencing the Tranche A Term Loans provided pursuant to Section
2.4(f), individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time. "Unused Acquisition
Loan Committed Amount" means, for any period, the amount by which (a)
the then applicable Acquisition Loan Committed Amount exceeds (b) the
daily average sum for such period of the outstanding aggregate
principal amount of all Acquisition Loans.
"Unused Revolving Committed Amount" means, for any period, the
amount by which (a) the then applicable Revolving Committed Amount
exceeds (b) the daily average sum for such period of (i) the
outstanding aggregate principal amount of all Revolving Loans plus
(ii) the outstanding aggregate principal amount of all LOC
Obligations.
"Voting Stock" means, with respect to any Person, Capital Stock
issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening
of such a contingency.
"Warrant Agreements" means a collective reference to the GE
Warrant Agreement and the Sponsor Warrant Agreement.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100%
of whose Voting Stock is at the time owned by such Person directly or
indirectly through other Wholly Owned Subsidiaries.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent with the financial statements as at June 30, 1997); provided,
however, if (a) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial statements due to any change in
GAAP or the rules promulgated with respect thereto or (b) the Agent or the
Required Lenders shall so object in writing within 60 days after delivery of
such financial statements, then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the Borrower
to the Lenders as to which no such objection shall have been made.
Notwithstanding the above, the parties hereto acknowledge and agree that,
for purposes of all calculations made under the financial covenants set forth in
Section 7.11 (including without limitation for purposes of the definitions of
"Applicable Percentage" and "Pro Forma Basis" set forth in Section 1.1), (i)(A)
income statement items (whether positive or negative) attributable to the
Property disposed of in any Asset Disposition as contemplated by Section 8.5, as
applicable, shall be excluded to the extent relating to any period occurring
prior to the date of such transaction and (B) Indebtedness which is retired in
connection with any such Asset Disposition shall be excluded and deemed to have
been retired as of the first day of the applicable period and (ii) income
statement items (whether positive or negative) attributable to any Property
acquired in any Investment transaction (including without limitation any
Permitted Acquisition) contemplated by Section 8.6 shall be included to the
extent relating to any period applicable in such calculations occurring after
the date of such transaction (and, notwithstanding the
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foregoing, during the first four fiscal quarters following the date of such
transaction, shall be included on an annualized basis).
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set
forth herein, each Lender severally agrees to make available to the
Borrower such Lender's Revolving Commitment Percentage of revolving
credit loans requested by the Borrower in Dollars ("Revolving Loans")
from time to time from the Amendment No. 4 Effective Date until the
Maturity Date, or such earlier date as the Revolving Commitments shall
have been terminated as provided herein for the purposes hereinafter
set forth; provided, however, that the sum of the aggregate principal
amount of outstanding Revolving Loans shall not exceed TWENTY-FIVE
MILLION DOLLARS ($25,000,000) (as such aggregate maximum amount may be
reduced from time to time as provided in Section 3.4, the "Revolving
Committed Amount"); provided, further, (A) with regard to each Lender
individually, such Lender's outstanding Revolving Loans shall not
exceed such Lender's Revolving Commitment Percentage of the Revolving
Committed Amount, and (B) the aggregate principal amount of
outstanding Revolving Loans plus LOC Obligations outstanding shall not
exceed the Revolving Committed Amount. Revolving Loans may consist of
Base Rate Loans or Eurodollar Loans, or a combination thereof, as the
Borrower may request; provided, however, that no more than 16
Eurodollar Loans shall be outstanding hereunder at any time. For
purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin
on the same date, although borrowings, extensions and conversions may,
in accordance with the provisions hereof, be combined at the end of
existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period. Revolving Loans hereunder may be repaid and
reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephonic notice
promptly confirmed in writing) to the Agent not later than 12:00
Noon (Charlotte, North Carolina time) on the Business Day prior
to the date of the requested borrowing in the case of Base Rate
Loans, and on the third Business Day prior to the date of the
requested borrowing in the case of Eurodollar Loans. Each such
request for borrowing shall be irrevocable and shall specify (A)
that a Revolving Loan is requested, (B) the date of the requested
borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing
shall be comprised of Base Rate Loans, Eurodollar Loans or a
combination thereof, and if Eurodollar Loans are requested, the
Interest Period(s) therefor. If the Borrower shall fail to
specify in any such Notice of Borrowing (I) an applicable
Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of
one month, or (II) the type of Revolving Loan requested, then
such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Agent shall give notice to each affected Lender
promptly upon receipt of each Notice of Borrowing pursuant to
this Section 2.1(b)(i), the contents thereof and each such
Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan and Base Rate
Loan that is a Revolving Loan shall be in a minimum aggregate
principal amount of $1,000,000 and integral multiples of $100,000
in excess thereof (or the remaining amount of the Revolving
Committed Amount, if less).
(iii) Advances. Each Lender will make its Revolving
Commitment Percentage of each Revolving Loan borrowing available
to the Agent for the account of the Borrower as specified in
Section 3.15(a), or in such other manner as the Agent may specify
in writing, by 2:00 P.M.
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(Charlotte, North Carolina time) on the date specified in the
applicable Notice of Borrowing in Dollars and in funds
immediately available to the Agent. Such borrowing will then be
made available to the Borrower by the Agent by crediting the
account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall
be due and payable in full on the Maturity Date, unless accelerated
sooner pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving
Loans shall be comprised in whole or in part of Base Rate
Loans, such Base Rate Loans shall bear interest at a per
annum rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as Revolving
Loans shall be comprised in whole or in part of Eurodollar
Loans, such Eurodollar Loans shall bear interest at a per
annum rate equal to the Adjusted Eurodollar Rate.
Interest on Revolving Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender
shall be evidenced by a duly executed promissory note of the Borrower
to such Lender in an original principal amount equal to such Lender's
Revolving Commitment Percentage of the Revolving Committed Amount and
in substantially the form of Exhibit 2.1(e).
2.2 Letter of Credit Subfacility.
(a) Issuance. Subject to the terms and conditions hereof and of
the LOC Documents, if any, and any other terms and conditions which
the Issuing Lender may reasonably require and in reliance upon the
representations and warranties set forth herein, the Issuing Lender
agrees to issue, and each Lender severally agrees to participate in
the issuance by the Issuing Lender of, standby and trade Letters of
Credit in Dollars from time to time from the Amendment No. 4 Effective
Date until the date five (5) days prior to the Maturity Date as the
Borrower may request, in a form acceptable to the Issuing Lender;
provided, however, that (i) the LOC Obligations outstanding shall not
at any time exceed EIGHT MILLION DOLLARS ($8,000,000) (the "LOC
Committed Amount") and (ii) the sum of the aggregate principal amount
of outstanding Revolving Loans plus LOC Obligations outstanding shall
not at any time exceed the Revolving Committed Amount. No Letter of
Credit shall (x) have an original expiry date more than one year from
the date of issuance or (y) as originally issued or as extended, have
an expiry date extending beyond the Maturity Date. Each Letter of
Credit shall comply with the related LOC Documents. The issuance and
expiry dates of each Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter
of Credit shall be submitted by the Borrower to the Issuing Lender at
least three (3) Business Days prior to the requested date of issuance.
The Issuing Lender will, at least quarterly and more frequently upon
request, disseminate to each of the Lenders a detailed report
specifying the Letters of Credit which are then issued and outstanding
and any activity with respect thereto which may have occurred since
the date of the prior report, and including therein, among other
things, the beneficiary, the face amount and the expiry date, as well
as any payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of
Credit, shall be deemed to have purchased without recourse a
Participation Interest from the applicable Issuing Lender in such
Letter of Credit and the obligations arising thereunder and any
collateral relating thereto, in each case in an amount equal to its
pro rata share of the obligations under such Letter of Credit (based
on the respective Revolving Commitment Percentages of the Lenders) and
shall absolutely, unconditionally and irrevocably assume and be
obligated to
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pay to the Issuing Lender and discharge when due, its pro rata share
of the obligations arising under such Letter of Credit. Without
limiting the scope and nature of each Lender's Participation Interest
in any Letter of Credit, to the extent that the Issuing Lender has not
been reimbursed as required hereunder or under any such Letter of
Credit, each such Lender shall pay to the Issuing Lender its pro rata
share of such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing pursuant
to the provisions of subsection (d) below. The obligation of each
Lender to so reimburse the Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of a
Default, an Event of Default or any other occurrence or event. Any
such reimbursement shall not relieve or otherwise impair the
obligation of the Borrower to reimburse the Issuing Lender under any
Letter of Credit, together with interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any Letter
of Credit, the Issuing Lender will promptly notify the Borrower.
Unless the Borrower shall immediately notify the Issuing Lender that
the Borrower intends to otherwise reimburse the Issuing Lender for
such drawing, the Borrower shall be deemed to have requested that the
Lenders make a Revolving Loan in the amount of the drawing as provided
in subsection (e) below on the related Letter of Credit, the proceeds
of which will be used to satisfy the related reimbursement
obligations. The Borrower promises to reimburse the Issuing Lender on
the day of drawing under any Letter of Credit (either with the
proceeds of a Revolving Loan obtained hereunder or otherwise) in same
day funds. If the Borrower shall fail to reimburse the Issuing Lender
as provided hereinabove, the unreimbursed amount of such drawing shall
bear interest at a per annum rate equal to the Adjusted Base Rate plus
2%. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances irrespective of any
rights of setoff, counterclaim or defense to payment the Borrower may
claim or have against the Issuing Lender, the Agent, the Lenders, the
beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation any defense based on any failure of the
Borrower or any other Credit Party to receive consideration or the
legality, validity, regularity or unenforceability of the Letter of
Credit. The Issuing Lender will promptly notify the other Lenders of
the amount of any unreimbursed drawing and each Lender shall promptly
pay to the Agent for the account of the Issuing Lender in Dollars and
in immediately available funds, the amount of such Lender's pro rata
share of such unreimbursed drawing. Such payment shall be made on the
day such notice is received by such Lender from the Issuing Lender if
such notice is received at or before 2:00 P.M. (Charlotte, North
Carolina time) otherwise such payment shall be made at or before 12:00
Noon (Charlotte, North Carolina time) on the Business Day next
succeeding the day such notice is received. If such Lender does not
pay such amount to the Issuing Lender in full upon such request, such
Lender shall, on demand, pay to the Agent for the account of the
Issuing Lender interest on the unpaid amount during the period from
the date of such drawing until such Lender pays such amount to the
Issuing Lender in full at a rate per annum equal to, if paid within
two (2) Business Days of the date that such Lender is required to make
payments of such amount pursuant to the preceding sentence, the
Federal Funds Rate and thereafter at a rate equal to the Base Rate.
Each Lender's obligation to make such payment to the Issuing Lender,
and the right of the Issuing Lender to receive the same, shall be
absolute and unconditional, shall not be affected by any circumstance
whatsoever and without regard to the termination of this Credit
Agreement or the Commitments hereunder, the existence of a Default or
Event of Default or the acceleration of the obligations of the
Borrower hereunder and shall be made without any offset, abatement,
withholding or reduction whatsoever. Simultaneously with the making of
each such payment by a Lender to the Issuing Lender, such Lender
shall, automatically and without any further action on the part of the
Issuing Lender or such Lender, acquire a Participation Interest in an
amount equal to such payment (excluding the portion of such payment
constituting interest owing to the Issuing Lender) in the related
unreimbursed drawing portion of the LOC Obligation and in the interest
thereon and in the related LOC Documents, and shall have a claim
against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan advance to reimburse a drawing under a Letter of
Credit, the Agent shall give notice to the Lenders that a Revolving
Loan has been requested or deemed requested by the Borrower to be made
in connection with a drawing under a Letter of Credit, in which case a
Revolving Loan advance comprised of Base Rate Loans (or Eurodollar
Loans to the extent the Borrower has complied with the procedures of
Section 2.1(b)(i) with respect thereto) shall be immediately made to
the Borrower by all Lenders (notwithstanding any termination of the
Commitments pursuant to Section 9.2) pro rata based on the respective
Revolving Commitment Percentages of the Lenders (determined
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before giving effect to any termination of the Commitments pursuant to
Section 9.2) and the proceeds thereof shall be paid directly to the
Issuing Lender for application to the respective LOC Obligations. Each
such Lender hereby irrevocably agrees to make its pro rata share of
each such Revolving Loan immediately upon any such request or deemed
request in the amount, in the manner and on the date specified in the
preceding sentence notwithstanding (i) the amount of such borrowing
may not comply with the minimum amount for advances of Revolving Loans
otherwise required hereunder, (ii) whether any conditions specified in
Section 5.3 are then satisfied, (iii) whether a Default or an Event of
Default then exists, (iv) failure for any such request or deemed
request for Revolving Loan to be made by the time otherwise required
hereunder, (v) whether the date of such borrowing is a date on which
Revolving Loans are otherwise permitted to be made hereunder or (vi)
any termination of the Commitments relating thereto immediately prior
to or contemporaneously with such borrowing. In the event that any
Revolving Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to
the Borrower or any Credit Party), then each such Lender hereby agrees
that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from
the Borrower on or after such date and prior to such purchase) from
the Issuing Lender such Participation Interests in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share
in such LOC Obligations ratably (based upon the respective Revolving
Commitment Percentages of the Lenders (determined before giving effect
to any termination of the Commitments pursuant to Section 9.2)),
provided that at the time any purchase of Participation Interests
pursuant to this sentence is actually made, the purchasing Lender
shall be required to pay to the Issuing Lender, to the extent not paid
to the Issuer by the Borrower in accordance with the terms of
subsection (d) above, interest on the principal amount of
Participation Interests purchased for each day from and including the
day upon which such borrowing would otherwise have occurred to but
excluding the date of payment for such Participation Interests, at the
rate equal to, if paid within two (2) Business Days of the date of the
Revolving Loan advance, the Federal Funds Rate, and thereafter at a
rate equal to the Base Rate.
(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of
Credit issued hereunder may contain a statement to the effect that
such Letter of Credit is issued for the account of a Consolidated
Party other than the Borrower, provided that notwithstanding such
statement, the Borrower shall be the actual account party for all
purposes of this Credit Agreement for such Letter of Credit and such
statement shall not affect the Borrower's reimbursement obligations
hereunder with respect to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same
as the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (the "UCP"), in which case the UCP
may be incorporated therein and deemed in all respects to be a part
thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to pay, and protect, indemnify
and save each Lender harmless from and against, any and all
claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees) that such Lender
may incur or be subject to as a consequence, direct or indirect,
of (A) the issuance of any Letter of Credit or (B) the failure of
such Lender to honor a drawing under a Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. No Lender (including the Issuing Lender) shall be
responsible: (A) for the form,
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validity, sufficiency, accuracy, genuineness or legal effect of
any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if it
should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, that may prove to be invalid or ineffective
for any reason; (C) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in
cipher; (D) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under a Letter of Credit or of the proceeds thereof; and (E) for
any consequences arising from causes beyond the control of such
Lender, including, without limitation, any Government Acts. None
of the above shall affect, impair, or prevent the vesting of the
Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken
or omitted by any Lender (including the Issuing Lender), under or
in connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
such Lender under any resulting liability to the Borrower or any
other Credit Party. It is the intention of the parties that this
Credit Agreement shall be construed and applied to protect and
indemnify each Lender (including the Issuing Lender) against any
and all risks involved in the issuance of the Letters of Credit,
all of which risks are hereby assumed by the Borrower (on behalf
of itself and each of the other Credit Parties), including,
without limitation, any and all Government Acts. No Lender
(including the Issuing Lender) shall, in any way, be liable for
any failure by such Lender or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or
any other cause beyond the control of such Lender.
(iv) Nothing in this subsection (h) is intended to limit the
reimbursement obligations of the Borrower contained in subsection
(d) above. The obligations of the Borrower under this subsection
(h) shall survive the termination of this Credit Agreement. No
act or omissions of any current or prior beneficiary of a Letter
of Credit shall in any way affect or impair the rights of the
Lenders (including the Issuing Lender) to enforce any right,
power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained in
this subsection (h), the Borrower shall have no obligation to
indemnify any Lender (including the Issuing Lender) in respect of
any liability incurred by such Lender (A) arising solely out of
the gross negligence or willful misconduct of such Lender, as
determined by a court of competent jurisdiction, or (B) caused by
such Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the terms
and conditions of such Letter of Credit, as determined by a court
of competent jurisdiction, unless such payment is prohibited by
any law, regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood
and agreed that the obligations of the Issuing Lender hereunder to the
Lenders are only those expressly set forth in this Credit Agreement
and that the Issuing Lender shall be entitled to assume that the
conditions precedent set forth in Section 5.3 have been satisfied
unless it shall have acquired actual knowledge that any such condition
precedent has not been satisfied; provided, however, that nothing set
forth in this Section 2.2 shall be deemed to prejudice the right of
any Lender to recover from the Issuing Lender any amounts made
available by such Lender to the Issuing Lender pursuant to this
Section 2.2 in the event that it is determined by a court of competent
jurisdiction that the payment with respect to a Letter of Credit
constituted gross negligence or willful misconduct on the part of the
Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any
letter of credit application), this Credit Agreement shall control.
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2.3 Acquisition Loans.
(a) Acquisition Loan Commitment. Subject to the terms and
conditions hereof and in reliance upon the representations and
warranties set forth herein, each Lender severally agrees to make
available to the Borrower such Lender's Acquisition Loan Commitment
Percentage of revolving credit loans requested by the Borrower in
Dollars ("Acquisition Loans") from time to time from the Amendment No.
4 Effective Date until June 12, 2000, or such earlier date as the
Acquisition Loan Commitments shall have been terminated as provided
herein for the purpose of financing the purchase price of, and fees and
expenses in connection with, Permitted Acquisitions and capital
expenditures; provided, however, that the sum of the aggregate
principal amount of outstanding Acquisition Loans shall not exceed
SEVENTY-FIVE MILLION DOLLARS ($75,000,000) (as such aggregate maximum
amount may be reduced or increased from time to time as provided in
Section 3.4, the "Acquisition Loan Committed Amount"); provided,
further, (A) with regard to each Lender individually, such Lender's
outstanding Acquisition Loans shall not exceed such Lender's
Acquisition Loan Commitment Percentage of the Acquisition Loan
Committed Amount, and (B) the aggregate principal amount of outstanding
Acquisition Loans shall not exceed the Acquisition Loan Committed
Amount. Acquisition Loans may consist of Base Rate Loans or Eurodollar
Loans, or a combination thereof, as the Borrower may request; provided,
however, that no more than 16 Eurodollar Loans shall be outstanding
hereunder at any time. For purposes hereof, Eurodollar Loans with
different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings,
extensions and conversions may, in accordance with the provisions
hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period.
Acquisition Loans, other than any term portion of the Acquisition
Loans, hereunder may be repaid and reborrowed in accordance with the
provisions hereof.
(b) Acquisition Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request an
Acquisition Loan borrowing by written notice (or telephonic
notice promptly confirmed in writing) to the Agent not later than
12:00 Noon (Charlotte, North Carolina time) on the Business Day
prior to the date of the requested borrowing in the case of Base
Rate Loans, and on the third Business Day prior to the date of
the requested borrowing in the case of Eurodollar Loans. Each
such request for borrowing shall (A) be irrevocable, (B) specify
(1) that an Acquisition Loan is requested, (2) the date of the
requested borrowing (which shall be a Business Day), (3) the
aggregate principal amount to be borrowed, (4) whether the
borrowing shall be comprised of Base Rate Loans, Eurodollar Loans
or a combination thereof, and if Eurodollar Loans are requested,
the Interest Period(s) therefor and (C) be accompanied by a
certificate of the chief financial of the Borrower describing in
reasonable detail the Permitted Acquisition to which such
requested borrowing relates. If the Borrower shall fail to
specify in any such Notice of Borrowing (I) an applicable
Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of
one month, or (II) the type of Acquisition Loan requested, then
such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Agent shall give notice to each affected Lender
promptly upon receipt of each Notice of Borrowing pursuant to
this Section 2.3(b)(i), the contents thereof and each such
Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan
that is an Acquisition Loan shall be in a minimum aggregate
principal amount of $1,000,000 and integral multiples of $100,000
in excess thereof (or the remaining amount of the Acquisition
Loan Committed Amount, if less).
(iii) Advances. Each Lender will make its Acquisition Loan
Commitment Percentage of each Acquisition Loan borrowing
available to the Agent for the account of the Borrower as
specified in Section 3.15(a), or in such other manner as the
Agent may specify in writing, by 2:00 P.M. (Charlotte, North
Carolina time) on the date specified in the applicable Notice of
Borrowing in Dollars and in funds immediately available to the
Agent. Such borrowing will then be made available to the Borrower
by the Agent by crediting the account of the Borrower on the
books of
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<PAGE>
such office with the aggregate of the amounts made available to
the Agent by the Lenders and in like funds as received by the
Agent.
(c) Repayment.
(i) The principal amount of all Acquisition Loans
advanced during the period from the Amendment No. 4
Effective Date to and including June 12, 1999 shall be
repaid in twenty (20) consecutive quarterly installments as
follows, unless accelerated sooner pursuant to Section 9.2:
<TABLE>
<CAPTION>
Principal Amortization
Principal Amortization Payment Dates Payment
------------------------------------ -----------------------
<S> <C>
September 30, 1999, December 31, 1999, 3.75%
March 31, 2000 and June 30, 2000
September 30, 2000, December 31, 2000, 4.375%
March 31, 2001and June 30, 2001
September 30, 2001, December 31, 2001, 5.0%
March 31, 2002 and June 30, 2002
September 30, 2002, December 31, 2002, 5.625%
March 31, 2003 and June 30, 2003
September 30, 2003, December 31, 2003, 6.25%
March 31, 2004 and the Maturity Date
</TABLE>
(ii) The principal amount of all Acquisition Loans advanced
during the period from June 12, 1999 to and including June 12,
2000 shall be repaid in sixteen (16) consecutive quarterly
installments as follows, unless accelerated sooner pursuant to
Section 9.2:
<TABLE>
<CAPTION>
Principal Amortization
Principal Amortization Payment Dates Payment
------------------------------------ -----------------------
<S> <C>
September 30, 2000, December 31, 2000, 5.0%
March 31, 2001and June 30, 2001
September 30, 2001, December 31, 2001, 6.25%
March 31, 2002 and June 30, 2002
September 30, 2002, December 31, 2002, 6.25%
March 31, 2003 and June 30, 2003
September 30, 2003, December 31, 2003, 7.5%
March 31, 2004 and the Maturity Date
</TABLE>
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Acquisition
Loans shall be comprised in whole or in part of Base Rate Loans,
such Base Rate Loans shall bear interest at a per annum rate
equal to the Adjusted Base Rate.
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<PAGE>
(ii) Eurodollar Loans. During such periods as Acquisition
Loans shall be comprised in whole or in part of Eurodollar Loans,
such Eurodollar Loans shall bear interest at a per annum rate
equal to the Adjusted Eurodollar Rate.
Interest on Acquisition Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Acquisition Notes. The Acquisition Loans made by each
Lender shall be evidenced by a duly executed promissory note of
the Borrower to such Lender in an original principal amount equal
to such Lender's Acquisition Loan Commitment Percentage of the
Acquisition Loan Committed Amount and in substantially the form
of Exhibit 2.3(e).
2.4 Tranche A Term Loan.
(a) Tranche A Term Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein each Lender severally agrees to make available to the Borrower on
the Amendment No. 4 Effective Date such Lender's Tranche A Term Loan
Commitment Percentage of a term loan in Dollars (the "Tranche A Term Loan")
in the aggregate principal amount of FIFTY MILLION DOLLARS ($50,000,000)
(the "Tranche A Term Loan Committed Amount") for the purposes hereinafter
set forth. The Tranche A Term Loan may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request;
provided, however, that no more than 16 Eurodollar Loans shall be
outstanding hereunder at any time. For purposes hereof, Eurodollar Loans
with different Interest Periods shall be considered as separate Eurodollar
Loans, even if they begin on the same date, although borrowings, extensions
and conversions may, in accordance with the provisions hereof, be combined
at the end of existing Interest Periods to constitute a new Eurodollar Loan
with a single Interest Period. Amounts repaid on the Tranche A Term Loan
may not be reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an appropriate
Notice of Borrowing to the Agent not later than 12:00 Noon (Charlotte,
North Carolina time) on the Amendment No. 4 Effective Date, with respect to
the portion of the Tranche A Term Loan initially consisting of a Base Rate
Loan, or on the third Business Day prior to the Amendment No. 4 Effective
Date, with respect to the portion of the Tranche A Term Loan initially
consisting of one or more Eurodollar Loans, which Notice of Borrowing shall
be irrevocable and shall specify (i) that the funding of a Tranche A Term
Loan is requested and (ii) whether the funding of the Tranche A Term Loan
shall be comprised of Base Rate Loans, Eurodollar Loans or a combination
thereof, and if Eurodollar Loans are requested, the Interest Period(s)
therefor. If the Borrower shall fail to deliver such Notice of Borrowing to
the Agent by 12:00 Noon. (Charlotte, North Carolina time) on the third
Business Day prior to the Amendment No. 4 Effective Date, then the full
amount of the Tranche A Term Loan shall be disbursed on the Amendment No. 4
Effective Date as a Base Rate Loan. Each Lender shall make its Tranche A
Term Loan Commitment Percentage of the Tranche A Term Loan available to the
Agent for the account of the Borrower at the office of the Agent specified
in Schedule 2.1(a), or at such other office as the Agent may designate in
writing, by 2:00 P.M. (Charlotte, North Carolina time) on the Amendment No.
4 Effective Date in Dollars and in funds immediately available to the
Agent.
(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is
part of the Tranche A Term Loan shall be in an aggregate principal amount
that is not less than $2,500,000 and integral multiples of $500,000 (or the
then remaining principal balance of the Tranche A Term Loan, if less).
(d) Repayment of Tranche A Term Loan. The principal amount of the
Tranche A Term Loan shall be repaid in nineteen (19) consecutive quarterly
installments as follows, unless accelerated sooner pursuant to Section 9.2:
30
<PAGE>
<TABLE>
<CAPTION>
Tranche A Term Loan
Principal Amortization Payment Dates Principal Amortization
Payment
------------------------------------ -----------------------
<S> <C>
September 30, 1998, December 31, 1998, $1,875,000
March 31, 1999 and June 30, 1999
September 30, 1999, December 31, 1999, $1,875,000
March 31, 2000 and June 30, 2000
September 30, 2000, December 31, 2000, $1,875,000
March 31, 2001and June 30, 2001
September 30, 2001, December 31, 2001, $1,875,000
March 31, 2002 and June 30, 2002
September 30, 2002, December 31, 2002, $2,500,000
March 31, 2003 and June 30, 2003
September 30, 2003, December 31, 2003, $2,500,000
March 31, 2004 and the Maturity Date
</TABLE>
(e) Interest. Subject to the provisions of Section 3.1, the Tranche A
Term Loan shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Tranche A Term
Loan shall be comprised in whole or in part of Base Rate Loans, such
Base Rate Loans shall bear interest at a per annum rate equal to the
Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as the Tranche A Term
Loan shall be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to the
Adjusted Eurodollar Rate.
Interest on the Tranche A Term Loan shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(f) Tranche A Term Notes. The portion of the Tranche A Term Loan made
by each Lender shall be evidenced by a duly executed promissory note of the
Borrower to such Lender in an original principal amount equal to such
Lender's Tranche A Term Loan Commitment Percentage of the Tranche A Term
Loan and substantially in the form of Exhibit 2.4(f).
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under the other Credit Documents shall bear
interest, payable on demand, at a per annum rate 2% greater than the rate which
would otherwise be applicable (or if no rate is applicable, whether in respect
of interest, fees or other amounts, then the Adjusted Base Rate plus 2%).
31
<PAGE>
3.2 Extension and Conversion.
Subject to the terms of Section 5.2, the Borrower shall have the option, on
any Business Day, to extend existing Loans into a subsequent permissible
Interest Period or to convert Loans into Loans of another interest rate type;
provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans
may be converted into Base Rate Loans only on the last day of the Interest
Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate
Loans may be converted into Eurodollar Loans, only if no Default or Event of
Default is in existence on the date of extension or conversion, (iii) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" set forth in Section 1.1 and shall be in
such minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii), with respect to Acquisition Loans, Section 2.3(b)(ii), or, with
respect to the Tranche A Term Loan, Section 2.4(c), (iv) no more than 16
Eurodollar Loans shall be outstanding hereunder at any time (it being understood
that, for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance with
the provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period) and (v) any
request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephonic notice
promptly confirmed in writing) to the office of the Agent specified in specified
in Schedule 2.1(a), or at such other office as the Agent may designate in
writing, prior to 12:00 Noon (Charlotte, North Carolina time) on the Business
Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate
Loan, and on the third Business Day prior to, in the case of the extension of a
Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan,
the date of the proposed extension or conversion, specifying the date of the
proposed extension or conversion, the Loans to be so extended or converted, the
types of Loans into which such Loans are to be converted and, if appropriate,
the applicable Interest Periods with respect thereto. Each request for extension
or conversion shall be irrevocable and shall constitute a representation and
warranty by the Borrower of the matters specified in subsections (b), (c) and
(d) of Section 5.3. In the event the Borrower fails to request extension or
conversion of any Eurodollar Loan in accordance with this Section, or any such
conversion or extension is not permitted or required by this Section, then such
Eurodollar Loan shall be automatically converted into a Base Rate Loan at the
end of the Interest Period applicable thereto. The Agent shall give each Lender
notice as promptly as practicable of any such proposed extension or conversion
affecting any Loan.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay
Loans in whole or in part from time to time, but otherwise without premium
or penalty; provided, however, that each partial prepayment of Loans shall
be in a minimum principal amount of $1,000,000 and integral multiples of
$500,000. Subject to the foregoing terms, amounts prepaid under this
Section 3.3(a) shall be applied as the Borrower may elect; provided that if
the Borrower fails to specify a voluntary prepayment then such prepayment
shall be applied first to Revolving Loans, second to the outstanding
revolving loan portion of the Acquisition Loans and third pro rata to the
outstanding term loan portion of the Acquisition Loans and the Tranche A
Term Loan (in each case ratably to the remaining Principal Amortization
Payments thereof), in each case first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period maturities. All
prepayments under this Section 3.3(a) shall be subject to Section 3.12 and
be accompanied by interest on the principal amount prepaid through the date
of prepayment.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time, the sum of the
aggregate principal amount of outstanding Revolving Loans plus LOC
Obligations outstanding shall exceed the Revolving Committed Amount,
the Borrower immediately shall prepay the Revolving Loans and (after
all Revolving Loans have been repaid) cash collateralize the LOC
Obligations, in an amount sufficient to eliminate such excess.
(ii) Excess Cash Flow. Within 90 days after the end of each
fiscal year (commencing with the fiscal year ending June 30, 1998),
the Borrower shall prepay the Loans in an amount equal to (w) 50% of
the Excess Cash Flow earned during such prior fiscal year less (x) the
amount of any
32
<PAGE>
voluntary prepayments of the Tranche A Term Loan, (to the extent
accompanied by a reduction in the Revolving Committed Amount) the
Revolving Loans or (to the extent accompanied by a reduction in the
Acquisition Loan Committed Amount) the Acquisition Loans pursuant to
Section 3.3(a) during such prior fiscal year less (z) the amount of
any mandatory prepayments of the Tranche A Term Loan, (to the extent
accompanied by a reduction in the Revolving Committed Amount) the
Revolving Loans or (to the extent accompanied by a reduction in the
Acquisition Loan Committed Amount) the Acquisition Loans pursuant to
Section 3.3(b)(iii), (iv) or (v) during such prior fiscal year. Any
payments of Excess Cash Flow shall be applied as set forth in clause
(vii) below.
(iii) Asset Dispositions. Immediately upon the occurrence of any
Asset Disposition Prepayment Event, the Borrower shall prepay the
Loans in an aggregate amount equal to 100% of the Net Cash Proceeds of
the related Asset Disposition not applied (or caused to be applied) by
the Consolidated Parties during the related Application Period to the
purchase, acquisition or construction of Eligible Assets as
contemplated by the terms of Section 8.5(e) (such prepayment to be
applied as set forth in clause (vii) below).
(iv) Debt Issuances. Immediately upon receipt by any Consolidated
Party of proceeds from any Debt Issuance (excluding Indebtedness
permitted pursuant to Section 8.1), the Borrower shall prepay the
Loans in an aggregate amount equal to 100% of the Net Cash Proceeds of
such Debt Issuance to the Lenders (such prepayment to be applied as
set forth in clause (vii) below).
(v) Issuances of Equity. Immediately upon receipt by a
Consolidated Party of proceeds from any Equity Issuance other than an
Excluded Equity Issuance, the Borrower shall prepay the Loans in an
aggregate amount equal to 50% of the Net Cash Proceeds of such Equity
Issuance (such prepayments shall be applied as set forth in clause
(vii) below).
(vi) Acquisition Purchase Price Reductions. Immediately upon
receipt by a Consolidated Party of proceeds from a post-closing
purchase price reduction in respect of any Acquisition financed in
whole or in part with the proceeds of any Acquisition Loans, the
Borrower shall prepay the Loans to the Lenders in an aggregate amount
equal to 100% of such purchase price reduction (such prepayments shall
be applied as set forth in clause (vii) below).
(vii) Application of Mandatory Prepayments. All amounts required
to be paid pursuant to this Section 3.3(b) shall be applied as
follows: (A) with respect to all amounts prepaid pursuant to Section
3.3(b)(i), to Revolving Loans and (after all Revolving Loans have been
repaid) to a cash collateral account in respect of LOC Obligations,
(B) with respect to all amounts prepaid pursuant to Section
3.3(b)(ii), Section 3.3(b)(iv) or Section 3.3(b)(v), pro rata to the
Tranche A Term Loan and, if applicable, any term loan portion of the
Acquisition Loans (in each case ratably to the remaining Principal
Amortization Payments thereof), (C) with respect to all amounts
prepaid pursuant to Section 3.3(b)(iii) (other than in respect of any
Asset Disposition (x) involving Property described on Schedule
3.3(b)(vii) or (y) involving Sale and Leaseback Transactions of the
real property portion of the MD Assets as permitted by Section 8.13),
pro rata to (1) Revolving Loans and (after all Revolving Loans have
been repaid) to a cash collateral account in respect of LOC
Obligations (with a corresponding reduction in the Revolving Committed
Amount in an amount equal to all amounts applied pursuant to this
clause (1)), (2) any term loan portion of the Acquisition Loans
(ratably to the remaining Principal Amortization Payments thereof) and
(3) the Tranche A Term Loan (ratably to the remaining Principal
Amortization Payments thereof), (D) with respect to all amounts
prepaid pursuant to Section 3.3(b)(iii) in respect of any Asset
Disposition involving Property described on Schedule 3.3(b)(vii), to
Revolving Loans and (after all Revolving Loans have been repaid) to a
cash collateral account in respect of LOC Obligations (without any
33
<PAGE>
reduction in the Revolving Committed Amount), (E) with respect to all
amounts prepaid pursuant to Section 3.3(b)(iii) in respect of any
Asset Disposition involving the Sale and Leaseback Transaction of the
real property portion of the MD Assets as permitted by Section 8.13,
to Acquisition Loans and (after all Acquisition Loans have been
repaid) as provided in (C) above, (F) with respect to all amounts
prepaid pursuant to Section 3.3(b)(iv) in respect of a Debt Issuance
of Subordinated Notes occurring within 90 days after the Amendment No.
4 Effective Date, to Acquisition Loans (without any reduction in the
Acquisition Loan Committed Amount) and (after all Acquisition Loans
have been repaid) to Revolving Loans (without any reduction in the
Revolving Committed Amount) and (G) with respect to all amounts
prepaid pursuant to Section 3.3(b)(vi), first, to any revolving loan
portion of the Acquisition Loans (ratably to the remaining Principal
Amortization Payments thereof) and then to any term loan portion of
the Acquisition Loans (ratably to the remaining Principal Amortization
Payments thereof). Within the parameters of the applications set forth
above, prepayments shall be applied first to Base Rate Loans and then
to Eurodollar Loans in direct order of Interest Period maturities. All
prepayments under this Section 3.3(b) shall be subject to Section 3.12
and be accompanied by interest on the principal amount prepaid through
the date of prepayment.
3.4 Termination and Reduction of Committed Amounts.
(i) Voluntary Reductions.
(A) The Borrower may from time to time permanently reduce or
terminate the Revolving Committed Amount in whole or in part (in
minimum aggregate amounts of $2,500,000 or in integral multiples of
$500,000 in excess thereof (or, if less, the full remaining amount of
the then applicable Revolving Committed Amount)) upon five Business
Days' prior written notice to the Agent; provided, however, no such
termination or reduction shall be made which would cause the aggregate
principal amount of outstanding Revolving Loans plus LOC Obligations
outstanding to exceed the Revolving Committed Amount, unless,
concurrently with such termination or reduction, the Revolving Loans
are repaid to the extent necessary to eliminate such excess. The Agent
shall promptly notify each affected Lender of receipt by the Agent of
any notice from the Borrower pursuant to this Section 3.4(i).
(B) The Borrower may from time to time permanently reduce or
terminate the Acquisition Loan Committed Amount in whole or in part
(in minimum aggregate amounts of $2,500,000 or in integral multiples
of $500,000 in excess thereof (or, if less, the full remaining amount
of the then applicable Acquisition Loan Committed Amount)) upon five
Business Days' prior written notice to the Agent; provided, however,
no such termination or reduction shall be made which would cause the
aggregate principal amount of outstanding Acquisition Loans to exceed
the Acquisition Loan Committed Amount, unless, concurrently with such
termination or reduction, the Acquisition Loans are repaid to the
extent necessary to eliminate such excess. The Agent shall promptly
notify each affected Lender of receipt by the Agent of any notice from
the Borrower pursuant to this Section 3.4(ii).
(ii) Mandatory Reductions.
(A) On any date that the Revolving Loans are required to be
prepaid pursuant to the terms of Section 3.3(b)(iii) the Revolving
Committed Amount automatically shall be permanently reduced by the
amount of such required prepayment and/or reduction.
(B) The Acquisition Loan Committed Amount automatically shall be
(A) permanently reduced on June 12, 1999 by an amount equal to the
principal amount of all Acquisition Loans advanced during the period
from the Amendment No. 4 Effective Date to and including June 12, 1999
and (B) terminated on June 12, 2000.
(iii) Maturity Date. The Revolving Commitments of the Lenders, the LOC
Commitment of the Issuing Lender and the Acquisition Loan Commitments of
the Lenders automatically shall terminate on the Maturity Date.
(iv) General.
(A) The Borrower shall pay to the Agent for the account of the
Lenders in accordance with the terms of Section 3.5(a)(i), on the date
of each termination or reduction of the Revolving
34
<PAGE>
Committed Amount, the Revolving Unused Fee accrued through the date of
such termination or reduction on the amount of the Revolving Committed
Amount so terminated or reduced.
(B) The Borrower shall pay to the Agent for the account of the
Lenders in accordance with the terms of Section 3.5(a)(ii), on the
date of each termination or reduction of the Acquisition Loan
Committed Amount, the Acquisition Loan Unused Fee accrued through the
date of such termination or reduction on the amount of the Acquisition
Loan Committed Amount so terminated or reduced.
3.5 Fees.
(a) Unused Fees.
(i) Revolving Credit Facility Unused Fee. In consideration of the
Revolving Commitments of the Lenders hereunder, the Borrower agrees to pay
to the Agent for the account of each Lender a fee (the "Revolving Unused
Fee") on such Lender's Revolving Commitment Percentage of the Unused
Revolving Committed Amount computed at a per annum rate for each day during
the applicable Revolving Unused Fee Calculation Period (hereinafter
defined) at a rate equal to the Applicable Percentage in effect from time
to time. The Revolving Unused Fee shall commence to accrue on the Effective
Date and shall be due and payable in arrears on the last business day of
each March, June, September and December (and any date that the Revolving
Committed Amount is reduced as provided in Section 3.4 and the Maturity
Date) for the immediately preceding quarter (or portion thereof) (each such
quarter or portion thereof for which the Revolving Unused Fee is payable
hereunder being herein referred to as an "Revolving Unused Fee Calculation
Period"), beginning with the first of such dates to occur after the
Effective Date.
(ii) Acquisition Loan Unused Fee. In consideration of the Acquisition
Loan Commitments of the Lenders hereunder, the Borrower agrees to pay to
the Agent for the account of each Lender a fee (the "Acquisition Loan
Unused Fee") on such Lender's Acquisition Loan Commitment Percentage of the
Unused Acquisition Loan Committed Amount computed at a per annum rate for
each day during the applicable Acquisition Loan Unused Fee Calculation
Period (hereinafter defined) at a rate equal to the Applicable Percentage
in effect from time to time. The Acquisition Loan Unused Fee shall commence
to accrue on the Effective Date and shall be due and payable in arrears on
the last business day of each March, June, September and December (and any
date that the Revolving Committed Amount is reduced as provided in Section
3.4 and the Maturity Date) for the immediately preceding quarter (or
portion thereof) (each such quarter or portion thereof for which the
Acquisition Loan Unused Fee is payable hereunder being herein referred to
as an "Acquisition Loan Unused Fee Calculation Period"), beginning with the
first of such dates to occur after the Effective Date.
(b) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In consideration of the
issuance of standby Letters of Credit hereunder, the Borrower promises to
pay to the Agent for the account of each Lender a fee (the "Standby Letter
of Credit Fee") on such Lender's Revolving Commitment Percentage of the
average daily maximum amount available to be drawn under each such standby
Letter of Credit computed at a per annum rate for each day from the date of
issuance to the date of expiration equal to the Applicable Percentage. The
Standby Letter of Credit Fee will be payable quarterly in arrears on the
last Business Day of each March, June, September and December for the
immediately preceding quarter (or a portion thereof).
(ii) Trade Letter of Credit Drawing Fee. In consideration of the
issuance of trade Letters of Credit hereunder, the Borrower promises to pay
to the Agent for the account of each Lender a fee (the "Trade Letter of
Credit Fee") equal to the Applicable Percentage on such Lender's Revolving
Commitment Percentage of the amount of each drawing under any such trade
Letter of
35
<PAGE>
Credit. The Trade Letter of Credit Fee will be payable on each date of
drawing under a trade Letter of Credit.
(iii) Issuing Lender Fees. In addition to the Standby Letter of Credit
Fee payable pursuant to clause (i) above and the Trade Letter of Credit Fee
payable pursuant to clause (ii) above, the Borrower promises to pay to the
Issuing Lender for its own account without sharing by the other Lenders (a)
a standby letter of credit fronting fee equal to 0.25% on the average daily
maximum amount available to be drawn under each such standby Letter of
Credit (such fee to be payable quarterly in arrears on the last Business
Day of each March, June, September and December for the immediately
preceding quarter (or a portion thereof)), (b) a trade letter of credit
drawing fee equal to 0.25% on the amount of each drawing under any such
trade Letter of Credit (such fee to be payable on each date of drawing
under a trade Letter of Credit) and (c) the customary charges from time to
time of the Issuing Lender with respect to the issuance, amendment,
transfer, administration, cancellation and conversion of, and drawings
under, such Letters of Credit (collectively, the "Issuing Lender Fees").
(c) Administrative Fees. The Borrower agrees to pay to the Agent, for
its own account and NationsBanc Montgomery Securities, Inc., as applicable,
the fees referred to in the Agent's Fee Letter (collectively, the "Agent's
Fees").
3.6 Capital Adequacy.
If any Lender has determined, after the date hereof, that the adoption or
the becoming effective of, or any change in, or any change by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof in the interpretation or administration of, any
applicable law, rule or regulation regarding capital adequacy, or compliance by
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender's capital or assets as a consequence of its commitments or obligations
hereunder to a level below that which such Lender could have achieved but for
such adoption, effectiveness, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy), then, upon notice from
such Lender to the Borrower, the Borrower shall be obligated to pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction. Any Lender claiming compensation under this Section 3.6 shall furnish
to the Borrower and the Agent a statement setting forth in reasonable detail the
additional amount or amounts payable to it hereunder and the calculations used
to determine such amount or amounts, which statement shall be conclusive and
binding on the parties hereto in the absence of manifest error. In determining
such amount, such Lender may use any reasonable averaging and attribution
methods.
3.7 Limitation on Eurodollar Loans.
If on or prior to the first day of any Interest Period for any Eurodollar
Loan:
(a) the Agent determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding Eurodollar
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base Rate
Loans in accordance with the terms of this Credit Agreement.
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3.8 Illegality.
Notwithstanding any other provision of this Credit Agreement, in the event
that it becomes unlawful for any Lender or its Applicable Lending Office to
make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable).
3.9 Requirements of Law.
(a) If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending Office) to
any tax, duty, or other charge with respect to any Eurodollar Loans, its
Notes, or its obligation to make Eurodollar Loans, or change the basis of
taxation of any amounts payable to such Lender (or its Applicable Lending
Office) under this Credit Agreement or its Notes in respect of any
Eurodollar Loans (other than taxes imposed on the overall net income of
such Lender by the jurisdiction in which such Lender has its principal
office or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than the Eurodollar
Reserve Requirement utilized in the determination of the Adjusted
Eurodollar Rate) relating to any extensions of credit or other assets of,
or any deposits with or other liabilities or commitments of, such Lender
(or its Applicable Lending Office), including the Commitment of such Lender
hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending Office)
or on the United States market for certificates of deposit or the London
interbank market any other condition affecting this Credit Agreement or its
Notes or any of such extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9(a), the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section 3.9 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 3.9 shall furnish to the Borrower and the Agent
a statement setting forth in reasonable detail the additional amount or amounts
payable to it hereunder and the calculations used to determine such amount or
amounts, which statement shall be conclusive and binding on the parties hereto
in the absence of manifest error. In determining such amount, such Lender may
use any reasonable averaging and attribution methods.
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3.10 Treatment of Affected Loans.
If the obligation of any Lender to make any Eurodollar Loan or to Continue,
or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant
to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for such Eurodollar Loans (or, in the case of a
Conversion required by Section 3.8 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Lender
as Eurodollar Loans shall be made or Continued instead as Base Rate Loans,
and all Base Rate Loans of such Lender that would otherwise be Converted
into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 Taxes.
(a) Any and all payments by the Borrower to or for the account of any
Lender or the Agent hereunder or under any other Credit Document shall be
made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each
Lender and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender (or
its Applicable Lending Office) or the Agent (as the case may be) is
organized or any political subdivision thereof (all such non-excluded
taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable under this Credit Agreement or any other Credit Document to any
Lender or the Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.11) such Lender or the
Agent receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law,
and (iv) the Borrower shall furnish to the Agent, at its address referred
to in Section 11.1, the original or a certified copy of a receipt
evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this
Credit Agreement or any other Credit Document or from the execution or
delivery of, or otherwise with respect to, this Credit Agreement or any
other Credit Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
payable under this Section 3.11) paid by such Lender or the Agent (as the
case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto.
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(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of
this Credit Agreement in the case of each Lender listed on the signature
pages hereof and on or prior to the date on which it becomes a Lender in
the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so), shall provide the Borrower and the
Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate,
or any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that the income
receivable pursuant to this Credit Agreement is effectively connected with
the conduct of a trade or business in the United States, (ii) Internal
Revenue Service Form W-8 or W-9, as appropriate, or any successor form
prescribed by the Internal Revenue Service, and/or (iii) any other form or
certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code),
certifying that such Lender is entitled to an exemption from or a reduced
rate of tax on payments pursuant to this Credit Agreement or any of the
other Credit Documents.
(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form pursuant to
Section 3.11(d) (unless such failure is due to a change in treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to
indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes
imposed by the United States; provided, however, that should a Lender,
which is otherwise exempt from or subject to a reduced rate of withholding
tax, become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this Section 3.11, then such Lender
will agree to use reasonable efforts to change the jurisdiction of its
Applicable Lending Office so as to eliminate or reduce any such additional
payment which may thereafter accrue if such change, in the judgment of such
Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes,
the Borrower shall furnish to the Agent the original or a certified copy of
a receipt evidencing such payment.
(h) Any Lender claiming compensation under this Section 3.11 shall
furnish to the Borrower and the Agent a statement setting forth in
reasonable detail the additional amount or amounts payable to it hereunder
and the calculations used to determine such amount or amounts, which
statement shall be conclusive and binding on the parties hereto in the
absence of manifest error.
(i) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.11 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.12 Compensation.
Upon the request of any Lender, the Borrower shall pay to such Lender such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan for
any reason (including, without limitation, the acceleration of the Loans
pursuant to Section 9.2) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Section 5
to be satisfied) to borrow, Convert, Continue, or prepay a
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Eurodollar Loan on the date for such borrowing, Conversion, Continuation,
or prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.13 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of Section
3.3) prepayment of principal of any Loan or reimbursement obligations
arising from drawings under Letters of Credit, each payment of interest on
the Loans or reimbursement obligations arising from drawings under Letters
of Credit, each payment of Revolving Unused Fees, each payment of
Acquisition Loan Unused Fees, each payment of the Standby Letter of Credit
Fee, each payment of the Trade Letter of Credit Fee, each reduction of the
Revolving Committed Amount and each conversion or extension of any Loan,
shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans and Participation
Interests.
(b) Advances. No Lender shall be responsible for the failure or delay
by any other Lender in its obligation to make its ratable share of a
borrowing hereunder; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Agent shall have been notified by any
Lender prior to the date of any requested borrowing that such Lender does
not intend to make available to the Agent its ratable share of such
borrowing to be made on such date, the Agent may assume that such Lender
has made such amount available to the Agent on the date of such borrowing,
and the Agent in reliance upon such assumption, may (in its sole discretion
but without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent, the Agent shall be able to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent
will promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent. The Agent shall also be entitled to
recover from the Lender or the Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to the
date such corresponding amount is recovered by the Agent at a per annum
rate equal to (i) from the Borrower at the applicable rate for the
applicable borrowing pursuant to the Notice of Borrowing and (ii) from a
Lender at the Federal Funds Rate. Nothing contained in this Section 3.13(b)
shall be deemed to constitute a waiver by the Borrower of its rights in
respect of any claim for breach of contract relating to the wrongful
failure (as determined by a court of competent jurisdiction) of any Lender
to make any Loan on the date of the requested borrowing.
3.14 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan, LOC Obligations or any other obligation
owing to such Lender under this Credit Agreement through the exercise of a right
of setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a Participation Interest in such Loans, LOC Obligations and other
obligations in such amounts, and make
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such other adjustments from time to time, as shall be equitable to the end that
all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender or the Agent shall fail to remit to the Agent or any other Lender an
amount payable by such Lender or the Agent to the Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.14 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.14 to share in the benefits of any recovery on such secured claim.
3.15 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Agent in dollars in immediately available
funds, without setoff, deduction, counterclaim or withholding of any kind,
at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M.
(Charlotte, North Carolina time) on the date when due. Payments received
after such time shall be deemed to have been received on the next
succeeding Business Day. The Agent may (but shall not be obligated to)
debit the amount of any such payment which is not made by such time to any
ordinary deposit account of the Borrower maintained with the Agent (with
notice to the Borrower). The Borrower shall, at the time it makes any
payment under this Credit Agreement, specify to the Agent the Loans, LOC
Obligations, Fees, interest or other amounts payable by the Borrower
hereunder to which such payment is to be applied (and in the event that it
fails so to specify, or if such application would be inconsistent with the
terms hereof, the Agent shall distribute such payment to the Lenders in
such manner as the Agent may determine to be appropriate in respect of
obligations owing by the Borrower hereunder, subject to the terms of
Section 3.13(a)). The Agent will distribute such payments to such Lenders,
if any such payment is received prior to 12:00 Noon (Charlotte, North
Carolina time) on a Business Day in like funds as received prior to the end
of such Business Day and otherwise the Agent will distribute such payment
to such Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such extension),
except that in the case of Eurodollar Loans, if the extension would cause
the payment to be made in the next following calendar month, then such
payment shall instead be made on the next preceding Business Day. Except as
expressly provided otherwise herein, all computations of interest and fees
shall be made on the basis of actual number of days elapsed over a year of
360 days, except with respect to computation of interest on Base Rate Loans
which (unless the Base Rate is determined by reference to the Federal Funds
Rate) shall be calculated based on a year of 365 or 366 days, as
appropriate. Interest shall accrue from and include the date of borrowing,
but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Credit Agreement to the contrary, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of the Credit
Party Obligations or any other amounts outstanding under any of the Credit
Documents or in respect of the Collateral shall be paid over or delivered
as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents and any protective advances made by the Agent with respect
to the Collateral under or pursuant to the terms of the Collateral
Documents;
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SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Credit Party Obligations owing
to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
SIXTH, to all other Credit Party Obligations and other obligations
which shall have become due and payable under the Credit Documents or
otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above;
and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Loans and LOC Obligations held by such Lender bears to the aggregate then
outstanding Loans and LOC Obligations) of amounts available to be applied
pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii)
to the extent that any amounts available for distribution pursuant to
clause "FIFTH" above are attributable to the issued but undrawn amount of
outstanding Letters of Credit, such amounts shall be held by the Agent in a
cash collateral account and applied (A) first, to reimburse the Issuing
Lender from time to time for any drawings under such Letters of Credit and
(B) then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses "FIFTH" and "SIXTH" above in
the manner provided in this Section 3.15(b).
3.16 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time
to time under this Credit Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its account or accounts and to promptly
update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section 11.3(c),
and a subaccount for each Lender, in which Register and subaccounts (taken
together) shall be recorded (i) the amount, type and Interest Period of
each such Loan hereunder, (ii) the amount of any principal or interest due
and payable or to become due and payable to each Lender hereunder and (iii)
the amount of any sum received by the Agent hereunder from or for the
account of the Borrower and each Lender's share thereof. The Agent will
make reasonable efforts to maintain the accuracy of the subaccounts
referred to in the preceding sentence and to promptly update such
subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay the Loans made by such
Lender in accordance with the terms hereof.
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3.17 Mandatory Assignment.
In the event that any Lender delivers to the Borrower, a demand for payment
in accordance with Section 3.6, 3.9 or 3.11 then, provided that no Default or
Event of Default has occurred and is continuing at such time, the Borrower may,
at its own expense (such expense to include the administrative fee payable to
the Agent under Section 11.3(b)), and with the consent of the Agent (such
consent not to be unreasonably withheld), require such Lender to transfer and
assign in whole, without recourse (in accordance with and subject to the terms
and conditions of Section 11.3), all of its interests, rights and obligations
under this Credit Agreement to an Eligible Assignee which shall assume such
assigned obligations; provided that (i) such assignment shall not conflict with
any law, rule or regulation or order of any court or any Governmental Authority
and (ii) the Borrower or such assignee shall have paid to the assigning Lender
in immediately available funds the principal of and interest accrued to the date
of such payment on the Loans made by it hereunder and all other amounts owed to
it hereunder.
SECTION 4
GUARANTY
4.1 The Guaranty.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the
Agent as hereinafter provided the prompt payment of the Credit Party Obligations
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) strictly in
accordance with the terms thereof. The Guarantors hereby further agree that if
any of the Credit Party Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Credit Party
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) in accordance with the terms of such
extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, the obligations of each
Guarantor hereunder shall be limited to an aggregate amount equal to the largest
amount that would not render its obligations hereunder subject to avoidance
under Section 548 of the Bankruptcy Code or any comparable provisions of any
applicable state law.
4.2 Obligations Unconditional.
The obligations of the Guarantors under Section 4.1 are joint and several,
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor shall
have no right of subrogation, indemnity, reimbursement or contribution against
the Borrower or any other Guarantor of the Credit Party Obligations for amounts
paid under this Section 4 until such time as the Lenders (and any Affiliates of
Lenders entering into Hedging Agreements) have been paid in full, all
Commitments under this Credit Agreement have been terminated and no Person or
Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging Agreements. Without limiting the generality of
the foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the
liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Credit Party
Obligations shall be extended, or such performance or compliance shall be
waived;
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(b) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Credit Party Obligations or
any security therefor shall be released, impaired or exchanged in whole or
in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender or
Lenders as security for any of the Credit Party Obligations shall fail to
attach or be perfected; or
(e) any of the Credit Party Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any creditor
of any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement or any other agreement or instrument referred to in the
Credit Documents or Hedging Agreements, or against any other Person under any
other guarantee of, or security for, any of the Credit Party Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. Sections
26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor further
agrees that such Guarantor shall have no right of recourse to security for the
Credit Party Obligations, except through the exercise of rights of subrogation
pursuant to Section 4.2 and through the exercise of rights of contribution
pursuant to Section 4.6.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of Section
4.1. The Guarantors acknowledge and agree that their obligations hereunder are
secured in accordance with the terms of the
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Security Agreements and the other Collateral Documents and that the Lenders may
exercise their remedies thereunder in accordance with the terms thereof.
4.6 Rights of Contribution.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full to the Agent and
the Lenders of the Guaranteed Obligations, and none of the Guarantors shall
exercise any right or remedy under this Section 4.6 against any other Guarantor
until payment and satisfaction in full of all of such Guaranteed Obligations.
For purposes of this Section 4.6, (a) "Guaranteed Obligations" shall mean any
obligations arising under the other provisions of this Section 4; (b) "Excess
Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata
Share of any Guaranteed Obligations; (c) "Pro Rata Share" shall mean, for any
Guarantor in respect of any payment of Guaranteed Obligations, the ratio
(expressed as a percentage) as of the date of such payment of Guaranteed
Obligations of (i) the amount by which the aggregate present fair salable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (ii) the amount by which the aggregate present fair salable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors; provided, however, that, for purposes of calculating the
Pro Rata Shares of the Guarantors in respect of any payment of Guaranteed
Obligations, any Guarantor that became a Guarantor subsequent to the date of any
such payment shall be deemed to have been a Guarantor on the date of such
payment and the financial information for such Guarantor as of the date such
Guarantor became a Guarantor shall be utilized for such Guarantor in connection
with such payment; and (d) "Contribution Share" shall mean, for any Guarantor in
respect of any Excess Payment made by any other Guarantor, the ratio (expressed
as a percentage) as of the date of such Excess Payment of (i) the amount by
which the aggregate present fair salable value of all of its assets and
properties exceeds the amount of all debts and liabilities of such Guarantor
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Borrower and all of the Guarantors other than the maker of
such Excess Payment exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Borrower and the Guarantors hereunder) of
the Borrower and all of the Guarantors other than the maker of such Excess
Payment; provided, however, that, for purposes of calculating the Contribution
Shares of the Guarantors in respect of any Excess Payment, any Guarantor that
became a Guarantor subsequent to the date of any such Excess Payment shall be
deemed to have been a Guarantor on the date of such Excess Payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such Guarantor in connection with such Excess
Payment. This Section 4.6 shall not be deemed to affect any right of
subrogation, indemnity, reimbursement or contribution that any Guarantor may
have under applicable law against the Borrower in respect of any payment of
Guaranteed Obligations. Notwithstanding the foregoing, all rights of
contribution against any Guarantor shall terminate from and after such time, if
ever, that such Guarantor shall be relieved of its obligations pursuant to
Section 8.4.
4.7 Continuing Guarantee.
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Credit Party Obligations whenever arising.
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SECTION 5
CONDITIONS
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Amendment shall be subject
to satisfaction of the following conditions (in form and substance acceptable to
the Lender):
(a) Executed Credit Documents. Receipt by the Agent of duly executed
copies of (i) this Amendment, (ii) a new Revolving Note for each Lender,
(iii) a new Acquisition Note for each Lender and (iv) a new Tranche A Term
Note for each Lender, each in form and substance acceptable to the Agent in
its sole discretion.
(b) Corporate Documents. Receipt by the Agent of all documents it may
reasonably request relating to the existence and good standing of each
Credit Party, the corporate or other necessary authority for and the
validity of the Credit Documents, and any other matters relevant thereto,
all in form and substance acceptable to the Agent.
(c) Opinions of Counsel. The Agent shall have received, in each case
dated as of the Amendment No. 4 Effective Date a legal opinion of
McDermott, Will & Emery, general counsel for the Credit Parties,
substantially in the form of Schedule 5.1(c); and
(d) Corporate Structure. The corporate capital and ownership structure
of the Consolidated Parties, after consummation of the transactions
contemplated by this Credit Agreement shall be as described in Schedule
5.1(d).
(e) Government Consent. Receipt by the Agent of evidence that all
governmental, shareholder and material third party consents (including
Hart-Scott-Rodino clearance) and approvals necessary or desirable in
connection with the related financings and other transactions contemplated
hereby and expiration of all applicable waiting periods without any action
being taken by any authority that could restrain, prevent or impose any
material adverse conditions on such transactions or that could seek or
threaten any of the foregoing, and no law or regulation shall be applicable
which in the judgment of the Agent could have such effect.
(f) Litigation. There shall not exist any pending or threatened
action, suit, investigation or proceeding against a Consolidated Party that
could reasonably be expected to have a Material Adverse Effect.
(g) Officer's Certificates. The Agent shall have received a
certificate or certificates executed by an Executive Officer of the
Borrower as of the Amendment No. 4 Effective Date stating that (A) each
Consolidated Party is in compliance with all existing material financial
obligations, (B) all governmental, shareholder and third party consents and
approvals, if any, with respect to the Credit Documents and the
transactions contemplated thereby have been obtained, (C) no action, suit,
investigation or proceeding is pending or threatened in any court or before
any arbitrator or governmental instrumentality that purports to affect any
Consolidated Party or any transaction contemplated by the Credit Documents,
if such action, suit, investigation or proceeding could reasonably be
expected to have a Material Adverse Effect and (D) immediately after giving
effect to this Amendment, the other Credit Documents and all the
transactions contemplated therein to occur on such date, (1) each of the
Credit Parties is Solvent, (2) no Default or Event of Default exists, (3)
all representations and warranties contained herein and in the other Credit
Documents are true and correct in all material respects, and (4) the Credit
Parties are in compliance with each of the financial covenants set forth in
Section 7.11.
(h) Material Adverse Effect. No material adverse change shall have
occurred since June 30, 1997 in the condition (financial or otherwise),
business, management or prospects of the Consolidated Parties taken as a
whole.
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(i) Fees and Expenses. Payment by the Credit Parties of all fees and
expenses owed by them to the Lenders and the Agent as of the Amendment No.
4 Effective Date, including, without limitation, payment to the Agent of
any fees set forth in the Fee Letter which are payable on such date.
(j) Subordinated Debt. (i) The Borrower shall have entered into the
Subordinated Note Indenture with the Subordinated Noteholders, (ii) the
Borrower shall have executed the Subordinated Notes, (iii) the Agent shall
have received a copy, certified by an officer of the Borrower as true and
complete, of the Subordinated Note Indenture as originally executed and
delivered and a form of Subordinated Note, and no amendment or modification
thereof shall have been entered into on or prior to the Amendment No. 4
Effective Date which shall not have been approved by each of the Lenders
and (iv) the Borrower shall have received proceeds from the sale of
Subordinated Notes in an aggregate principal amount of $100,000,000.
(k) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any
Lender, including, but not limited to, information regarding litigation,
tax, accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements,
property ownership and contingent liabilities of the Consolidated Parties.
5.2 Conditions to all Extensions of Credit.
The obligations of each Lender to make, convert or extend any Loan and of
the Issuing Lender to issue or extend any Letter of Credit are subject to
satisfaction of the following conditions in addition to satisfaction of the
conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of any Revolving
Loan, any Acquisition Loan or any portion of the Tranche A Term Loan, an
appropriate Notice of Borrowing or Notice of Extension/Conversion or (ii)
in the case of any Letter of Credit, the Issuing Lender shall have received
an appropriate request for issuance in accordance with the provisions of
Section 2.2(b);
(b) The representations and warranties set forth in Section 6 shall,
subject to the limitations set forth therein, be true and correct in all
material respects as of such date (except for those which expressly relate
to an earlier date);
(c) There shall not have been commenced against any Credit Party an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or other
action for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation of
its affairs, and such involuntary case or other case, proceeding or other
action shall remain undismissed, undischarged or unbonded; and
(d) Immediately after giving effect to the making of such Loan (and
the application of the proceeds thereof) or to the issuance of such Letter
of Credit, as the case may be, (i) the sum of the aggregate principal
amount of outstanding Revolving Loans plus LOC Obligations outstanding
shall not exceed the Revolving Committed Amount, and (ii) the LOC
Obligations shall not exceed the LOC Committed Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Borrower of the correctness of
the matters specified in subsections (b), (c) and (d) above.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 Financial Condition.
(a) The audited consolidated balance sheet of the Consolidated Parties
as of June 30, 1997 and the audited consolidated statements of earnings and
statements of cash flows for the year ended June 30, 1996 have heretofore
been furnished to the Agent. Such audited financial statements (including
the notes thereto) (i) have been audited by Arthur Andersen, (ii) have been
prepared in accordance with GAAP consistently, applied throughout the
periods covered thereby and (iii) present fairly (on the basis disclosed in
the footnotes to such financial statements) the consolidated financial
condition, results of operations and cash flows of the Consolidated Parties
as of such date and for such period. The unaudited interim balance sheets
of the Consolidated Parties as at the end of, and the related unaudited
interim statements of earnings and of cash flows for, each fiscal month and
quarterly period ended after June 30, 1997 and prior to the Amendment No. 4
Effective Date have heretofore been furnished to the Agent. Such unaudited
interim financial statements for each such quarterly period, (i) have been
prepared by independent certified public accountants in accordance with
GAAP consistently applied throughout the periods covered thereby, subject
to audit, normal year-end adjustments and the absence of notes and (ii)
present fairly (on the basis disclosed in the footnotes to such financial
statements) the consolidated financial condition, results of operations and
cash flows of the Consolidated Parties as of such date and for such
periods.
(b) The pro forma consolidated balance sheet, statement of earnings
and statement of cash flow of the Consolidated Parties for the two most
recent fiscal years preceding the Closing Date prepared by Arthur Andersen
in accordance with GAAP consistently applied throughout the periods covered
thereby, have heretofore been furnished to the Agent. Such pro forma
balance sheet is based upon reasonable assumptions and upon information not
known to be incorrect or misleading in any material respect.
(c) Except as otherwise disclosed in Schedule 6.1(c), the financial
statements delivered to the Lenders pursuant to Section 7.1(a) and (b), (i)
have been prepared in accordance with GAAP (except as may otherwise be
permitted under Section 7.1(a) and (b)) and (ii) present fairly (on the
basis disclosed in the footnotes to such financial statements) the
consolidated financial condition, results of operations and cash flows of
the Consolidated Parties as of such date and for such periods.
6.2 No Material Change.
Since the later of (i) June 30, 1997 and (ii) the then most recent fiscal
year end with respect to which the Agent has received the Required Financial
Information, (a) there has been no Material Adverse Effect and (b) except as
otherwise permitted under this Credit Agreement, no dividends or other
distributions have been declared, paid or made upon the Capital Stock in a
Consolidated Party nor has any of the Capital Stock in a Consolidated Party been
redeemed, retired, purchased or otherwise acquired for value.
6.3 Organization and Good Standing.
Each of the Consolidated Parties (a) is duly organized, validly existing
and is in good standing under the laws of the jurisdiction of its incorporation
or organization, (b) has the corporate or other necessary power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged
and (c) is duly qualified as a foreign entity and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, other than in such
jurisdictions where the failure to be so qualified and in good standing could
reasonably be expected to have a Material Adverse Effect.
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6.4 Power; Authorization; Enforceable Obligations.
Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No material consent
or authorization of, filing with, notice to or other similar act by or in
respect of, any Governmental Authority or any other Person is required to be
obtained or made by or on behalf of any Credit Party in connection with the
borrowings or other extensions of credit hereunder or with the execution,
delivery, performance, validity or enforceability of the Credit Documents to
which such Credit Party is a party, except for (i) consents, authorizations,
notices and filings described in Schedule 6.4, all of which have been obtained
or made or have the status described in such Schedule 6.4 and (ii) filings to
perfect the Liens created by the Collateral Documents. This Credit Agreement has
been, and each other Credit Document to which any Credit Party is a party will
be, duly executed and delivered on behalf of the Credit Parties. This Credit
Agreement constitutes, and each other Credit Document to which any Credit Party
is a party when executed and delivered will constitute, a legal, valid and
binding obligation of such Credit Party enforceable against such party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
6.5 No Conflicts.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or materially conflict with any material
Requirement of Law or any other material law, regulation (including, without
limitation, Regulation U or Regulation X), order, writ, judgment, injunction,
decree or permit applicable to it, (c) violate, contravene or conflict with
contractual provisions of, or cause an event of default under, any indenture,
loan agreement, mortgage, deed of trust, contract or other agreement or
instrument to which it is a party or by which it may be bound, the violation of
which could reasonably be expected to have a Material Adverse Effect, or (d)
result in or require the creation of any Lien (other than those contemplated in
or created in connection with the Credit Documents) upon or with respect to its
properties.
6.6 No Default.
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could reasonably be expected to have a Material Adverse
Effect. No Default or Event of Default has occurred or exists except as
previously disclosed in writing to the Lenders.
6.7 Ownership.
Each Consolidated Party is the owner of, and has good and marketable title
to, all of its respective assets and none of such assets is subject to any Lien
other than Permitted Liens.
6.8 Indebtedness.
Except as otherwise permitted under Section 8.1, the Consolidated Parties
have no Indebtedness.
6.9 Litigation.
Except as disclosed in Schedule 6.9, there are no actions, suits or legal,
equitable, arbitration or administrative proceedings, pending or, to the
knowledge of any Credit Party, threatened against any Consolidated Party which
might have a Material Adverse Effect.
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6.10 Taxes.
Each Consolidated Party has filed, or caused to be filed, all material tax
returns (federal, state, local and foreign) required to be filed and paid (a)
all amounts of taxes shown thereon to be due (including interest and penalties)
and (b) all other taxes, fees, assessments and other governmental charges
(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) owing by it, except for such taxes (i) which are not yet delinquent or
(ii) that are being contested in good faith and by proper proceedings, and
against which adequate reserves are being maintained in accordance with GAAP. No
Credit Party is aware as of the Closing Date of any proposed tax assessments
against it or any other Consolidated Party that if made would have or could
reasonably be expected to have a Material Adverse Effect.
6.11 Compliance with Law.
Each Consolidated Party is in compliance with all Requirements of Law and
all other laws, rules, regulations, orders and decrees (including without
limitation Environmental Laws) applicable to it, or to its properties, unless
such failure to comply could not have a Material Adverse Effect.
6.12 ERISA.
Except as disclosed and described in Schedule 6.12 attached hereto:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition has
occurred or exists as a result of which any ERISA Event could reasonably be
expected to occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section
412 of the Code, whether or not waived, has occurred with respect to any
Plan; (iii) each Plan has been maintained, operated, and funded in
compliance with its own terms and in material compliance with the
provisions of ERISA, the Code, and any other applicable federal or state
laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is
reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under each
Single Employer Plan, as of the last annual valuation date prior to the
date on which this representation is made or deemed made (determined, in
each case, in accordance with Financial Accounting Standards Board
Statement 87, utilizing the actuarial assumptions used in such Plan's most
recent actuarial valuation report), did not exceed as of such valuation
date the fair market value of the assets of such Plan.
(c) Neither any Consolidated Party nor any ERISA Affiliate has
incurred, or, to the best knowledge of the Credit Parties, could be
reasonably expected to incur, any withdrawal liability under ERISA to any
Multiemployer Plan or Multiple Employer Plan. Neither any Consolidated
Party nor any ERISA Affiliate would become subject to any withdrawal
liability under ERISA if any Consolidated Party or any ERISA Affiliate were
to withdraw completely from all Multiemployer Plans and Multiple Employer
Plans as of the valuation date most closely preceding the date on which
this representation is made or deemed made. Neither any Consolidated Party
nor any ERISA Affiliate has received any notification that any
Multiemployer Plan is in reorganization (within the meaning of Section 4241
of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or
has been terminated (within the meaning of Title IV of ERISA), and no
Multiemployer Plan is, to the best knowledge of the Credit Parties,
reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred with respect to a Plan which has subjected or may subject any
Consolidated Party or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under
any agreement or other instrument pursuant to which any Consolidated Party
or any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability.
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(e) Neither any Consolidated Party nor any ERISA Affiliates has any
material liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards Board
Statement 106. Each Plan which is a welfare plan (as defined in Section
3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the
Code apply has been administered in compliance in all material respects of
such sections.
(f) Neither the execution and delivery of this Credit Agreement nor
the consummation of the financing transactions contemplated thereunder will
involve any transaction which is subject to the prohibitions of Sections
404, 406 or 407 of ERISA or in connection with which a tax could be imposed
pursuant to Section 4975 of the Code. The representation by the Credit
Parties in the preceding sentence is made in reliance upon and subject to
the accuracy of the Lenders' representation in Section 11.14 with respect
to their source of funds and is subject, in the event that the source of
the funds used by the Lenders in connection with this transaction is an
insurance company's general asset account, to the application of Prohibited
Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995), compliance
with the regulations issued under Section 401(c)(1)(A) of ERISA, or the
issuance of any other prohibited transaction exemption or similar relief,
to the effect that assets in an insurance company's general asset account
do not constitute assets of an "employee benefit plan" within the meaning
of Section 3(3) of ERISA of a "plan" within the meaning of Section
4975(e)(1) of the Code.
6.13 Subsidiaries.
Set forth on Schedule 6.13 is a complete and accurate list of all
Subsidiaries (including Subsidiaries which are Joint Ventures) of each
Consolidated Party. Information on Schedule 6.13 includes jurisdiction of
incorporation, the number of shares of each class of Capital Stock outstanding,
the number and percentage of outstanding shares of each class owned (directly or
indirectly) by such Consolidated Party; and the number and effect, if exercised,
of all outstanding options, warrants, rights of conversion or purchase and all
other similar rights with respect thereto. The outstanding Capital Stock of all
such Subsidiaries is validly issued, fully paid and non-assessable and is owned
by each such Consolidated Party, directly or indirectly, free and clear of all
Liens (other than those arising under or contemplated in connection with the
Credit Documents). Other than as set forth in Schedule 6.13, no Consolidated
Party has outstanding any securities convertible into or exchangeable for its
Capital Stock nor does any such Person have outstanding any rights to subscribe
for or to purchase or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to its Capital Stock. Schedule
6.13 may be updated from time to time by the Borrower by giving written notice
thereof to the Agent.
6.14 Governmental Regulations, Etc.
(a) No part of the Letters of Credit or proceeds of the Loans will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation G or Regulation U, or for
the purpose of purchasing or carrying or trading in any securities. If
requested by any Lender or the Agent, the Borrower will furnish to the
Agent and each Lender a statement to the foregoing effect in conformity
with the requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Loans was
or will be incurred for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation U or any "margin security" within
the meaning of Regulation T. "Margin stock" within the meaning of
Regulation U does not constitute more than 25% of the value of the
consolidated assets of the Consolidated Parties. None of the transactions
contemplated by this Credit Agreement (including, without limitation, the
direct or indirect use of the proceeds of the Loans) will violate or result
in a violation of the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or regulations issued pursuant thereto,
or Regulation G, T, U or X.
(b) No Consolidated Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940, each as amended. In addition, no
Consolidated Party is (i) an "investment company" registered or required to
be registered under the Investment Company Act of 1940, as amended, and is
not controlled by such a company, or (ii) a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of
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a "subsidiary" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of any
Consolidated Party is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director",
"executive officer" and "principal shareholder" (when used with reference
to any Lender) have the respective meanings assigned thereto in Regulation
O issued by the Board of Governors of the Federal Reserve System.
(d) Each Consolidated Party has obtained and holds in full force and
effect, all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the ownership of its
respective Property and to the conduct of its respective businesses as
presently conducted unless the failure to do so would not have a Material
Adverse Effect.
(e) No Consolidated Party is in violation of any applicable statute,
regulation or ordinance of the United States of America, or of any state,
city, town, municipality, county or any other jurisdiction, or of any
agency thereof (including without limitation, environmental laws and
regulations), which violation could reasonably be expected to have a
Material Adverse Effect.
(f) Each Consolidated Party is current with all material reports and
documents, if any, required to be filed with any state or federal
securities commission or similar agency and is in full compliance in all
material respects with all applicable rules and regulations of such
commissions unless the failure to do so would not have a Material Adverse
Effect.
6.15 Purpose of Loans and Letters of Credit.
The proceeds of the Revolving Loans and Tranche A Term Loan shall be used
solely by the Borrower (i) to refinance on the Amendment No. 4 Effective Date
existing Indebtedness under the Existing Credit Agreement and (ii) for working
capital and general corporate purposes (other than Permitted Acquisitions and
capital expenditures) of the Borrower and its Wholly Owned Subsidiaries on and
after the Amendment No. 4 Effective Date. The proceeds of the Acquisition Loans
shall be used solely by the Borrower to finance the purchase price of, and fees
and expenses in connection with, Permitted Acquisitions and capital expenditures
on and after the Amendment No. 4 Effective Date. The Letters of Credit shall be
used only for or in connection with appeal bonds, reimbursement obligations
arising in connection with surety and reclamation bonds, reinsurance, domestic
or international trade transactions and obligations not otherwise aforementioned
relating to transactions entered into by the applicable account party in the
ordinary course of business.
6.16 Environmental Matters.
Except as disclosed and described in Schedule 6.16 attached hereto,
Environmental Laws and liabilities thereunder, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. Each of the
Properties owned, leased or operated by the Consolidated Parties is in
compliance with all Environmental Laws except where liability under such
Environmental Laws could not reasonably be expected to have a Material Adverse
Effect.
6.17 Intellectual Property.
Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use could not have a Material Adverse Effect. Set forth on Schedule 6.17 is a
list of all Intellectual Property owned by each Consolidated Party or that any
Consolidated Party has the right to use. Except as provided on Schedule 6.17, no
claim has been asserted and is pending by any Person challenging or questioning
the use of any such Intellectual Property or the validity or effectiveness of
any such Intellectual Property, nor does any Credit Party know of any such
claim, and to the Credit Parties' knowledge the use of such Intellectual
Property by any Consolidated Party does not infringe on the rights of any
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Person, except for such claims and infringements that in the aggregate, could
not have a Material Adverse Effect. Schedule 6.17 may be updated from time to
time by the Borrower by giving written notice thereof to the Agent.
6.18 Solvency.
Each Credit Party is and, after consummation of the Recapitalization and
the other transactions contemplated by this Credit Agreement, will be Solvent.
6.19 Investments.
All Investments of each Consolidated Party are Permitted Investments.
6.20 Location of Collateral.
Set forth on Schedule 6.20(a)(i) is a list of all Primary Real Properties
with street address, county and state where located. Set forth on Schedule
6.20(a)(ii) is a list of all Secondary Real Properties with street address,
county and state where located. Set forth on Schedule 6.20(b) is a list of all
locations where any tangible personal property of a Consolidated Party is
located, including county and state where located. Set forth on Schedule 6.20(c)
is the chief executive office and principal place of business of each
Consolidated Party. Schedule 6.20(a), 6.20(b) and 6.20(c) may be updated from
time to time by the Borrower giving written notice thereof to the Agent.
6.21 Disclosure.
Neither this Credit Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein, in light of the circumstances under which such
information is or is to be used, not misleading. It is understood by the Agent
and the Lenders that all of the estimates and assumptions on which any
projections and forecasts are based may not prove to be correct and that actual
future financial performance may vary from such projections or forecasts.
6.22 No Burdensome Restrictions.
No Consolidated Party is a party to any agreement or instrument or subject
to any other obligation or any charter or corporate restriction or any provision
of any applicable law, rule or regulation which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
6.23 Brokers' Fees.
Except as disclosed on Schedule 6.23, no Consolidated Party has any
obligation to any Person in respect of any finder's, broker's, investment
banking or other similar fee in connection with any of the transactions
contemplated under the Credit Documents.
6.24 Labor Matters.
There are no collective bargaining agreements or Multiemployer Plans
covering the employees of a Consolidated Party as of the Closing Date and none
of the Consolidated Parties has suffered any strikes, walkouts, work stoppages
or other material labor difficulty within the last five years.
6.25 Nature of Business.
As of the Closing Date, the Consolidated Parties are engaged in the
business of providing diagnostic imaging services and ancillary services to the
healthcare industry.
6.26 Year 2000 Compliance.
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The Borrower has (i) conducted a review and assessment of its and of its
Subsidiaries' reporting systems and operations that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer applications may not
be able to recognize and properly perform date-sensitive functions after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 Information Covenants.
The Borrower will furnish, or cause to be furnished, to the Agent and the
Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of the
Consolidated Parties, a consolidated balance sheet and income statement of
the Consolidated Parties, as of the end of such fiscal year, together with
related consolidated statements of operations and retained earnings and of
cash flows for such fiscal year, setting forth in comparative form
consolidated figures for the preceding fiscal year, all such financial
information described above to be in reasonable form and detail and audited
by independent certified public accountants of recognized national standing
reasonably acceptable to the Agent and whose opinion shall be to the effect
that such financial statements have been prepared in accordance with GAAP
(except for changes with which such accountants concur) and shall not be
limited as to the scope of the audit or qualified as to the status of the
Consolidated Parties as a going concern.
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the close of each fiscal quarter of the
Consolidated Parties (other than the fourth fiscal quarter, in which case
90 days after the end thereof) a consolidated and consolidating balance
sheet and income statement of the Consolidated Parties, as of the end of
such fiscal quarter, together with related consolidated and consolidating
statements of operations and retained earnings and of cash flows for such
fiscal quarter in each case setting forth in comparative form consolidated
and consolidating figures for the corresponding period of the preceding
fiscal year, all such financial information described above to be in
reasonable form and detail and reasonably acceptable to the Agent, and
accompanied by a certificate of the chief financial officer of the Borrower
to the effect that such quarterly financial statements fairly present in
all material respects the financial condition of the Consolidated Parties
and have been prepared in accordance with GAAP, subject to changes
resulting from audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate
of the chief financial officer of the Borrower substantially in the form of
Exhibit 7.1(c), (i) demonstrating compliance with the financial covenants
contained in Section 7.11 by calculation thereof as of the end of each such
fiscal period and (ii) stating that no Default or Event of Default exists,
or if any Default or Event of Default does exist, specifying the nature and
extent thereof and what action the Credit Parties propose to take with
respect thereto.
(d) Annual Budgets and Plan. By the end of each fiscal year of the
Borrower, beginning with the fiscal year ending June 30, 1998, an annual
budget and plan for the Consolidated Parties containing, among other
things, pro forma financial statements for the next fiscal year.
(e) Compliance With Certain Provisions of the Credit Agreement. Within
90 days after the end of each fiscal year of the Borrower, a certificate
containing information regarding (i) the calculation of Excess
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Cash Flow and (ii) the amount of all Asset Dispositions, Debt Issuances and
Equity Issuances that were made during the prior fiscal year.
(f) Accountant's Certificate. Within the period for delivery of the
annual financial statements provided in Section 7.1(a), a certificate of
the accountants conducting the annual audit stating that they have reviewed
this Credit Agreement and stating further whether, in the course of their
audit, they have become aware of any Default or Event of Default and, if
any such Default or Event of Default exists, specifying the nature and
extent thereof.
(g) Auditor's Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants to
any Consolidated Party in connection with any annual, interim or special
audit of the books of such Person.
(h) Reports. Promptly upon transmission or receipt thereof, (i) copies
of any filings and registrations with, and reports to or from, the
Securities and Exchange Commission, or any successor agency, and copies of
all financial statements, proxy statements, notices and reports as any
Consolidated Party shall send to its shareholders or to a holder of any
Indebtedness owed by any Consolidated Party in its capacity as such a
holder and (ii) upon the request of the Agent, all reports and written
information to and from the United States Environmental Protection Agency,
or any state or local agency responsible for environmental matters, the
United States Occupational Health and Safety Administration, or any state
or local agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety matters.
(i) Notices. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent immediately of (i) the occurrence of an event
or condition consisting of a Default or Event of Default, specifying the
nature and existence thereof and what action the Credit Parties propose to
take with respect thereto, and (ii) the occurrence of any of the following
with respect to any Consolidated Party (A) the pendency or commencement of
any litigation, arbitral or governmental proceeding against such Person
which if adversely determined is likely to have a Material Adverse Effect,
(B) the institution of any proceedings against such Person with respect to,
or the receipt of notice by such Person of potential liability or
responsibility for violation, or alleged violation of any federal, state or
local law, rule or regulation, including but not limited to, Environmental
Laws, the violation of which could reasonably be expected to have a
Material Adverse Effect, or (C) any notice or determination concerning the
imposition of any withdrawal liability by a Multiemployer Plan against such
Person or any ERISA Affiliate, the determination that a Multiemployer Plan
is, or is expected to be, in reorganization within the meaning of Title IV
of ERISA or the termination of any Plan.
(j) ERISA. Upon obtaining knowledge thereof, the Borrower will give
written notice to the Agent promptly (and in any event within five business
days) of: (i) of any event or condition, including, but not limited to, any
Reportable Event, that constitutes, or could reasonably lead to, an ERISA
Event; (ii) with respect to any Multiemployer Plan, the receipt of notice
as prescribed in ERISA or otherwise of any withdrawal liability assessed
against the Borrower or any of its ERISA Affiliates, or of a determination
that any Multiemployer Plan is in reorganization or insolvent (both within
the meaning of Title IV of ERISA); (iii) the failure to make full payment
on or before the due date (including extensions) thereof of all amounts
which any Consolidated Party or any ERISA Affiliate is required to
contribute to each Plan pursuant to its terms and as required to meet the
minimum funding standard set forth in ERISA and the Code with respect
thereto; or (iv) any change in the funding status of any Plan that could
reasonably be expected to have a Material Adverse Effect, together with a
description of any such event or condition or a copy of any such notice and
a statement by the chief financial officer of the Borrower briefly setting
forth the details regarding such event, condition, or notice, and the
action, if any, which has been or is being taken or is proposed to be taken
by the Credit Parties with respect thereto. Promptly upon request, the
Credit Parties shall furnish the Agent and the Lenders with such additional
information concerning any Plan as may be reasonably requested, including,
but not limited to, copies of each annual report/return (Form 5500 series),
as well as all schedules and attachments thereto required to be filed with
the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each "plan year" (within the meaning
of Section 3(39) of ERISA).
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(k) Year 2000 Compliance. Promptly upon the discovery or determination
that any computer application that is material to its or any of its
Subsidiaries' business and operations will not be "Year 2000 Compliant"
(that is, be able to properly perform date-sensitive functions for all
dates before and after January 1, 2000), except to the extent that such
failure could not reasonably be expected to have a Material Adverse Effect.
(l) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of any Consolidated Party as the Agent or the Required
Lenders may reasonably request.
7.2 Preservation of Existence and Franchises.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each
Credit Party will, and will cause each of its Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority if the failure to do so could reasonably be expected to
have a Material Adverse Effect.
7.3 Books and Records.
Each Credit Party will, and will cause each of its Subsidiaries to, keep
complete and accurate books and records of its transactions in accordance with
good accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves).
7.4 Compliance with Law.
Each Credit Party will, and will cause each of its Subsidiaries to, comply
with all laws, rules, regulations and orders, and all applicable restrictions
imposed by all Governmental Authorities, applicable to it and its Property if
noncompliance with any such law, rule, regulation, order or restriction could
reasonably be expected to have a Material Adverse Effect.
7.5 Payment of Taxes and Other Indebtedness.
Each Credit Party will, and will cause each of its Subsidiaries to, pay and
discharge (a) all taxes, assessments and governmental charges or levies imposed
upon it, or upon its income or profits, or upon any of its properties, before
they shall become delinquent, (b) all lawful claims (including claims for labor,
materials and supplies) which, if unpaid, might give rise to a Lien upon any of
its properties, and (c) except as prohibited hereunder, all of its other
Indebtedness as it shall become due; provided, however, that no Consolidated
Party shall be required to pay any such tax, assessment, charge, levy, claim or
Indebtedness which is being contested in good faith by appropriate proceedings
and as to which adequate reserves therefor have been established in accordance
with GAAP, unless the failure to make any such payment (i) could give rise to an
immediate right to foreclose on a Lien securing such amounts or (ii) could
reasonably be expected to have a Material Adverse Effect.
7.6 Insurance.
(a) Each Credit Party will, and will cause each of its Subsidiaries
to, at all times maintain in full force and effect insurance (including
worker's compensation insurance, liability insurance, casualty insurance
and business interruption insurance) in such amounts, covering such risks
and liabilities and with such deductibles or self-insurance retentions as
are in accordance with normal industry practice (or as otherwise required
by the Collateral Documents). The Agent shall be named as loss payee or
mortgagee, as its interest may appear, and/or additional insured with
respect to any such insurance providing coverage in respect of any
Collateral, and each provider of any such insurance shall agree, by
endorsement upon the policy or policies issued by it or by independent
instruments furnished to the Agent, that it will use good faith efforts to
give the Agent thirty (30) days prior written notice before any such policy
or policies shall be altered or canceled, and that no act or default of any
Consolidated Party or any other Person shall affect the rights of the Agent
or the Lenders under such policy or policies. The present insurance
coverage of the
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Consolidated Parties is outlined as to carrier, policy number, expiration
date, type and amount on Schedule 7.6.
(b) In case of any material loss, damage to or destruction of the
Collateral of any Credit Party or any part thereof, such Credit Party shall
promptly give written notice thereof to the Agent generally describing the
nature and extent of such damage or destruction. In case of any loss,
damage to or destruction of the Collateral of any Credit Party or any part
thereof, such Credit Party, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for
that purpose, at such Credit Party's cost and expense, will promptly repair
or replace the Collateral of such Credit Party so lost, damaged or
destroyed; provided, however, that such Credit Party need not repair or
replace the Collateral of such Credit Party so lost, damaged or destroyed
to the extent the failure to make such repair or replacement (i) is
desirable to the proper conduct of the business of such Credit Party in the
ordinary course and otherwise in the best interest of such Credit Party;
and (ii) would not materially impair the rights and benefits of the Agent
or the Lenders under the Collateral Documents, any other Credit Document or
any Hedging Agreement. In the event a Credit Party shall receive any
proceeds of such insurance in a net amount in excess of $500,000, such
Credit Party will immediately pay over such proceeds to the Agent, for
payment on the Credit Party Obligations; provided, however, that the Agent
agrees to release such insurance proceeds to such Credit Party for
replacement or restoration of the portion of the Collateral of such Credit
Party lost, damaged or destroyed if, but only if, (A) no Default or Event
of Default shall have occurred and be continuing at the time of release,
(B) written application for such release is received by the Agent from such
Credit Party within 30 days of receipt of such proceeds and (C) the Agent
has received evidence reasonably satisfactory to it that the Collateral
lost, damaged or destroyed has been or will be replaced or restored to its
condition immediately prior to the loss, destruction or other event giving
rise to the payment of such insurance proceeds.
7.7 Maintenance of Property.
Each Credit Party will, and will cause each of its Subsidiaries to,
maintain and preserve its properties and equipment material to the conduct of
its business in good repair, working order and condition, normal wear and tear
and casualty and condemnation excepted, and will make, or cause to be made, in
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
7.8 Performance of Obligations.
Each Credit Party will, and will cause each of its Subsidiaries to, perform
in all material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements or other debt instruments
to which it is a party or by which it is bound.
7.9 Use of Proceeds.
The Borrower will use the proceeds of the Loans and will use the Letters of
Credit solely for the purposes set forth in Section 6.15.
7.10 Audits/Inspections.
Upon reasonable notice and during normal business hours, each Credit Party
will, and will cause each of its Subsidiaries to, permit representatives
appointed by the Agent, including, without limitation, independent accountants,
agents, attorneys, and appraisers to visit and inspect its property, including
its books and records, its accounts receivable and inventory, its facilities and
its other business assets, and to make photocopies or photographs thereof and to
write down and record any information such representative obtains and shall
permit the Agent or its representatives to investigate and verify the accuracy
of information provided to the Lenders and to discuss all such matters with the
officers, employees and representatives of such Person. The Credit Parties agree
that the Agent, and its representatives, may conduct an annual audit of the
Collateral, at the expense of the Borrower.
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7.11 Financial Covenants.
The Credit Parties hereby agree that:
(a) Interest Coverage Ratio. The Interest Coverage Ratio, as of the
last day of each fiscal quarter of the Consolidated Parties, shall be
greater than or equal to:
(i) for the period from the Amendment No. 4 Effective Date to and
including June 29, 2001, 2.0 to 1.0;
(ii) for the period from June 30, 2001 to and including June 29,
2002, 2.25 to 1.0;
(iii) for the period from June 30, 2002 to and including June 29,
2003, 2.50 to 1.0;
(iv) for the period from June 30, 2003 to and including June 29,
2004, 2.75 to 1.0; and
(v) for the period from June 30, 2004 and thereafter, 3.0 to 1.0.
(b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as
of the last day of each fiscal quarter of the Consolidated Parties, shall
be greater than or equal to 1.1 to 1.0.
(c) Total Leverage Ratio. The Total Leverage Ratio, as of the last day
of each fiscal quarter of the Consolidated Parties, shall be less than or
equal to:
(i) for the period from the Amendment No. 4 Effective Date to and
including June 29, 2001, 4.5 to 1.0;
(ii) for the period from June 30, 2001 to and including June 29,
2002, 4.0 to 1.0;
(iii) for the period from June 30, 2002 to and including June 29,
2003, 3.5 to 1.0; and
(iv) for the period from June 30, 2003 and thereafter, 3.0 to
1.0.
(d) Senior Leverage Ratio. The Senior Leverage Ratio, as of the last
day of each fiscal quarter of the Consolidated Parties, shall be less than
or equal:
(i) for the period from the Amendment No. 4 Effective Date to and
including June 29, 2001, 3.0 to 1.0;
(ii) for the period from June 30, 2001 to and including June 29,
2002, 2.5 to 1.0; and
(iii) for the period from June 30, 2002 and thereafter, 2.0 to
1.0.
(e) Certain Calculation Procedures. The parties hereto acknowledge and
agree that, notwithstanding any other provision hereof to the contrary, for
purposes of all calculations made in determining compliance with the
financial covenants set forth in this Section 7.11, (i)(A) income statement
items (whether positive or negative) attributable to the Property disposed
of in any Asset Disposition as contemplated by Section 8.5, as applicable,
shall be excluded to the extent relating to any period occurring prior to
the date of such transaction and (B) Indebtedness which is retired in
connection with any such Asset Disposition shall be excluded and deemed to
have been retired as of the first day of the applicable period and (ii)
income statement items (whether positive or negative) attributable to any
Property acquired in any Investment transaction (including without
limitation any Permitted Acquisition) contemplated by Section 8.6 shall be
included to the extent relating to any period applicable in such
calculations occurring after the date of such transaction (and,
notwithstanding the foregoing, during the first four fiscal quarters
following the date of such transaction, shall be included on an annualized
basis).
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7.12 Additional Credit Parties.
As soon as practicable and in any event within 30 days after any Person
which is not a Joint Venture becomes a Subsidiary of any Credit Party, the
Borrower shall provide the Agent with written notice thereof setting forth
information in reasonable detail describing all of the assets of such Person and
shall (a) cause such Person to execute a Joinder Agreement in substantially the
same form as Exhibit 7.12, (b) cause all of the Capital Stock of such Person
owned by the Consolidated Parties to be delivered to the Agent (together with
undated stock powers signed in blank) and pledged to the Agent pursuant to an
appropriate pledge agreement(s) in substantially the form of the Pledge
Agreement and otherwise in form acceptable to the Agent and (c) cause such
Person to (i) if such Person owns or leases any real property located in the
United States of America or deemed to be material by the Agent or the Required
Lenders in its or their sole reasonable discretion, deliver to the Agent with
respect to such real property documents, instruments and other items of the
types required to be delivered pursuant to Section 5.2(c) all in form, content
and scope reasonably satisfactory to the Agent and (ii) deliver such other
documentation as the Agent may reasonably request in connection with the
foregoing, including, without limitation, appropriate UCC-1 financing
statements, real estate title insurance policies, environmental reports,
landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person, favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the documentation referred to above and the
perfection of the Agent's liens thereunder) and other items of the types
required to be delivered pursuant to Section 5.2(b), all in form, content and
scope reasonably satisfactory to the Agent.
7.13 Pledged Assets.
Each Credit Party will, and will cause each of its Subsidiaries which is
not a Joint Venture to, cause (i) all of its owned real and personal property
located in the United States, (ii) to the extent deemed to be material by the
Agent or the Required Lenders in its or their sole reasonable discretion, all of
its other owned real and personal property and (iii) all of its leased real
property located in the United States, to be subject at all times to first
priority (subject to Permitted Liens), perfected and, in the case of real
property (whether leased or owned), title insured Liens in favor of the Agent
pursuant to the terms and conditions of the Collateral Documents or, with
respect to any such property acquired subsequent to the Closing Date, such other
additional security documents as the Agent shall reasonably request. With
respect to any real property (whether leased or owned) located in the United
States of America acquired by any direct or indirect Subsidiary of the Borrower
which is not a Joint Venture subsequent to the Closing Date, such Person will
cause to be delivered to the Agent with respect to such real property: (i) if
the value of such real property is greater than or equal to $1,000,000,
documents, instruments and other items of the types required to be delivered
pursuant to Section 7.15(a)(i)-(iv) in form acceptable to the Agent and (ii) if
the value of such real property is greater than $250,000 but less than
$1,000,000, documents, instruments and other items of the types required to be
delivered pursuant to Section 7.15(a)(ii) and (iv) in a form acceptable to
Agent. Without limiting the generality of the above, the Credit Parties will
cause 100% of the Capital Stock in each direct or indirect Subsidiary of the
Borrower which is not a Joint Venture to be subject at all times to a first
priority (subject to Permitted Liens), perfected Lien in favor of the Agent
pursuant to the terms and conditions of the Collateral Documents or such other
security documents as the Agent shall reasonably request.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire any
intellectual property, securities, instruments, chattel paper or other personal
property required to be delivered to the Agent as Collateral hereunder or under
any of the Collateral Documents or (b) acquire or lease any real property, the
Borrower shall promptly (and in any event within three (3) Business Days) after
any Executive Officer of a Credit Party acquires knowledge of same notify the
Agent of same. Each Credit Party shall, and shall cause each of its Subsidiaries
to, take such action (including but not limited to the actions set forth in
Sections 5.2(a) and Section 7.15 (as qualified by this Section 7.13)) at its own
expense as requested by the Agent to ensure that the Agent has a first priority
(subject to Permitted Liens), perfected Lien to secure the Credit Party
Obligations in (i) all owned real property and personal property of the Credit
Parties located in the United States, (ii) to the extent deemed to be material
by the Agent or the Required Lenders in its or their sole reasonable discretion,
all other owned real and personal property of the Credit Parties and (iii) all
leased real property located in the United States, subject in each case only to
Permitted Liens. Each Credit Party shall, and shall cause each of its
Subsidiaries to, adhere to the covenants regarding the location of personal
property as set forth in the Security Agreements.
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7.14 Upstreaming of Income from Joint Ventures.
The Credit Parties will cause each of the Joint Ventures to distribute to
the Borrower from time to time (and in any event at least once during each
fiscal year of the Borrower) the Borrower's share of the net income before taxes
for such period (as determined in accordance with GAAP) of such Joint Venture.
7.15 Further Assurances.
(a) Within 90 days after the Amendment No. 4 Effective Date, the
Credit Parties shall have delivered to the Agent:
(i) fully executed and notarized mortgages, deeds of trust or
deeds to secure debt (each, as the same may be amended, modified,
restated or supplemented from time to time, a "Mortgage Instrument"
and collectively the "Mortgage Instruments") encumbering the fee
interest and/or leasehold interest of any Credit Party in each real
property asset designated in Schedule 6.20(a)(i) (each a "Primary Real
Property" and collectively the "Primary Real Properties");
(ii) in the case of each leasehold interest of any Credit Party
in each real property asset designated in Schedule 6.20(a)(ii) (each a
"Secondary Real Property" and collectively "Secondary Real
Properties") or Primary Real Property (each Primary Real Property or
Secondary Real Property a "Real Property" and collectively the "Real
Properties"), (a) such estoppel letters, consents and waivers from the
landlords on such real property as may be required by the Agent, which
estoppel letters shall be in the form and substance reasonably
satisfactory to the Agent and (b) evidence that the applicable lease,
a memorandum of lease with respect thereto, or other evidence of such
lease in form and substance reasonably satisfactory to the Agent, has
been or will be recorded in all places to the extent necessary or
desirable, in the reasonable judgment of the Agent, so as to enable
the Mortgage Instrument encumbering such leasehold interest to
effectively create a valid and enforceable first priority lien
(subject to Permitted Liens) on such leasehold interest in favor of
the Agent (or such other Person as may be required or desired under
local law) for the benefit of Lenders;
(iii) ALTA mortgagee title insurance policies issued by Chicago
Title Insurance Company (the "Mortgage Policies"), in amounts
reasonably satisfactory to the Agent, assuring the Agent that each of
the Mortgage Instruments creates a valid and enforceable first
priority mortgage lien on the applicable Primary Real Property, free
and clear of all defects and encumbrances except Permitted Liens,
which Mortgage Policies shall be in form and substance reasonably
satisfactory to the Agent and shall provide for affirmative insurance
and such reinsurance as the Agent may reasonably request, all of the
foregoing in form and substance reasonably satisfactory to the Agent;
and
(iv) Evidence satisfactory to the Agent that each of the Real
Properties, and the uses of the Real Properties, are in compliance in
all material respects with all applicable laws, regulations and
ordinances including without limitation health and environmental
protection laws, erosion control ordinances, storm drainage control
laws, doing business and/or licensing laws, zoning laws (the evidence
submitted as to zoning should include the zoning designation made for
each of the Real Properties, the permitted uses of each such Real
Properties under such zoning designation and zoning requirements as to
parking, lot size, ingress, egress and building setbacks) and laws
regarding access and facilities for disabled persons including, but
not limited to, the federal Architectural Barriers Act, the Fair
Housing Amendments Act of 1988, the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990.
(b) On or before January 31,1998, the Credit Parties shall deliver to
the Agent (i) evidence satisfactory to the Agent that the good standing
status of each Subsidiary identified in Schedule 6.13 as not being in good
standing in any listed jurisdiction has been reinstated to good standing
status in each such jurisdiction and (ii) evidence satisfactory to the
Agent that each Subsidiary identified in Schedule 6.13 as
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having incomplete tax data available for any listed jurisdiction is in good
tax standing in each such jurisdiction.
(c) On or before February 16, 1998, the Credit Parties shall deliver
to the Agent all documents and information of the types described in
Section 7.15(a) with respect to the real property portion of the MD Assets.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
8.1 Indebtedness.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the other
Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries set forth in
Schedule 8.1 (and renewals, refinancings and extensions thereof on terms
and conditions no less favorable to such Person than such existing
Indebtedness);
(c) (i) purchase money Indebtedness (including Capital Leases and
Synthetic Leases) hereafter incurred by the Borrower or any of its
Subsidiaries which is not a Joint Venture other than Open MRI or Central
Coast to finance the purchase of fixed assets provided that (A) the total
of all such Indebtedness for all such Persons taken together shall not
exceed an aggregate principal amount of $10,000,000 (excluding any such
Indebtedness of the Borrower or any of its Subsidiaries other than Open MRI
or Central Coast referred to in subsection (b) above) at any one time
outstanding; (B) such Indebtedness when incurred shall not exceed the
purchase price of the asset(s) financed; and (C) no such Indebtedness shall
be refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
(ii) purchase money Indebtedness (including Capital Leases and
Synthetic Leases) hereafter incurred by Open MRI to finance the purchase of
fixed assets provided that (A) the total outstanding principal of all such
Indebtedness (including any such Indebtedness of Open MRI referred to in
subsection (b) above), taken together with the aggregate original equipment
cost of all Property leased by Open MRI under Operating Leases, shall not
exceed at any time an aggregate principal amount of $20,000,000; (B) such
Indebtedness when incurred shall not exceed the purchase price of the
asset(s) financed; and (C) no such Indebtedness shall be refinanced for a
principal amount in excess of the principal balance outstanding thereon at
the time of such refinancing;
(iii) purchase money Indebtedness (including Capital Leases and
Synthetic Leases) hereafter incurred by Central Coast to finance the
purchase of fixed assets provided that (A) the total outstanding principal
of all such Indebtedness shall not exceed at any time an aggregate
principal amount of $6,000,000 (including any such Indebtedness of Central
Coast referred to in subsection (b) above); (B) such Indebtedness when
incurred shall not exceed the purchase price of the asset(s) financed; and
(C) no such Indebtedness shall be refinanced for a principal amount in
excess of the principal balance outstanding thereon at the time of such
refinancing;
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(d) obligations of the Borrower or any of its Subsidiaries in respect
of Hedging Agreements entered into in order to manage existing or
anticipated interest rate or exchange rate risks and not for speculative
purposes;
(e) intercompany Indebtedness arising out of loans and advances
permitted under Section 8.6;
(f) Indebtedness in an aggregate principal amount not to exceed
$100,000,000 arising under the Subordinated Note Indenture and the
Subordinated Notes, and Guaranty Obligations with respect to such
Indebtedness;
(g) in addition to the Indebtedness otherwise permitted by this
Section 8.1, other unsecured Indebtedness hereafter incurred by the
Borrower provided that (A) the loan documentation with respect to such
Indebtedness shall not contain covenants or default provisions relating to
any Consolidated Party that are more restrictive than the covenants and
default provisions contained in the Credit Documents, (B) the Borrower
shall have delivered to the Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to the
incurrence of such Indebtedness and to the concurrent retirement of any
other Indebtedness of any Consolidated Party, no Default or Event of
Default would exist hereunder and (C) the aggregate principal amount of
such Indebtedness shall not exceed $2,500,000 at any time.
8.2 Liens.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for Permitted Liens.
8.3 Nature of Business.
The Credit Parties will not permit any Consolidated Party to substantively
alter the character or conduct of the business conducted by such Person as of
the Closing Date.
8.4 Consolidation, Merger, Dissolution, etc.
Except in connection with an Asset Disposition permitted by the terms of
Section 8.5, the Credit Parties will not permit any Consolidated Party to
enter into any transaction of merger or consolidation or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution); provided
that, notwithstanding the foregoing provisions of this Section 8.4, (a) the
Borrower may merge or consolidate with any of its Wholly Owned Subsidiaries
provided that (i) the Borrower shall be the continuing or surviving
corporation, (ii) the Credit Parties shall cause to be executed and
delivered such documents, instruments and certificates as the Agent may
request so as to cause the Credit Parties to be in compliance with the
terms of Section 7.13 after giving effect to such transaction and (iii) the
Borrower shall have delivered to the Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to
such transaction, no Default or Event of Default would exist, (b) any
Credit Party other than the Borrower may merge or consolidate with any
other Credit Party other than the Borrower provided that (i) the Credit
Parties shall cause to be executed and delivered such documents,
instruments and certificates as the Agent may request so as to cause the
Credit Parties to be in compliance with the terms of Section 7.13 after
giving effect to such transaction and (ii) the Borrower shall have
delivered to the Agent a Pro Forma Compliance Certificate demonstrating
that, upon giving effect on a Pro Forma Basis to such transaction, no
Default or Event of Default would exist, (c) any Consolidated Party which
is not a Credit Party may be merged or consolidated with or into any Credit
Party provided that (i) such Credit Party shall be the continuing or
surviving corporation, (ii) the Credit Parties shall cause to be executed
and delivered such documents, instruments and certificates as the Agent may
request so as to cause the Credit Parties to be in compliance with the
terms of Section 7.13 after giving effect to such transaction and (iii) the
Borrower shall have delivered to the Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to
such transaction, no Default or Event of Default would exist, (d) any
Consolidated Party which is not a Credit Party may be merged or
consolidated with or into any other Consolidated Party which is not a
Credit Party provided the Borrower shall have delivered to the Agent a Pro
Forma Compliance Certificate demonstrating that, upon giving effect on a
Pro Forma Basis to such transaction, no Default or Event of Default would
exist, (e) the Borrower or any Wholly
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Owned Subsidiary of the Borrower may merge with any Person other than a
Consolidated Party in connection with a Permitted Acquisition if (i) the
Borrower or such Wholly Owned Subsidiary shall be the continuing or
surviving corporation, (ii) the Credit Parties shall cause to be executed
and delivered such documents, instruments and certificates as the Agent may
request so as to cause the Credit Parties to be in compliance with the
terms of Section 7.13 after giving effect to such transaction and (iii) the
Borrower shall have delivered to the Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to
such transaction, no Default or Event of Default would exist and (f) any
Wholly Owned Subsidiary of the Borrower may dissolve, liquidate or wind up
its affairs at any time.
8.5 Asset Dispositions.
The Credit Parties will not permit any Consolidated Party to make any Asset
Disposition (including, without limitation, any Sale and Leaseback Transaction)
other than Excluded Asset Dispositions unless (a) the consideration paid in
connection therewith is cash or Cash Equivalents, (b) if such transaction is a
Sale and Leaseback Transaction, such transaction is permitted by the terms of
Section 8.13, (c) such transaction does not involve the sale or other
disposition of a minority equity interest in any Consolidated Party, (d) the
aggregate net book value of all of the assets sold or otherwise disposed of by
the Consolidated Parties in all such transactions after the Closing Date shall
not exceed $2,500,000, (e) if the book value of the assets disposed of pursuant
to such Asset Disposition exceeds $1,000,000, the Borrower shall have delivered
to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving
effect on a Pro Forma Basis to such transaction, no Default or Event of Default
would exist hereunder, and (f) no later than 15 days prior to such Asset
Disposition, the Agent and the Lenders shall have received a certificate of an
officer of the Borrower specifying the anticipated or actual date of such Asset
Disposition, briefly describing the assets to be sold or otherwise disposed of
and setting forth the net book value of such assets, the aggregate consideration
and the Net Cash Proceeds to be received for such assets in connection with such
Asset Disposition, and thereafter the Borrower shall, within the period of 30
days following the consummation of such Asset Disposition (with respect to any
such Asset Disposition, the "Application Period"), apply (or cause to be
applied) an amount equal to the Net Cash Proceeds of such Asset Disposition to
(i) the purchase, acquisition or, in the case of improvements to real property,
construction of Eligible Assets or (ii) to the prepayment of the Loans in
accordance with the terms of Section 3.3(b)(iii).
Upon a sale of assets or the sale of Capital Stock of a Consolidated Party
permitted by this Section 8.5, the Agent shall (to the extent applicable)
deliver to the Borrower, upon the Borrower's request and at the Borrower's
expense, such documentation as is reasonably necessary to evidence the release
of the Agent's security interest, if any, in such assets or Capital Stock,
including, without limitation, amendments or terminations of UCC financing
statements, if any, the return of stock certificates, if any, and the release of
such Subsidiary from all of its obligations, if any, under the Credit Documents.
8.6 Investments.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments.
8.7 Restricted Payments.
The Credit Parties will not permit any Consolidated Party which is not a
Joint Venture to, directly or indirectly, declare, order, make or set apart any
sum for or pay any Restricted Payment, except (a) to make dividends payable
solely in the same class of Capital Stock of such Person and, in connection with
any such stock dividend, to make cash dividends in respect of fractional shares,
(b) to make dividends or other distributions payable to any Credit Party
(directly or indirectly through Subsidiaries), (c) as permitted by Section 8.8,
(d) pursuant to the terms of either of the Investment Agreements, any payments
made in connection with the Recapitalization, (e) to purchase, redeem or
otherwise acquire shares of its Capital Stock, or warrants or options to acquire
any such shares, with the proceeds received from the substantially concurrent
issue of its Capital Stock and (f) provided that no Default or Event of Default
has occurred and is continuing at such time or would be directly or indirectly
caused as a result thereof, to make interest payments in respect of Indebtedness
arising under the Subordinated Note Indenture and the Subordinated Notes,
including payment of accrued interest and premium, if any, payable in connection
with a redemption of the Subordinated Notes permitted under Section 8.8.
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8.8 Prepayments of Indebtedness, etc.
The Credit Parties will not permit any Consolidated Party which is not a
Joint Venture to, (a) if any Default or Event of Default has occurred and is
continuing or would be directly or indirectly caused as a result thereof (i)
after the issuance thereof, amend or modify (or permit the amendment or
modification of) any of the terms of any Indebtedness if such amendment or
modification would add or change any terms in a manner adverse to the issuer of
such Indebtedness, or shorten the final maturity or average life to maturity or
require any payment to be made sooner than originally scheduled or increase the
interest rate applicable thereto or change any subordination provision thereof,
or (ii) except for the exchange of the Subordinated Notes for notes with
identical terms registered pursuant to the registration rights agreement set
forth in the Subordinated Note Indenture, make (or give any notice with respect
thereto) any voluntary or optional payment or prepayment or redemption or
acquisition for value of (including without limitation, by way of depositing
money or securities with the trustee with respect thereto before due for the
purpose of paying when due), refund, refinance or exchange of any other
Indebtedness (including without limitation any Indebtedness arising under the
Subordinated Note Indenture and the Subordinated Notes), (b) except for the
exchange of the Subordinated Notes for notes with identical terms registered
pursuant to the registration rights agreement set forth in the Subordinated Note
Indenture, make (or give any notice with respect thereto) any voluntary or
optional payment or prepayment, redemption, acquisition for value or defeasance
of (including without limitation, by way of depositing money or securities with
the trustee with respect thereto before due for the purpose of paying when due),
refund, refinance or exchange of any Indebtedness arising under the Subordinated
Note Indenture and the Subordinated Notes or (c) make interest payments in
respect of the Indebtedness arising under the Subordinated Note Indenture in
violation of the subordination provisions of the Subordinated Note Indenture.
8.9 Transactions with Affiliates.
The Credit Parties will not permit any Consolidated Party to enter into or
permit to exist any transaction or series of transactions with any officer,
director, shareholder, Subsidiary or Affiliate of such Person other than (a)
advances of working capital to any Credit Party, (b) transfers of cash and
assets to any Credit Party, (c) transactions permitted by Section 8.1, Section
8.4, Section 8.5, Section 8.6, or Section 8.7, (d) transactions contemplated by
the Investment Agreements, including any and all payments required to be paid
pursuant to the terms thereof, (e) normal compensation and reimbursement of
expenses of officers and directors and (f) except as otherwise specifically
limited in this Credit Agreement, other transactions which are entered into in
the ordinary course of such Person's business on terms and conditions
substantially as favorable to such Person as would be obtainable by it in a
comparable arms-length transaction with a Person other than an officer,
director, shareholder, Subsidiary or Affiliate.
8.10 Fiscal Year; Organizational Documents.
The Credit Parties will not permit any Consolidated Party to change its
fiscal year or amend, modify or change its articles of incorporation (or
corporate charter or other similar organizational document) or bylaws (or other
similar document) without providing prior written notice to the Agent and the
Lenders.
8.11 Limitation on Restricted Actions.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any Indebtedness or other obligation owed to any Credit
Party, (c) make loans or advances to any Credit Party, (d) sell, lease or
transfer any of its properties or assets to any Credit Party or (e) act as a
Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, (ii) the Subordinated Note Indenture
and the Subordinated Notes, in each case as in effect as of the Amendment No. 4
Effective Date, (iii) applicable law, (iv) any document or instrument governing
Indebtedness incurred pursuant to Section 8.1(c), provided that any such
restriction contained therein relates only to the asset or assets constructed or
acquired in connection therewith or (v) any Permitted Lien or any document or
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instrument governing any Permitted Lien, provided that any such restriction
contained therein relates only to the asset or assets subject to such Permitted
Lien.
8.12 Ownership of Subsidiaries.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, the Credit Parties will not permit any Consolidated Party to (i)
permit any Person (other than the Borrower or any Wholly Owned Subsidiary
of the Borrower) to own any Capital Stock of any Subsidiary of the Borrower
which is not a Joint Venture, (ii) permit any Subsidiary of the Borrower
which is not a Joint Venture to issue Capital Stock (except to the Borrower
or to a Wholly-Owned Subsidiary of the Borrower), (iii) permit, create,
incur, assume or suffer to exist any Lien on any Capital Stock, in each
case except (A) as a result of or in connection with a dissolution, merger
or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5
or (B) for Permitted Liens and (iv) notwithstanding anything to the
contrary contained in clause (ii) above, permit any Subsidiary of the
Borrower which is not a Joint Venture to issue any shares of preferred
Capital Stock.
8.13 Sale Leasebacks.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, become or remain liable as lessee or as guarantor or other
surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any Property (whether real, personal or mixed), whether now owned
or hereafter acquired, (a) which such Consolidated Party has sold or
transferred or is to sell or transfer to a Person which is not a
Consolidated Party or (b) which such Consolidated Party intends to use for
substantially the same purpose as any other Property which has been sold or
is to be sold or transferred by such Consolidated Party to another Person
which is not a Consolidated Party in connection with such lease; provided,
however, notwithstanding the foregoing, so long as the Net Proceeds from
the sale of any real property are applied to the prepayment of the Loans in
accordance with the terms of Sections 3.3(b)(iii) and 3.3(b)(vii), InSight
Health Corp. may, on or before July 31, 1998, enter into a Sale and
Leaseback Transaction with respect to the real property portion of the MD
Assets.
8.14 Capital Expenditures.
(a) The Credit Parties will not permit Consolidated Capital Expenditures
(excluding capital expenditures incurred by Open MRI and its Subsidiaries) to
exceed $20,000,000 per fiscal year.
(b) The Credit Parties will not permit the consolidated capital
expenditures of Open MRI and its Subsidiaries, as determined in accordance with
GAAP, to exceed $15,000,000 per fiscal year.
8.15 No Further Negative Pledges.
The Credit Parties will not permit any Consolidated Party which is not a
Joint Venture to enter into, assume or become subject to any agreement
prohibiting or otherwise restricting the creation or assumption of any Lien upon
its properties or assets, whether now owned or hereafter acquired, or requiring
the grant of any security for such obligation if security is given for some
other obligation, except (a) pursuant to this Credit Agreement and the other
Credit Documents, (b) pursuant to the Subordinated Note Indenture and the
Subordinated Notes, in each case as in effect as of the applicable date of
effectiveness, (c) pursuant to any document or instrument governing Indebtedness
incurred pursuant to Section 8.1(c), provided that any such restriction
contained therein relates only to the asset or assets constructed or acquired in
connection therewith and (d) in connection with any Permitted Lien or any
document or instrument governing any Permitted Lien, provided that any such
restriction contained therein relates only to the asset or assets subject to
such Permitted Lien.
8.16 Operating Lease Obligations.
(a) The Credit Parties will not permit the aggregate obligations of the
Consolidated Parties other than Open MRI which are not Joint Ventures for the
payment of rental under Operating Leases (other than in respect of
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Operating Leases existing as of the Closing Date and described in Schedule 8.16
(and renewals, refinancings and extensions thereof)) for any fiscal year to
exceed at any time an aggregate principal amount of $2,500,000.
(b) The Credit Parties will not permit the aggregate original equipment
cost of all Property leased by Open MRI under Operating Leases, taken together
with the outstanding principal of all purchase money Indebtedness (including
Capital Leases and Synthetic Leases) of Open MRI permitted under Section
8.1(c)(ii), to exceed at any time an aggregate amount of $20,000,000.
8.17 No Foreign Subsidiaries.
None of the Credit Party will create, acquire or permit to exist any direct
or indirect Foreign Subsidiary.
8.18 Joint Venture Operations.
The Credit Parties will not permit, as of as of the last day of each fiscal
quarter, the portion of Consolidated EBITDA attributable to the Borrower and its
Subsidiaries which are not Joint Ventures for the four quarters then ended to be
less than 75% of Consolidated EBITDA for such period.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any of
the Loans or of any reimbursement obligations arising from drawings
under Letters of Credit, or
(ii) default, and such default shall continue for three (3) or
more Business Days, in the payment when due of any interest on the
Loans or on any reimbursement obligations arising from drawings under
Letters of Credit, or of any Fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith or
therewith; or
(b) Representations. Any representation, warranty or statement made or
deemed to be made by any Credit Party herein, in any of the other Credit
Documents, or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove untrue in any material
respect on the date as of which it was deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.2, 7.9, 7.11 or 8.1
through 8.18, inclusive;
(ii) default in the due performance or observance of any term,
covenant or agreement contained in Section 7.1(a), (b), (c) or (d),
Section 7.12 or Section 7.13 and such default shall continue
unremedied for a period of at least 5 days after the earlier of a
responsible officer of a Credit Party becoming aware of such default
or notice thereof by the Agent; or
(iii) default in the due performance or observance by it of any
other term, covenant or agreement (other than those referred to in
subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1
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hereof) contained in this Credit Agreement or the other Credit
Documents (subject to applicable grace or cure periods, if any) and
such default shall continue unremedied for a period of at least 30
days after the earlier of a responsible officer of a Credit Party
becoming aware of such default or notice thereof by the Agent; or
(d) Failure of Full Force and Effect. Except as a result of or in
connection with a dissolution, merger or disposition of a Subsidiary
permitted under Section 8.4 or Section 8.5, any Credit Document shall
fail to be in full force and effect or to give the Agent and/or the
Lenders the Liens, rights, powers and privileges purported to be
created thereby, or any Credit Party shall so state in writing; or
(e) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to any Consolidated Party; or
(f) Defaults under Other Agreements. With respect to any
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement) having an outstanding principal amount in excess of
$1,000,000 in the aggregate, (A) any Consolidated Party shall (1)
default in any payment (beyond the applicable grace period with
respect thereto, if any) with respect to any such Indebtedness, or (2)
the occurrence and continuance of a default in the observance or
performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event or condition shall occur or condition exist, the
effect of which default or other event or condition is to cause, or
permit, the holder or holders of such Indebtedness (or trustee or
agent on behalf of such holders) to cause (determined without regard
to whether any notice or lapse of time is required), any such
Indebtedness to become due prior to its stated maturity; or (B) any
such Indebtedness shall be declared due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment, prior
to the stated maturity thereof; or
(g) Judgments. One or more judgments or decrees shall be entered
against one or more of the Consolidated Parties involving a liability
of $1,000,000 or more in the aggregate (to the extent not paid or
fully covered by insurance provided by a carrier who has acknowledged
coverage and has the ability to perform) and any such judgments or
decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 60 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such
event or condition could reasonably be expected to have a Material
Adverse Effect: (i) any "accumulated funding deficiency," as such term
is defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived, shall exist with respect to any Plan, or any
lien shall arise on the assets of any Consolidated Party or any ERISA
Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall
occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event
shall occur with respect to a Multiemployer Plan or Multiple Employer
Plan, which is, in the reasonable opinion of the Agent, likely to
result in (A) the termination of such Plan for purposes of Title IV of
ERISA, or (B) any Consolidated Party or any ERISA Affiliate incurring
any liability in connection with a withdrawal from, reorganization of
(within the meaning of Section 4241 of ERISA), or insolvency or
(within the meaning of Section 4245 of ERISA) such Plan; or (iv) any
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) or breach of fiduciary responsibility shall
occur which may subject any Consolidated Party or any ERISA Affiliate
to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA
or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which any Consolidated Party or any ERISA
Affiliate has agreed or is required to indemnify any person against
any such liability; or
(j) Indemnification Claim under Investment Agreements. The
Borrower shall be required to make any indemnification payment of
$1,000,000 or more under Article VIII of either of the Investment
Agreements (to the extent not paid or fully covered by insurance
provided by a carrier who has acknowledged coverage and has the
ability to perform) and any such indemnification payment shall remain
unpaid for at least 60 days from the date of demand thereof;
(k) Ownership. There shall occur a Change of Control; or
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(l) Subordinated Note Indenture. (i) There shall occur and be
continuing any Event of Default under and as defined in the
Subordinated Note Indenture or (ii) any of the Credit Party
Obligations for any reason shall cease to be "Designated Senior
Indebtedness" under and as defined in the Subordinated Note Indenture.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 11.6), the Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Credit Parties take any of the following
actions:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any accrued
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Borrower to the Agent and/or
any of the Lenders hereunder to be due whereupon the same shall be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
(c) Cash Collateral. Direct the Borrower to pay (and the Borrower
agrees that upon receipt of such notice, or upon the occurrence of an Event
of Default under Section 9.1(e), it will immediately pay) to the Agent
additional cash, to be held by the Agent, for the benefit of the Lenders,
in a cash collateral account as additional security for the LOC Obligations
in respect of subsequent drawings under all then outstanding Letters of
Credit in an amount equal to the maximum aggregate amount which may be
drawn under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents including, without
limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(e) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Agent and/or any of the Lenders
hereunder automatically shall immediately become due and payable without the
giving of any notice or other action by the Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment, Powers and Immunities.
Each Lender hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Credit Agreement and the other Credit Documents with such
powers and discretion as are specifically delegated to the Agent by the terms of
this Credit Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof
shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of
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any Credit Document, or any other document referred to or provided for therein
or for any failure by any Credit Party or any other Person to perform any of its
obligations thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any Credit Party or the satisfaction of any condition
or to inspect the property (including the books and records) of any Credit Party
or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate
or conduct any litigation or collection proceedings under any Credit Document;
and (e) shall not be responsible for any action taken or omitted to be taken by
it under or in connection with any Credit Document, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
10.2 Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly provided for by this Credit Agreement, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Agent shall not be required to take any action that exposes the Agent
to personal liability or that is contrary to any Credit Document or applicable
law or unless it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking any such action.
10.3 Defaults.
The Agent shall not be deemed to have knowledge or notice of the occurrence
of a Default or Event of Default unless the Agent has received written notice
from a Lender or the Borrower specifying such Default or Event of Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of a Default or Event of Default, the
Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject
to Section 10.2 hereof) take such action with respect to such Default or Event
of Default as shall reasonably be directed by the Required Lenders, provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
10.4 Rights as a Lender.
With respect to its Commitment and the Loans made by it, NationsBank (and
any successor acting as Agent) in its capacity as a Lender hereunder shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. NationsBank (and any successor acting as Agent) and its
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Agent, and NationsBank (and any successor acting as Agent) and its Affiliates
may accept fees and other consideration from any Credit Party or any of its
Subsidiaries or Affiliates for services in connection with this Credit Agreement
or otherwise without having to account for the same to the Lenders.
10.5 Indemnification.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof, but without limiting the obligations of the Borrower
under such Section) ratably in accordance with their respective Commitments, for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including attorneys' fees), or disbursements
of any kind and nature whatsoever that may be imposed on,
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incurred by or asserted against the Agent (including by any Lender) in any way
relating to or arising out of any Credit Document or the transactions
contemplated thereby or any action taken or omitted by the Agent under any
Credit Document (including any of the foregoing arising from the negligence of
the Agent; provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
Person to be indemnified. Without limitation of the foregoing, each Lender
agrees to reimburse the Agent promptly upon demand for its ratable share of any
costs or expenses payable by the Borrower under Section 11.5, to the extent that
the Agent is not promptly reimbursed for such costs and expenses by the
Borrower. The agreements in this Section 10.5 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Credit Parties and their
Subsidiaries and decision to enter into this Credit Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Credit Documents. Except for notices, reports, and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition, or business of any Credit Party or any of its Subsidiaries or
Affiliates that may come into the possession of the Agent or any of its
Affiliates.
10.7 Successor Agent.
The Agent may resign at any time by giving notice thereof to the Lenders
and the Borrower. Upon any such resignation, the Borrower, with the consent of
the Required Lenders (such consent not to be unreasonably withheld) shall have
the right to appoint a successor Agent from among the Lenders. If no successor
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent which shall be a commercial bank organized
under the laws of the United States of America having combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 10 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Borrower, Guarantors and
the Agent, set forth below, and, in the case of the Lenders, set forth on
Schedule 2.1(a), or at such other address as such party may specify by written
notice to the other parties hereto:
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if to the Borrower or the Guarantors:
c/o Insight Health Services Corp.
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92660
Attn: Thomas V. Croal, CFO
Telephone: (714) 476-0733
Telecopy: (714) 851-5981
with a copy to:
TC Group, L.L.C.
1001 Pennsylvania Avenue
Washington, DC 20004-2505
Attn: David Dupree
Telephone: (202) 626-1250
Telecopy: (202) 347-1818
if to the Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services - Mike Roof
Telephone: (704) 388-3916
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N. A.
700 Louisiana Street
Houston, Texas 77002
Attn: Scott Singhoff
Telephone: (713) 247-6961
Telecopy: (713) 247-6360
11.2 Right of Set-Off; Adjustments.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under the Notes, under any other Credit Document or
otherwise, irrespective of whether such Lender shall have made any demand under
hereunder or thereunder and although such obligations may be unmatured. Each
Lender agrees promptly to notify any affected Credit Party after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 11.2 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender may have.
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11.3 Benefit of Agreement.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that none of the Credit Parties may assign or
transfer any of its interests and obligations without prior written consent
of the Lenders; provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or obligations
hereunder shall be limited as set forth in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its Notes,
and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or an
Approved Fund (as referred to in the definition of "Eligible
Assignee") or an assignment of all of a Lender's rights and
obligations under this Credit Agreement, any such partial assignment
shall be in an amount at least equal to $5,000,000 (or, if less, the
remaining amount of the Commitment being assigned by such Lender) or
an integral multiple of $1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Credit Agreement and the Notes; and
(iv) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of Exhibit 11.3(b) hereto, together with any Note subject to such
assignment and a processing fee of $3,500; provided that no such fee
shall be payable in the case of an assignment by a Lender to (A) an
Affiliate of such Lender or (B) an Approved Fund (as referred to in
the definition of "Eligible Assignee") which is an Affiliate of such
Lender.
Upon execution, delivery, and acceptance of such Assignment and Acceptance,
the assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender
hereunder and the assigning Lender shall, to the extent of such assignment,
relinquish its rights and be released from its obligations under this
Credit Agreement. Upon the consummation of any assignment pursuant to this
Section 11.3(b), the assignor, the Agent and the Borrower shall make
appropriate arrangements so that, if required, new Notes are issued to the
assignor and the assignee. If the assignee is not incorporated under the
laws of the United States of America or a state thereof, it shall deliver
to the Borrower and the Agent certification as to exemption from deduction
or withholding of Taxes in accordance with Section 3.11.
(c) The Agent shall maintain at its address referred to in Section
11.1 a copy of each Assignment and Acceptance delivered to and accepted by
it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error,
and the Borrower, the Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of
this Credit Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
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(e) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under
this Credit Agreement (including all or a portion of its Commitment and its
Loans); provided, however, that (i) such Lender's obligations under this
Credit Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall be entitled to the benefit of the
yield protection provisions contained in Sections 3.7 through 3.12,
inclusive, and the right of set-off contained in Section 11.2, and (iv) the
Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Credit
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans and its Notes and to
approve any amendment, modification, or waiver of any provision of this
Credit Agreement (other than amendments, modifications, or waivers
decreasing the amount of principal of or the rate at which interest is
payable on such Loans or Notes, extending any scheduled principal payment
date or date fixed for the payment of interest on such Loans or Notes, or
extending its Commitment).
(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any portion
of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank. No such assignment shall release the assigning Lender
from its obligations hereunder.
(g) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants).
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Agent or any Lender and any of the Credit
Parties shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle the Borrower or any other Credit Party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
11.5 Expenses; Indemnification.
(a) The Borrower agrees to pay on demand all costs and expenses of the
Agent in connection with the syndication, preparation, execution, delivery,
administration, modification, and amendment of this Credit Agreement, the other
Credit Documents, and the other documents to be delivered hereunder, including,
without limitation, the reasonable fees and expenses of counsel for the Agent
(including the cost of internal counsel) with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under the Credit
Documents. The Borrower further agrees to pay on demand all costs and expenses
of the Agent and the Lenders, if any (including, without limitation, reasonable
attorneys' fees and expenses and the cost of internal counsel), in connection
with the enforcement (whether through negotiations, legal proceedings, or
otherwise) of the Credit Documents and the other documents to be delivered
hereunder.
(b) The Borrower agrees to indemnify and hold harmless the Agent and each
Lender and each of their Affiliates and their respective officers, directors,
employees, agents, and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities, costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be incurred
by or asserted or awarded against any Indemnified Party, in each case arising
out of or in connection with or by reason of (including, without limitation, in
connection with any investigation, litigation, or proceeding or preparation of
defense in connection therewith) the Credit Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loans
(including any of the foregoing arising from the negligence of the Indemnified
Party), except to the extent such claim, damage, loss, liability, cost, or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have
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resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or other proceeding to which the
indemnity in this Section 11.5 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by the
Borrower, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrower agrees not to assert any claim against the Agent, any Lender, any of
their Affiliates, or any of their respective directors, officers, employees,
attorneys, agents, and advisers, on any theory of liability, for special,
indirect, consequential, or punitive damages arising out of or otherwise
relating to the Credit Documents, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Loans.
(c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 11.5 shall survive the repayment of the Loans, LOC Obligations and
other obligations under the Credit Documents and the termination of the
Commitments hereunder.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
(a) without the consent of each Lender affected thereby, neither this
Credit Agreement nor any other Credit Document may be amended to
(i) extend the final maturity of any Loan or the time of payment
of any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit, or extend or waive any Principal
Amortization Payment of any Loan, or any portion thereof,
(ii) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or Fees hereunder,
(iii) reduce or waive the principal amount of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(v) increase the Commitment of a Lender over the amount thereof
in effect (it being understood and agreed that a waiver of any Default
or Event of Default or mandatory reduction in the Commitments shall
not constitute a change in the terms of any Commitment of any Lender),
(v) except as the result of or in connection with an Asset
Disposition permitted by Section 8.5, release all or substantially all
of the Collateral,
(vi) except as the result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted under Section 8.4,
release the Borrower or substantially all of the other Credit Parties
from its or their obligations under the Credit Documents,
(vii) except amend, modify or waive any provision of this Section
11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14,
3.15, 9.1(a), 11.2, 11.3, 11.5 or 11.9,
(viii) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders, or
(ix) consent to the assignment or transfer by the Borrower or all
or substantially all of the other Credit Parties of any of its or
their rights and obligations under (or in respect of) the Credit
Documents except as permitted thereby;
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(b) without the consent of the Agent, no provision of Section 10 may
be amended;
(c) without the consent of the Issuing Lender, no provision of Section
2.2 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to
vote as such Lender sees fit on any bankruptcy reorganization plan that
affects the Loans, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to
allow a Credit Party to use cash collateral in the context of a bankruptcy
or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of
this Credit Agreement, the making of the Loans, the issuance of the Letters of
Credit, the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder, and all
representations and warranties made by the Credit Parties herein shall survive
delivery of the Notes and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. Any legal action or proceeding with respect to this
Credit Agreement or any other Credit Document may be brought in the courts
of the State of North Carolina in Mecklenburg County, or of the United
States for the Western District of North Carolina, and, by execution and
delivery of this Credit Agreement, each of the Credit Parties hereby
irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the nonexclusive jurisdiction of such courts. Each of
the Credit Parties further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address set out for notices pursuant to Section 11.1,
such service to become effective three (3) days after such mailing. Nothing
herein shall affect the right of the Agent or any Lender to serve process
in any other manner permitted by law or to commence legal proceedings or to
otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Credit Document brought in the courts
referred to in subsection (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient
forum.
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(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS,
THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
11.13 Binding Effect; Termination; Acknowledgement.
(a) This Credit Agreement shall become effective at such time on or
after the Closing Date when it shall have been executed by the Borrower,
the Guarantors and the Agent, and the Agent shall have received copies
hereof (telefaxed or otherwise) which, when taken together, bear the
signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Agent and each Lender and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans, LOC
Obligations or any other amounts payable hereunder or under any of the
other Credit Documents shall remain outstanding, no Letters of Credit shall
be outstanding, all of the Credit Party Obligations have been irrevocably
satisfied in full and all of the Commitments hereunder shall have expired
or been terminated.
(c) This Amendment shall become effective at such time the conditions
set forth in Section 5.1 hereof have been satisfied, and thereafter the
Credit Agreement shall be binding upon and inure to the benefit of the
Borrowers, the Guarantors, the Agent and each Lender and their respective
successors and assigns.
(d) At such time as this Amendment shall have become effective
pursuant to the terms of Section 11.13(c), (i) the Commitments under the
Existing Credit Agreement (as defined therein) automatically shall be
terminated and replaced with the Commitments hereunder, (ii) the
Commitments of Heller Financial, Inc., Strata Funding, Ltd., Merrill Lynch
Senior Floating Rate Fund, Inc., Indosuez Capital Funding II, Limited, Van
Kampen American Capital Prime Rate Income Trust, ML CLO XV Pilgrim America
(Cayman) Ltd. and Amara-1 Finance Ltd. (collectively, the "Terminating
Lenders") shall be terminated (iii) any right of the Lenders to receive
compensation under Section 3.12 of the Existing Credit Agreement shall be
terminated and (iv) the promissory notes executed in connection with the
Existing Credit Agreement shall be canceled, returned to the Borrower and
replaced with the Notes executed in connection with this Amendment. The
Terminating Lenders join in the execution of this Amendment solely for the
purposes of acknowledging and consenting to the termination of their
Commitments under the Existing Credit Facility and waiver of any right to
receive compensation under Section 3.12 of the Existing Credit Agreement.
(e) Each Credit Party hereby acknowledges that the Credit Party
Obligations under this Credit Agreement are secured by the Collateral
pursuant to the Collateral Documents.
76
<PAGE>
11.14 Source of Funds.
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any separate
account maintained by such Lender in which any employee benefit plan (or
its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets of an
insurance company's general account, such insurance company has complied
with all of the requirements of the regulations issued under Section
401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit plans
which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
11.15 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
11.16 Confidentiality.
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by the Borrower
pursuant to this Credit Agreement that is marked confidential; provided that
nothing herein shall prevent any Lending Party from disclosing such information
(a) to any other Lending Party or any Affiliate of any Lending Party, or any
officer, director, employee, agent, or advisor of any Lending Party or Affiliate
of any Lending Party, (b) to any other Person if reasonably incidental to the
administration of the credit facility provided herein, (c) as required by any
law, rule, or regulation, (d) upon the order of any court or administrative
agency, (e) upon the request or demand of any regulatory agency or authority,
(f) that is or becomes available to the public or that is or becomes available
to any Lending Party other than as a result of a disclosure by any Lending Party
prohibited by this Credit Agreement, (g) in connection with any litigation to
which such Lending Party or any of its Affiliates may be a party, (h) to the
extent necessary in connection with the exercise of any remedy under this Credit
Agreement or any other Credit Document, and (i) subject to provisions
substantially similar to those contained in this Section 11.16, to any actual or
proposed participant or assignee; provided, however, that in the event that any
Lending Party is requested to disclose any confidential information pursuant to
clause (c), (d), (e) or (g) above, then such Lending Party shall, to the extent
lawfully permitted, use reasonable best efforts to promptly notify the Borrower.
[Signature Page to Follow]
77
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Fourth Amendment and Restatement of Credit Agreement to be duly executed
and delivered as of the date first above written.
BORROWER: INSIGHT HEALTH SERVICES CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
GUARANTORS: INSIGHT HEALTH CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
RADIOLOGY SERVICES CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
OPEN MRI, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
RADIOSURGERY CENTERS, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MTS ENTERPRISES, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
QUEST FINANCIAL SERVICES, INC.
<PAGE>
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
DIAGNOSTEMPS, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
DIAGNOSTIC SOLUTIONS CORP.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF NORTH TEXAS, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF ARLINGTON, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF DALLAS, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
NDDC, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
<PAGE>
Chief Financial Officer and Secretary
SIGNAL MEDICAL SERVICES, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MISSISSIPPI MOBILE TECHNOLOGY, INC.
By:
-----------------------------------
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
-----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
-----------------------------------
Name:
Title:
BANQUE PARIBAS
By:
-----------------------------------
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
[Signatures continue]
<PAGE>
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
By:
-----------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------------
Name:
Title:
BANK POLSKA KASA OPIEKI, S.A.
By:
-----------------------------------
Name:
Title:
<PAGE>
TERMINATING LENDERS: STRATA FUNDING LTD.
By:
-----------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
-----------------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING II, LIMITED
By: Indosuez Capital Luxembourg, as
Collateral Manager
By:
-----------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
-----------------------------------
Name:
Title:
ML CLO XV PILGRIM AMERICA (CAYMAN) LTD.
By:
-----------------------------------
Name:
Title:
AMARA-1 FINANCE LTD.
By:
-----------------------------------
Name:
Title:
HELLER FINANCIAL, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
Schedule 1.1A
JOINT VENTURES
<PAGE>
Schedule 1.1B
INVESTMENTS
<PAGE>
Schedule 1.1C
LIENS
<PAGE>
Schedule 1.1D
GE EQUIPMENT
1 1990 GE 5X Sigma MR System, Order No. 861-101631
1 1994 GE CT9800 Upgraded to HiSpeed Advantage, Order No. 970-062282
<PAGE>
Schedule 2.1(a)
LENDER ADDRESSES AND COMMITMENTS
<PAGE>
Schedule 3.3(b)(vii)
SPECIAL ASSET DISPOSITIONS
<PAGE>
Schedule 5.1(c)
FORM OF LEGAL OPINION (GENERAL EXTERNAL COUNSEL)
<PAGE>
Schedule 5.1(f)
CORPORATE STRUCTURE
<PAGE>
Schedule 6.4
REQUIRED CONSENTS, AUTHORIZATIONS, NOTICES AND FILINGS
<PAGE>
Schedule 6.9
LITIGATION
<PAGE>
Schedule 6.12
ERISA
<PAGE>
Schedule 6.13
SUBSIDIARIES
<PAGE>
Schedule 6.15
INDEBTEDMNESS TO BE REFINANCED
<PAGE>
Schedule 6.16
ENVIRONMENTAL DISCLOSURES
<PAGE>
Schedule 6.17
INTELLECTUAL PROPERTY
<PAGE>
Schedule 6.20(a)(i)
PRIMARY REAL PROPERTIES
<PAGE>
Schedule 6.20(a)(ii)
SECONDARY REAL PROPERTIES
<PAGE>
Schedule 6.20(b)
COLLATERAL LOCATIONS
<PAGE>
Schedule 6.20(c)
CHIEF EXECUTIVE OFFICES/
PRINCIPAL PLACES OF BUSINESS
<PAGE>
Schedule 6.23
BROKER'S FEES
<PAGE>
Schedule 7.6
INSURANCE
<PAGE>
Schedule 8.1
INDEBTEDNESS
<PAGE>
Schedule 8.16
EXISTING OPERATING LEASES
<PAGE>
Exhibit 1.1A
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of
October 14, 1997 among INSIGHT HEALTH SERVICES CORP., a Delaware corporation
(the "Borrower"), certain Subsidiaries of the Borrower (individually a
"Guarantor", and collectively the "Guarantors"; together with the Borrower,
individually a "Pledgor", and collectively the "Pledgors") and NATIONSBANK,
N.A., in its capacity as agent (in such capacity, the "Agent") for the lenders
from time to time party to the Credit Agreement described below (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement") among the Borrower, the Guarantors, the Lenders and the
Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon
the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit Agreement.
For purposes of this Pledge Agreement, the term "Lender" shall include any
Affiliate of any Lender which has entered into a Hedging Agreement with the
Borrower.
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Agent, for the benefit of the Lenders, and grants to
the Agent, for the benefit of the Lenders, a continuing security interest in any
and all right, title and interest of such Pledgor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Pledged Collateral"):
(a) Pledged Shares. 100% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding shares of
capital stock owned by such Pledgor of each Subsidiary set forth on
Schedule 2(a) attached hereto, in each case together with the
certificates (or other agreements or instruments), if any, representing
such shares, and all options and other rights, contractual or
otherwise, with respect thereto (collectively, together with the shares
of capital stock described in Section 2(b) and 2(c) below, the "Pledged
Shares"), including, but not limited to, the following:
(y) all shares or securities representing a dividend
on any of the Pledged Shares, or representing a distribution
or return of capital upon or in respect of the Pledged Shares,
or resulting from a stock split, revision, reclassification or
other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in
respect of, the Pledged Shares; and
(z) without affecting the obligations of the Pledgors
under any provision prohibiting such action hereunder or under
the Credit Agreement, in the event of any consolidation or
merger involving the issuer of any Pledged Shares and in which
such issuer is not the surviving corporation, all shares of
each class of the capital stock of the successor corporation
formed by or resulting from such consolidation or merger.
-1-
<PAGE>
(b) Additional Shares. 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of capital
stock owned by such Pledgor of any Person which is not a Joint Venture
and hereafter becomes a Subsidiary, including, without limitation, the
certificates representing such shares.
(c) Other Equity Interests. Any and all other Capital Stock in
each Pledgor in any Subsidiary which is not a Joint Venture.
(d) Proceeds. All proceeds and products of the foregoing,
however and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Agent as collateral security
for the Pledgor Obligations. Upon delivery to the Agent, such additional shares
of stock shall be deemed to be part of the Pledged Collateral of such Pledgor
and shall be subject to the terms of this Pledge Agreement whether or not
Schedule 2(a) is amended to refer to such additional shares.
3. Security for Pledgor Obligations. The security interest created
hereby in the Pledged Collateral of each Pledgor constitutes continuing
collateral security for all of the following, whether now existing or hereafter
incurred (the "Pledgor Obligations"):
(a) In the case of the Borrower, the prompt performance and
observance by the Borrower of all obligations of the Borrower under the
Credit Agreement, the Notes, this Pledge Agreement and the other Credit
Documents to which the Borrower is a party;
(b) In the case of the Guarantors, the prompt performance and
observance by such Guarantor of all obligations of such Guarantor under
the Credit Agreement, this Pledge Agreement and the other Credit
Documents to which such Guarantor is a party, including, without
limitation, its guaranty obligations arising under Section 4 of the
Credit Agreement; and
(c) All other indebtedness, liabilities and obligations of any
kind or nature, now existing or hereafter arising, owing from any
Pledgor to any Lender or the Agent, howsoever evidenced, created,
incurred or acquired, whether primary, secondary, direct, contingent,
or joint and several, including, without limitation, all liabilities
arising under Hedging Agreements and all obligations and liabilities
incurred in connection with collecting and enforcing the Pledgor
Obligations.
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Each Pledgor shall deliver to the Agent (i) simultaneously
with or prior to the execution and delivery of this Pledge Agreement,
all certificates representing the Pledged Shares of such Pledgor and
(ii) promptly upon the receipt thereof by or on behalf of a Pledgor,
all other certificates and instruments constituting Pledged Collateral
of a Pledgor. Prior to delivery to the Agent, all such certificates and
instruments constituting Pledged Collateral of a Pledgor shall be held
in trust by such Pledgor for the benefit of the Agent pursuant hereto.
All such certificates shall be delivered in suitable form for transfer
by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, substantially in the form provided in
Exhibit 4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall receive by
virtue of its being or having been the owner of any Pledged Collateral,
any (i) stock certificate, including without limitation, any
certificate representing a stock dividend or distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock splits,
spin-off or split-off, promissory notes or other instrument; (ii)
option or right, whether as an addition to, substitution for, or an
exchange for, any Pledged Collateral or otherwise; (iii) dividends
payable in securities; or
-2-
<PAGE>
(iv) distributions of securities in connection with a partial or total
liquidation, dissolution or reduction of capital, capital surplus or
paid-in surplus, then such Pledgor shall receive such stock
certificate, instrument, option, right or distribution in trust for
the benefit of the Agent, shall segregate it from such Pledgor's other
property and shall deliver it forthwith to the Agent in the exact form
received together with any necessary endorsement and/or appropriate
stock power duly executed in blank, substantially in the form provided
in Exhibit 4(a), to be held by the Agent as Pledged Collateral and as
further collateral security for the Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute and
deliver to the Agent such UCC or other applicable financing statements
as may be reasonably requested by the Agent in order to perfect and
protect the security interest created hereby in the Pledged Collateral
of such Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents and
warrants to the Agent, for the benefit of the Lenders, that so long as any of
the Pledgor Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated:
(a) Authorization of Pledged Shares. The Pledged Shares are
duly authorized and validly issued, are fully paid and nonassessable
and are not subject to the preemptive rights of any Person. All other
shares of stock constituting Pledged Collateral will be duly authorized
and validly issued, fully paid and nonassessable and not subject to the
preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible title to the
Pledged Collateral of such Pledgor and will at all times be the legal
and beneficial owner of such Pledged Collateral free and clear of any
Lien, other than Permitted Liens. There exists no "adverse claim"
within the meaning of Section 8-302 of the Uniform Commercial Code as
in effect in the State of New York (the "UCC") with respect to the
Pledged Shares of such Pledgor.
(c) Exercising of Rights. The exercise by the Agent of its
rights and remedies hereunder will not violate any law or governmental
regulation or any material contractual restriction binding on or
affecting a Pledgor or any of its property.
(d) Pledgor's Authority. No authorization, approval or action
by, and no notice or filing with any Governmental Authority or with the
issuer of any Pledged Stock is required either (i) for the pledge made
by a Pledgor or for the granting of the security interest by a Pledgor
pursuant to this Pledge Agreement or (ii) for the exercise by the Agent
or the Lenders of their rights and remedies hereunder (except as may be
required by laws affecting the offering and sale of securities).
(e) Security Interest/Priority. This Pledge Agreement creates
a valid security interest in favor of the Agent for the benefit of the
Lenders, in the Pledged Collateral. The taking possession by the Agent
of the certificates representing the Pledged Shares and all other
certificates and instruments constituting Pledged Collateral will
perfect and establish the first priority of the Agent's security
interest in the Pledged Shares and, when properly perfected by filing
or registration, in all other Pledged Collateral represented by such
Pledged Shares and instruments securing the Pledgor Obligations. Except
as set forth in this Section 5(e), no action is necessary to perfect or
otherwise protect such security interest.
(f) No Other Shares. No Pledgor owns any shares of stock other
than as set forth on Schedule 2(a) attached hereto.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated, such Pledgor shall:
-3-
<PAGE>
(a) Books and Records. Mark its books and records (and shall
cause the issuer of the Pledged Shares of such Pledgor to mark its
books and records) to reflect the security interest granted to the
Agent, for the benefit of the Lenders, pursuant to this Pledge
Agreement.
(b) Defense of Title. Warrant and defend title to and
ownership of the Pledged Collateral of such Pledgor at its own expense
against the claims and demands of all other parties claiming an
interest therein, keep the Pledged Collateral free from all Liens,
except for Permitted Liens, and not sell, exchange, transfer, assign,
lease or otherwise dispose of Pledged Collateral of such Pledgor or any
interest therein, except as permitted under the Credit Agreement and
the other Credit Documents.
(c) Further Assurances. Promptly execute and deliver at its
expense all further instruments and documents and take all further
action that may be necessary and desirable or that the Agent may
reasonably request in order to (i) perfect and protect the security
interest created hereby in the Pledged Collateral of such Pledgor
(including without limitation any and all action necessary to satisfy
the Agent that the Agent has obtained a first priority perfected
security interest in any capital stock); (ii) enable the Agent to
exercise and enforce its rights and remedies hereunder in respect of
the Pledged Collateral of such Pledgor; and (iii) otherwise effect the
purposes of this Pledge Agreement, including, without limitation and if
requested by the Agent, delivering to the Agent irrevocable proxies in
respect of the Pledged Collateral of such Pledgor.
(d) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Pledged Collateral of
such Pledgor or enter into any agreement or allow to exist any
restriction with respect to any of the Pledged Collateral of such
Pledgor other than pursuant hereto or as may be permitted under the
Credit Agreement.
(e) Compliance with Securities Laws. File all reports and
other information now or hereafter required to be filed by such Pledgor
with the United States Securities and Exchange Commission and any other
state, federal or foreign agency in connection with the ownership of
the Pledged Collateral of such Pledgor.
7. Advances by Lenders. On failure of any Pledgor to perform any of the
covenants and agreements contained herein, the Agent may, at its sole option and
in its sole discretion, perform the same and in so doing may expend such sums as
the Agent may reasonably deem advisable in the performance thereof, including,
without limitation, the payment of any insurance premiums, the payment of any
taxes, a payment to obtain a release of a Lien or potential Lien, expenditures
made in defending against any adverse claim and all other expenditures which the
Agent or the Lenders may make for the protection of the security hereof or which
may be compelled to make by operation of law. All such sums and amounts so
expended shall be repayable by the Pledgors on a joint and several basis
promptly upon timely notice thereof and demand therefor, shall constitute
additional Pledgor Obligations and shall bear interest from the date said
amounts are expended at the default rate specified in Section 3.1 of the Credit
Agreement for Revolving Loans that are Base Rate Loans. No such performance of
any covenant or agreement by the Agent or the Lenders on behalf of any Pledgor,
and no such advance or expenditure therefor, shall relieve the Pledgors of any
default under the terms of this Pledge Agreement, the other Credit Documents or
any Hedging Agreement. The Lenders may make any payment hereby authorized in
accordance with any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax
assessment, sale, forfeiture, tax lien, title or claim except to the extent such
payment is being contested in good faith by a Pledgor in appropriate proceedings
and against which adequate reserves are being maintained in accordance with
GAAP.
8. Events of Default. The occurrence of an event which under the Credit
Agreement would constitute an Event of Default shall be an Event of Default
hereunder (an "Event of Default").
-4-
<PAGE>
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during the continuation thereof, the Agent and the Lenders
shall have, in respect of the Pledged Collateral of any Pledgor, in
addition to the rights and remedies provided herein, in the Credit
Documents, in the Hedging Agreements or by law, the rights and remedies
of a secured party under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an
Event of Default and during the continuation thereof, without limiting
the generality of this Section and the Agent may, in its sole
discretion, sell or otherwise dispose of or realize upon the Pledged
Collateral, or any part thereof, in one or more parcels, at public or
private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Agent may deem
commercially reasonable, for cash, credit or for future delivery or
otherwise in accordance with applicable law. To the extent permitted by
law, any Lender may in such event, bid for the purchase of such
securities. Each Pledgor agrees that, to the extent notice of sale
shall be required by law and has not been waived by such Pledgor, any
requirement of reasonable notice shall be met if notice, specifying the
place of any public sale or the time after which any private sale is to
be made, is personally served on or mailed, postage prepaid, to such
Pledgor, in accordance with the notice provisions of Section 11.1 of
the Credit Agreement at least 10 days before the time of such sale. The
Agent shall not be obligated to make any sale of Pledged Collateral of
such Pledgor regardless of notice of sale having been given. The Agent
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
(c) Private Sale. Upon the occurrence of an Event of Default
and during the continuation thereof, the Pledgors recognize that the
Agent may deem it impracticable to effect a public sale of all or any
part of the Pledged Shares or any of the securities constituting
Pledged Collateral and that the Agent may, therefore, determine to make
one or more private sales of any such securities to a restricted group
of purchasers who will be obligated to agree, among other things, to
acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which
might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Agent shall have
no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933. Each
Pledgor further acknowledges and agrees that any offer to sell such
securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the
financial community of New York, New York (to the extent that such
offer may be advertised without prior registration under the Securities
Act of 1933), or (ii) made privately in the manner described above
shall be deemed to involve a "public sale" under the UCC,
notwithstanding that such sale may not constitute a "public offering"
under the Securities Act of 1933, and the Agent may, in such event, bid
for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to the rights
and remedies hereunder, upon the occurrence of an Event of Default, the
Agent may, after providing the notices required by Section 9-505(2) of
the UCC or otherwise complying with the requirements of applicable law
of the relevant jurisdiction, retain all or any portion of the Pledged
Collateral in satisfaction of the Pledgor Obligations. Unless and until
the Agent shall have provided such notices, however, the Agent shall
not be deemed to have retained any Pledged Collateral in satisfaction
of any Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Agent or the Lenders are legally entitled, the Pledgors shall be
jointly and severally liable for the deficiency, together with interest
thereon at the default rate specified in Section 3.1 of the Credit
Agreement for Revolving Loans that are Base Rate Loans, together with
the costs
-5-
<PAGE>
of collection and the reasonable fees of any attorneys employed by the
Agent to collect such deficiency. Any surplus remaining after the full
payment and satisfaction of the Pledgor Obligations shall be returned
to the Pledgors or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto.
10. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Pledgor hereby designates and appoints the
Agent, on behalf of the Lenders, and each of its designees or agents as
attorney-in-fact of such Pledgor, irrevocably and with power of
substitution, with authority to take any or all of the following
actions upon the occurrence and during the continuance of an Event of
Default:
(i) to demand, collect, settle, compromise,
adjust and give discharges and releases concerning the Pledged
Collateral of such Pledgor, all as the Agent may reasonably
determine;
(ii) to commence and prosecute any actions at
any court for the purposes of collecting any of the Pledged
Collateral of such Pledgor and enforcing any other right in
respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any
payment under any of the Pledged Collateral to make payment of
any and all monies due and to become due thereunder directly
to the Agent or as the Agent shall direct;
(vi) to receive payment of and receipt for any
and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Pledged
Collateral of such Pledgor;
(vii) to sign and endorse any drafts,
assignments, proxies, stock powers, verifications, notices and
other documents relating to the Pledged Collateral of such
Pledgor;
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the Agent
may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Pledge Agreement
and in order to fully consummate all of the transactions
contemplated therein;
(x) to exchange any of the Pledged Collateral
of such Pledgor or other property upon any merger,
consolidation, reorganization, recapitalization or other
readjustment of the issuer thereof and, in connection
therewith, deposit any of the Pledged Collateral of such
Pledgor with any committee, depository, transfer agent,
registrar or other designated agency upon such terms as the
Agent may determine; and
-6-
<PAGE>
(xi) to do and perform all such other acts and
things as the Agent may reasonably deem to be necessary,
proper or convenient in connection with the Pledged Collateral
of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding, any Credit Document or any Hedging Agreement is in effect
or any Letter of Credit shall remain outstanding and (ii) until all of
the Commitments shall have been terminated. The Agent shall be under no
duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Agent in
this Pledge Agreement, and shall not be liable for any failure to do so
or any delay in doing so. The Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in
its individual capacity or its capacity as attorney-in-fact except acts
or omissions resulting from its gross negligence or willful misconduct.
This power of attorney is conferred on the Agent solely to protect,
preserve and realize upon its security interest in Pledged Collateral.
(b) Performance by the Agent of Pledgor's Obligations. If any
Pledgor fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgors on a joint and several basis
pursuant to Section 13 hereof.
(c) Assignment by the Agent. The Agent may from time to time
assign the Pledgor Obligations and any portion thereof and/or the
Pledged Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Agent under this
Pledge Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Pledged Collateral
while being held by the Agent hereunder, the Agent shall have no duty
or liability to preserve rights pertaining thereto, it being understood
and agreed that Pledgors shall be responsible for preservation of all
rights in the Pledged Collateral of such Pledgor, and the Agent shall
be relieved of all responsibility for Pledged Collateral upon
surrendering it or tendering the surrender of it to the Pledgors. The
Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that
which the Agent accords its own property, which shall be no less than
the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Agent shall not have
responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters; or (ii) taking any necessary
steps to preserve rights against any parties with respect to any
Pledged Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, to the extent permitted by law,
each Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of such
Pledgor or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement or the Credit
Agreement; and
(ii) Upon the occurrence and during the
continuance of an Event of Default, all rights of a Pledgor to
exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to paragraph (i) of
this Section shall cease and all such rights shall thereupon
become vested in the Agent which shall then have the sole
right to exercise such voting and other consensual rights.
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<PAGE>
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing and subject to Section 4(b) hereof,
each Pledgor may receive and retain any and all dividends
(other than stock dividends and other dividends constituting
Pledged Collateral which are addressed hereinabove) or
interest paid in respect of the Pledged Collateral to the
extent they are allowed under the Credit Agreement.
(ii) Upon the occurrence and during the
continuance of an Event of Default:
(A) all rights of a Pledgor to receive the
dividends and interest payments which it would
otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Agent which shall then have the sole right to receive
and hold as Pledged Collateral such dividends and
interest payments; and
(B) all dividends and interest payments
which are received by a Pledgor contrary to the
provisions of paragraph (A) of this Section shall be
received in trust for the benefit of the Agent, shall
be segregated from other property or funds of such
Pledgor, and shall be forthwith paid over to the
Agent as Pledged Collateral in the exact form
received, to be held by the Agent as Pledged
Collateral and as further collateral security for the
Pledgor Obligations.
(g) Release of Pledged Collateral. The Agent may release any
of the Pledged Collateral from this Pledge Agreement or may substitute
any of the Pledged Collateral for other Pledged Collateral without
altering, varying or diminishing in any way the force, effect, lien,
pledge or security interest of this Pledge Agreement as to any Pledged
Collateral not expressly released or substituted, and this Pledge
Agreement shall continue as a first priority lien on all Pledged
Collateral not expressly released or substituted.
11. Rights of Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Agent or any of the Lenders in cash or its equivalent, will be applied in
reduction of the Pledgor Obligations in the order set forth in Section 3.15(b)
of the Credit Agreement, and each Pledgor irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
the Agent shall have the continuing and exclusive right to apply and reapply any
and all such payments and proceeds in the Agent's sole discretion,
notwithstanding any entry to the contrary upon any of its books and records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and expenses of the Agent
or the Lenders, (a) as required under Section 11.5 of the Credit Agreement and
(b) as necessary to protect the Pledged Collateral or to exercise any rights or
remedies under this Pledge Agreement or with respect to any Pledged Collateral.
All of the foregoing costs and expenses shall constitute Pledgor Obligations
hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Pledgor Obligations remain outstanding or any Credit Document or
Hedging Agreement is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated (other than any obligations with respect to the indemnities
and the representations and warranties set forth in the Credit
Documents). Upon such payment and
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<PAGE>
termination, this Pledge Agreement shall be automatically terminated
and the Agent and the Lenders shall, upon the request and at the
expense of the Pledgors, forthwith release all of its liens and
security interests hereunder and shall executed and deliver all UCC
termination statements and/or other documents reasonably requested by
the Pledgors evidencing such termination. Notwithstanding the
foregoing all releases and indemnities provided hereunder shall
survive termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment,
in whole or in part, of any of the Pledgor Obligations is rescinded or
must otherwise be restored or returned by the Agent or any Lender as a
preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the
Pledgor Obligations is rescinded or must be restored or returned, all
reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent
and the Lenders and their successors and permitted assigns; provided, however,
that none of the Pledgors may assign its rights or delegate its duties hereunder
without the prior written consent of each Lender or the Required Lenders, as
required by the Credit Agreement. To the fullest extent permitted by law, each
Pledgor hereby releases the Agent and each Lender, and its successors and
assigns, from any liability for any act or omission relating to this Pledge
Agreement or the Collateral, except for any liability arising from the gross
negligence or willful misconduct of the Agent, or such Lender, or its officers,
employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the courts of the State of North Carolina, or of the
United States for the Western District of North Carolina, and, by
execution and delivery of this Security Agreement, each Pledgor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Pledgor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1 of
the Credit Agreement, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the Agent to
serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Pledgor in any other
jurisdiction.
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<PAGE>
(b) Each Pledgor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Pledge Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement, the other Credit Documents and the
Hedging Agreements represent the entire agreement of the parties hereto and
thereto, and supersede all prior agreements and understandings, oral or written,
if any, including any commitment letters or correspondence relating to the
Credit Documents, the Hedging Agreements or the transactions contemplated herein
and therein.
24. Survival. All representations and warranties of the Pledgors
hereunder shall survive the execution and delivery of this Pledge Agreement, the
other Credit Documents and the Hedging Agreements, the delivery of the Notes and
the making of the Loans and the issuance of the Letters of Credit under the
Credit Agreement.
25. Other Security. To the extent that any of the Pledgor Obligations
are now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Agent and the Lenders have the right, in their sole discretion, to
determine which rights, security, liens, security interests or remedies the
Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
them or any of the Agent's and the Lenders' rights or the Pledgor Obligations
under this Pledge Agreement, under any other of the Credit Documents or under
any Hedging Agreement.
26. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several
liability hereunder in consideration of the financial accommodation to
be provided by the Lenders under the Credit Agreement, for the mutual
benefit, directly and indirectly, of each of the Pledgors and in
consideration of the undertakings of each of the Pledgors to accept
joint and several liability for the obligations of each of them.
(b) Each of the Pledgors jointly and severally hereby
irrevocably and unconditionally accepts, not merely as a surety but
also as a co-debtor, joint and several liability with the other
Pledgors with respect to the payment and performance of all of the
Pledgor Obligations arising under this Pledge Agreement, the other
Credit Documents and the Hedging Agreements, it being the intention of
the parties hereto that all the Pledgor Obligations shall be the joint
and several obligations of each of the Pledgors without preferences or
distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein or in any other of the Credit Documents, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of
any applicable state or federal law relating to fraudulent conveyances
or transfers) then the obligations of each Guarantor hereunder shall be
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<PAGE>
limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the
Bankruptcy Code).
[The remainder of this page is intentionally left blank.]
-11-
<PAGE>
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By:
Name:
Title:
GUARANTORS: INSIGHT HEALTH CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
RADIOLOGY SERVICES CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
OPEN MRI, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
[Signatures Continued]
RADIOSURGERY CENTERS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MTS ENTERPRISES, INC.
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<PAGE>
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
QUEST FINANCIAL SERVICES, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
DIAGNOSTEMPS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
[Signatures Continued]
DIAGNOSTIC SOLUTIONS CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF NORTH TEXAS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF ARLINGTON, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
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<PAGE>
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF DALLAS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
NDDC, INC..
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
[Signatures Continued]
Accepted and agreed to in Charlotte, North Carolina as of the date
first above written.
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
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<PAGE>
Schedule 2(a)
to
Pledge Agreement
dated as of October 14, 1997
in favor of NationsBank, N.A.
as Agent
PLEDGED STOCK
Pledgor: Insight Health Services Corp.
<TABLE>
<CAPTION>
Name of Subsidiary Number of Shares Certificate Percentage
Number Ownership
<S> <C> <C> <C>
Subsidiaries
</TABLE>
Pledgor:
<TABLE>
<CAPTION>
Name of Subsidiary Number of Shares Certificate Percentage
Number Ownership
<S> <C> <C> <C>
Subsidiaries
</TABLE>
-1-
<PAGE>
Exhibit 4(a)
to
Pledge Agreement
dated as of October 14, 1997
in favor of NationsBank, N.A.
as Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
to the following shares of capital stock of _____________________, a ___________
corporation:
<TABLE>
<CAPTION>
No. of Shares Certificate No.
<S> <C>
</TABLE>
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
The effectiveness of a transfer pursuant to this stock power shall be subject to
any and all transfer restrictions referenced on the face of the certificates
evidencing such interest or in the certificate of incorporation or bylaws of the
subject corporation, to the extent they may from time to time exist.
---------------,
a ______________ corporation
By:
Name:
Title:
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<PAGE>
Exhibit 1.1B
FORM OF SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as
of October 14, 1997 among INSIGHT HEALTH SERVICES CORP., a Delaware corporation
(the "Borrower"), certain Subsidiaries of the Borrower (individually a
"Guarantor" and collectively the "Guarantors"; together with the Borrower,
individually an "Obligor", and collectively the "Obligors") and NATIONSBANK,
N.A., in its capacity as agent (in such capacity, the "Agent") for the lenders
from time to time party to the Credit Agreement described below (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement, dated as of the
date hereof (as amended, modified, extended, renewed or replaced from time to
time, the "Credit Agreement"), among the Borrower, the Guarantors, the Lenders
and the Agent, the Lenders have agreed to make Loans and issue Letters of Credit
upon the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Obligors shall
have executed and delivered this Security Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
(a) Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit
Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof
are used herein as so defined: Accounts, Chattel Paper, Deposit
Accounts, Documents, Equipment, Farm Products, Fixtures, General
Intangibles, Instruments, Inventory and Proceeds. For purposes of this
Security Agreement, the term "Lender" shall include any Affiliate of
any Lender which has entered into a Hedging Agreement with the
Borrower.
(b) In addition, the following terms shall have the following
meanings:
"Copyright Licenses": any written agreement, naming any
Obligor as licensor, granting any right under any Copyright including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
"Copyrights": (a) all registered United States copyrights in
all Works, now existing or hereafter created or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright office
including, without limitation, any thereof referred to in Schedule 1(b)
hereto, and (b) all renewals thereof including, without limitation, any
thereof referred to in Schedule 1(b) hereto.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to an Obligor of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
"Patents": (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Schedule 1(b) hereto,
and (b) all applications for letters patent of the United States or any
other country and all divisions, continuations and
continuations-in-part thereof, including, without limitation, any
thereof referred to in Schedule 1(b) hereto.
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<PAGE>
"Secured Obligations": the collective reference to the
following:
(a) In the case of the Borrower, the prompt
performance and observance by the Borrower of all obligations
of the Borrower under the Credit Agreement, the Notes, this
Security Agreement and the other Credit Documents to which the
Borrower is a party;
(b) In the case of the Guarantors, the
prompt performance and observance by such Guarantor of all
obligations of such Guarantor under the Credit Agreement, this
Security Agreement and the other Credit Documents to which
such Guarantor is a party, including, without limitation, its
guaranty obligations arising under Section 4 of the Credit
Agreement; and
(c) All other indebtedness, liabilities and
obligations of any kind or nature, now existing or hereafter
arising, owing from any Obligor to any Lender or the Agent,
howsoever evidenced, created, incurred or acquired, whether
primary, secondary, direct, contingent, or joint and several,
including, without limitation, all liabilities arising under
Hedging Agreements and all obligations and liabilities
incurred in connection with collecting and enforcing the
Secured Obligations.
"Trademark License": means any agreement, written or oral,
providing for the grant by or to an Obligor of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule 1(b) hereto.
"Trademarks": (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 1(b) hereto, and (b) all renewals
thereof.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the prompt
payment and performance in full when due, whether by lapse of time, acceleration
or otherwise, of the Secured Obligations, each Obligor hereby grants to the
Agent, for the benefit of the Lenders, a continuing security interest in, and a
right to set off against, any and all right, title and interest of such Obligor
in and to the following, whether now owned or existing or owned, acquired, or
arising hereafter (collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Copyrights;
(d) all Copyright Licenses;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
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<PAGE>
(h) all Fixtures;
(i) all General Intangibles;
(j) all Instruments;
(k) all Inventory;
(l) all Patents;
(m) all Patent Licenses;
(n) all Trademarks;
(o) all Trademark Licenses;
(p) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks, and related
data processing software (owned by such Obligor or in which
it has an interest) that at any time evidence or contain
information relating to any Collateral or are otherwise
necessary or helpful in the collection thereof or
realization thereupon; and
(q) to the extent not otherwise included,
all Proceeds and products of any and all of the
foregoing.
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the Secured
Obligations, whether now existing or hereafter arising and (ii) is not to be
construed as an assignment of any Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks or Trademark Licenses.
3. Provisions Relating to Accounts.
(a) Anything herein to the contrary notwithstanding, each of
the Obligors shall remain liable under each of the Accounts to observe
and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. Neither the Agent nor any
Lender shall have any obligation or liability under any Account (or any
agreement giving rise thereto) by reason of or arising out of this
Security Agreement or the receipt by the Agent or any Lender of any
payment relating to such Account pursuant hereto, nor shall the Agent
or any Lender be obligated in any manner to perform any of the
obligations of an Obligor under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by
it or as to the sufficiency of any performance by any party under any
Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.
(b) Once during each calendar year (upon reasonable notice) or
at any time after the occurrence and during the continuation of an
Event of Default, the Agent shall have the right, but not the
obligation, during normal business hours, to make test verifications of
the Accounts in any manner and through any medium that it reasonably
considers advisable, and the Obligors shall furnish all such assistance
and information as the Agent may require in connection with such test
verifications. At any time and from time to time, upon the Agent's
request and at the expense of the Obligors, the Obligors shall cause
independent public accountants or others satisfactory to the Agent to
furnish to the Agent reports showing reconciliations, aging
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and test verifications of, and trial balances for, the Accounts. The
Agent in its own name or in the name of others may communicate with
account debtors on the Accounts to verify with them to the Agent's
satisfaction the existence, amount and terms of any Accounts.
4. Representations and Warranties. Each Obligor hereby represents and
warrants to the Agent, for the benefit of the Lenders, that so long as any of
the Secured Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated:
(a) Chief Executive Office; Books & Records. Each Obligor's
chief executive office and chief place of business is (and for the
prior four months have been) located at the locations set forth on
Schedule 4(a) hereto, and each Obligor keeps its books and records at
such locations.
(b) Location of Collateral. The location of all Collateral
owned by each Obligor is as shown on Schedule 4(b) hereto.
(c) Ownership. Each Obligor is the legal and beneficial owner
of its Collateral and has the right to pledge, sell, assign or transfer
the same. Each Obligor's legal name is as shown in this Security
Agreement and no Obligor has in the past four months changed its name,
been party to a merger, consolidation or other change in structure or
used any tradename except as set forth in Schedule 4(c) attached
hereto.
(d) Security Interest/Priority. This Security Agreement
creates a valid security interest in favor of the Agent, for the
benefit of the Lenders, in the Collateral of such Obligor and, when
properly perfected by filing, shall constitute a valid perfected
security interest in such Collateral, to the extent such security can
be perfected by filing under the UCC, free and clear of all Liens
except for Permitted Liens.
(e) Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Obligors and the papers
and documents relating thereto are genuine and in all material respects
what they purport to be, (ii) each Account arises out of (A) a bona
fide sale of goods sold and delivered by such Obligor (or is in the
process of being delivered) or (B) services theretofore actually
rendered by such Obligor to, the account debtor named therein, (iii) no
Account of an Obligor is evidenced by any Instrument or Chattel Paper
unless such Instrument or Chattel Paper has been theretofore endorsed
over and delivered to the Agent and (iv) no surety bond was required or
given in connection with any Account of an Obligor or the contracts or
purchase orders out of which they arose.
(g) Inventory. No Inventory is held by an Obligor pursuant to
consignment, sale or return, sale on approval or similar arrangement.
(h) Copyrights, Patents and Trademarks.
(i) Schedule 1(b) hereto includes all
Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses owned by the Obligors in
their own names as of the date hereof.
(ii) To the best of each Obligor's
knowledge, each Copyright, Patent and Trademark of such
Obligor is valid, subsisting, unexpired, enforceable and has
not been abandoned.
(iii) Except as set forth in Schedule 1(b)
hereto, none of such Copyrights, Patents and Trademarks is the
subject of any licensing or franchise agreement.
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(iv) No holding, decision or judgment has
been rendered by any Governmental Authority which would limit,
cancel or question the validity of any Copyright, Patent or
Trademark.
(v) No action or proceeding is pending
seeking to limit, cancel or question the validity of any
Copyright, Patent or Trademark, or which, if adversely
determined, would have a material adverse effect on the value
of any Copyright, Patent or Trademark.
(vi) All applications pertaining to the
Copyrights, Patents and Trademarks of each Obligor have been
duly and properly filed, and all registrations or letters
pertaining to such Copyrights, Patents and Trademarks have
been duly and properly filed and issued, and all of such
Copyrights, Patents and Trademarks are valid and enforceable.
(vii) No Obligor has made any assignment or
agreement in conflict with the security interest in the
Copyrights, Patents or Trademarks of each Obligor hereunder.
5. Covenants. Each Obligor covenants that, so long as any of the
Secured Obligations remain outstanding or any Credit Document or Hedging
Agreement is in effect or any Letter of Credit shall remain outstanding, and
until all of the Commitments shall have been terminated, such Obligor shall:
(a) Other Liens. Defend the Collateral against the claims and
demands of all other parties claiming an interest therein, keep the
Collateral free from all Liens, except for Permitted Liens, and not
sell, exchange, transfer, assign, lease or otherwise dispose of the
Collateral or any interest therein, except as permitted under the
Credit Agreement.
(b) Preservation of Collateral. Keep the Collateral in good
order, condition and repair and not use the Collateral in violation of
the provisions of this Security Agreement or any other agreement
relating to the Collateral or any policy insuring the Collateral or any
applicable statute, law, bylaw, rule, regulation or ordinance.
(c) Instruments/Chattel Paper. If any amount payable under or
in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, immediately deliver such Instrument
or Chattel Paper to the Agent, duly indorsed in a manner satisfactory
to the Agent, to be held as Collateral pursuant to this Security
Agreement.
(d) Change in Location. Not, without providing 30 days prior
written notice to the Agent and without filing such amendments to any
previously filed financing statements as the Agent may require, (a)
change the location of its chief executive office and chief place of
business (as well as its books and records) from the locations set
forth on Schedule 4(a) hereto, (b) change the location of its
Collateral from the locations set forth for such Obligor on Schedule
4(b) hereto, or (c) change its name, be party to a merger,
consolidation or other change in structure or use any tradename other
than as set forth on Schedule 4(c) attached hereto.
(e) Inspection. Upon reasonable notice, and during reasonable
hours, at all times allow the Agent or its representatives to visit and
inspect the Collateral as set forth in Section 7.10 of the Credit
Agreement.
(f) Perfection of Security Interest. Execute and deliver to
the Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of
existing documents, as the Agent may reasonably request) and do all
such other things as the Agent may reasonably deem necessary or
appropriate (i) to assure to the Agent its security interests
hereunder, including (A) such financing statements (including renewal
statements) or amendments thereof or supplements thereto or other
instruments as the Agent may from time to time reasonably request in
order to perfect and maintain the security interests granted hereunder
in accordance with the UCC, (B) with regard to Copyrights, a Notice
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of Grant of Security Interest in Copyrights in the form of Schedule
5(f)(i), (C) with regard to Patents, a Notice of Grant of Security
Interest in Patents for filing with the United States Patent and
Trademark Office in the form of Schedule 5(f)(ii) attached hereto and
(D) with regard to Trademarks, a Notice of Grant of Security Interest
in Trademarks for filing with the United States Patent and Trademark
Office in the form of Schedule 5(f)(iii) attached hereto, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise
protect and assure the Agent of its rights and interests hereunder. To
that end, each Obligor agrees that the Agent may file one or more
financing statements disclosing the Agent's security interest in any
or all of the Collateral of such Obligor without, to the extent
permitted by law, such Obligor's signature thereon, and further each
Obligor also hereby irrevocably makes, constitutes and appoints the
Agent, its nominee or any other person whom the Agent may designate,
as such Obligor's attorney in fact with full power and for the limited
purpose to sign in the name of such Obligor any such financing
statements, or amendments and supplements to financing statements,
renewal financing statements, notices or any similar documents which
in the Agent's reasonable discretion would be necessary, appropriate
or convenient in order to perfect and maintain perfection of the
security interests granted hereunder, such power, being coupled with
an interest, being and remaining irrevocable so long as the Credit
Agreement is in effect or any amounts payable thereunder or under any
other Credit Document, any Letter of Credit or any Hedging Agreement
shall remain outstanding, and until all of the Commitments thereunder
shall have terminated. Each Obligor hereby agrees that a carbon,
photographic or other reproduction of this Security Agreement or any
such financing statement is sufficient for filing as a financing
statement by the Agent without notice thereof to such Obligor wherever
the Agent may in its sole discretion desire to file the same. In the
event for any reason the law of any jurisdiction other than New York
becomes or is applicable to the Collateral of any Obligor or any part
thereof, or to any of the Secured Obligations, such Obligor agrees to
execute and deliver all such instruments and to do all such other
things as the Agent in its sole discretion reasonably deems necessary
or appropriate to preserve, protect and enforce the security interests
of the Agent under the law of such other jurisdiction (and, if an
Obligor shall fail to do so promptly upon the request of the Agent,
then the Agent may execute any and all such requested documents on
behalf of such Obligor pursuant to the power of attorney granted
hereinabove). If any Collateral is in the possession or control of an
Obligor's agents and the Agent so requests, such Obligor agrees to
notify such agents in writing of the Agent's security interest therein
and, upon the Agent's request, instruct them to hold all such
Collateral for the Lenders' account and subject to the Agent's
instructions. Each Obligor agrees to mark its books and records to
reflect the security interest of the Agent in the Collateral.
(g) Treatment of Accounts. Not grant or extend the time for
payment of any Account, or compromise or settle any Account for less
than the full amount thereof, or release any person or property, in
whole or in part, from payment thereof, or allow any credit or discount
thereon, other than as normal and customary in the ordinary course of
an Obligor's business.
(h) Covenants Relating to Copyrights.
(i) Employ the Copyright for each Work with
such notice of copyright as may be required by law to secure
copyright protection.
(ii) Not do any act or knowingly omit to do
any act whereby any material Copyright may become invalidated
and (A) not do any act, or knowingly omit to do any act,
whereby any material Copyright may become injected into the
public domain; (B) notify the Agent immediately if it knows,
or has reason to know, that any material Copyright may become
injected into the public domain or of any adverse
determination or development (including, without limitation,
the institution of, or any such determination or development
in, any court or tribunal in the United States or any other
country) regarding an Obligor's ownership of any such
Copyright or its validity; (C) take all necessary steps as it
shall deem appropriate under the circumstances, to maintain
and pursue each application (and to obtain the relevant
registration) and to maintain each registration of each
material Copyright owned by an Obligor including, without
limitation, filing of applications for renewal where
necessary; and (D) promptly notify the Agent of any material
infringement of any material Copyright of an Obligor of which
it becomes aware and take such actions as it shall
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<PAGE>
reasonably deem appropriate under the circumstances to
protect such Copyright, including, where appropriate, the
bringing of suit for infringement, seeking injunctive relief
and seeking to recover any and all damages for such
infringement.
(iii) Not make any assignment or agreement
in conflict with the security interest in the Copyrights of
each Obligor hereunder.
(i) Covenants Relating to Patents and Trademarks.
(i) (A) Continue to use each Trademark on
each and every trademark class of goods applicable to its
current line as reflected in its current catalogs, brochures
and price lists in order to maintain such Trademark in full
force free from any claim of abandonment for non-use, (B)
maintain as in the past the quality of products and services
offered under such Trademark, (C) employ such Trademark with
the appropriate notice of registration, (D) not adopt or use
any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Agent, for the ratable benefit of
the Lenders, shall obtain a perfected security interest in
such mark pursuant to this Security Agreement, and (E) not
(and not permit any licensee or sublicensee thereof to) do any
act or knowingly omit to do any act whereby any Trademark may
become invalidated.
(ii) Not do any act, or omit to do any act,
whereby any Patent may become abandoned or dedicated.
(iii) Notify the Agent and the Lenders
immediately if it knows, or has reason to know, that any
application or registration relating to any Patent or
Trademark may become abandoned or dedicated, or of any adverse
determination or development (including, without limitation,
the institution of, or any such determination or development
in, any proceeding in the United States Patent and Trademark
Office or any court or tribunal in any country) regarding an
Obligor's ownership of any Patent or Trademark or its right to
register the same or to keep and maintain the same.
(iv) Whenever an Obligor, either by itself
or through an agent, employee, licensee or designee, shall
file an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office
or any similar office or agency in any other country or any
political subdivision thereof, an Obligor shall report such
filing to the Agent and the Lenders within five Business Days
after the last day of the fiscal quarter in which such filing
occurs. Upon request of the Agent, an Obligor shall execute
and deliver any and all agreements, instruments, documents and
papers as the Agent may request to evidence the Agent's and
the Lenders' security interest in any Patent or Trademark and
the goodwill and general intangibles of an Obligor relating
thereto or represented thereby.
(v) Take all reasonable and necessary steps,
including, without limitation, in any proceeding before the
United States Patent and Trademark Office, or any similar
office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application
(and to obtain the relevant registration) and to maintain each
registration of the Patents and Trademarks, including, without
limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.
(vi) Promptly notify the Agent and the
Lenders after it learns that any Patent or Trademark included
in the Collateral is infringed, misappropriated or diluted by
a third party and promptly sue for infringement,
misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such
infringement, misappropriation or dilution, or take such other
actions as it shall reasonably deem appropriate under the
circumstances to protect such Patent or Trademark.
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<PAGE>
(vii) Not make any assignment or agreement
in conflict with the security interest in the Patents or
Trademarks of each Obligor hereunder.
(j) New Patents, Copyrights and Trademarks. Promptly provide
the Agent with (i) a listing of all applications, if any, for new
Copyrights, Patents or Trademarks (together with a listing of the
issuance of registrations or letters on present applications), which
new applications and issued registrations or letters shall be subject
to the terms and conditions hereunder, and (ii) (A) with respect to
Copyrights, a duly executed Notice of Security Interest in Copyrights,
(B) with respect to Patents, a duly executed Notice of Security
Interest in Patents, (C) with respect to Trademarks, a duly executed
Notice of Security Interest in Trademarks or (D) such other duly
executed documents as the Agent may request in a form acceptable to
counsel for the Agent and suitable for recording to evidence the
security interest in the Copyright, Patent or Trademark which is the
subject of such new application.
(k) Insurance. Insure, repair and replace the Collateral of
such Obligor as set forth in the Credit Agreement. All insurance
proceeds shall be subject to the security interest of the Agent
hereunder.
6. Advances by Lenders. On failure of any Obligor to perform any of the
covenants and agreements contained herein, the Agent may, at its sole option and
in its sole discretion, perform the same and in so doing may expend such sums as
the Agent may reasonably deem advisable in the performance thereof, including,
without limitation, the payment of any insurance premiums, the payment of any
taxes, a payment to obtain a release of a Lien or potential Lien, expenditures
made in defending against any adverse claim and all other expenditures which the
Agent or the Lenders may make for the protection of the security hereof or which
may be compelled to make by operation of law. All such sums and amounts so
expended shall be repayable by the Obligors on a joint and several basis
promptly upon timely notice thereof and demand therefor, shall constitute
additional Secured Obligations and shall bear interest from the date said
amounts are expended at the default rate specified in Section 3.1 of the Credit
Agreement for Revolving Loans that are Base Rate Loans. No such performance of
any covenant or agreement by the Agent or the Lenders on behalf of any Obligor,
and no such advance or expenditure therefor, shall relieve the Obligors of any
default under the terms of this Security Agreement, the other Credit Documents
or any Hedging Agreement. The Lenders may make any payment hereby authorized in
accordance with any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax
assessment, sale, forfeiture, tax lien, title or claim except to the extent such
payment is being contested in good faith by an Obligor in appropriate
proceedings and against which adequate reserves are being maintained in
accordance with GAAP.
7. Events of Default.
The occurrence of an event which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an "Event
of Default").
8. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during continuation thereof, the Lenders shall have, in
addition to the rights and remedies provided herein, in the Credit
Documents, in the Hedging Agreements or by law (including, but not
limited to, the rights and remedies set forth in the Uniform Commercial
Code of the jurisdiction applicable to the affected Collateral), the
rights and remedies of a secured party under the UCC (regardless of
whether the UCC is the law of the jurisdiction where the rights and
remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further, the Agent may, with or without
judicial process or the aid and assistance of others, (i) enter on any
premises on which any of the Collateral may be located and, without
resistance or interference by the Obligors, take possession of the
Collateral, (ii) dispose of any Collateral on any such premises, (iii)
require the Obligors to assemble and make available to the Agent at the
expense of the Obligors any Collateral at any place and time designated
by the Agent which is reasonably convenient to both parties, (iv)
remove any
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Collateral from any such premises for the purpose of effecting sale or
other disposition thereof, and/or (v) without demand and without
advertisement, notice, hearing or process of law, all of which each of
the Obligors hereby waives to the fullest extent permitted by law, at
any place and time or times, sell and deliver any or all Collateral
held by or for it at public or private sale, by one or more contracts,
in one or more parcels, for cash, upon credit or otherwise, at such
prices and upon such terms as the Agent deems advisable, in its sole
discretion (subject to any and all mandatory legal requirements). In
addition to all other sums due the Agent and the Lenders with respect
to the Secured Obligations, the Obligors shall pay the Agent and each
of the Lenders all reasonable documented costs and expenses incurred
by the Agent or any such Lender, including, but not limited to,
reasonable attorneys' fees and court costs, in obtaining or
liquidating the Collateral, in enforcing payment of the Secured
Obligations, or in the prosecution or defense of any action or
proceeding by or against the Agent or the Lenders or the Obligors
concerning any matter arising out of or connected with this Security
Agreement, any Collateral or the Secured Obligations, including,
without limitation, any of the foregoing arising in, arising under or
related to a case under the Bankruptcy Code. To the extent the rights
of notice cannot be legally waived hereunder, each Obligor agrees that
any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Borrower in
accordance with the notice provisions of Section 11.1 of the Credit
Agreement at least 10 days before the time of sale or other event
giving rise to the requirement of such notice. The Agent and the
Lenders shall not be obligated to make any sale or other disposition
of the Collateral regardless of notice having been given. To the
extent permitted by law, any Lender may be a purchaser at any such
sale. To the extent permitted by applicable law, each of the Obligors
hereby waives all of its rights of redemption with respect to any such
sale. Subject to the provisions of applicable law, the Agent and the
Lenders may postpone or cause the postponement of the sale of all or
any portion of the Collateral by announcement at the time and place of
such sale, and such sale may, without further notice, to the extent
permitted by law, be made at the time and place to which the sale was
postponed, or the Agent and the Lenders may further postpone such sale
by announcement made at such time and place.
(b) Remedies relating to Accounts. Upon the occurrence of an
Event of Default and during the continuation thereof, whether or not
the Agent has exercised any or all of its rights and remedies
hereunder, each Obligor will promptly upon request of the Agent
instruct all account debtors to remit all payments in respect of
Accounts to a mailing location selected by the Agent. In addition, the
Agent or its designee may notify any Obligor's customers and account
debtors that the Accounts of such Obligor have been assigned to the
Agent or of the Agent's security interest therein, and may (either in
its own name or in the name of an Obligor or both) demand, collect
(including without limitation by way of a lockbox arrangement),
receive, take receipt for, sell, sue for, compound, settle, compromise
and give acquittance for any and all amounts due or to become due on
any Account, and, in the Agent's discretion, file any claim or take any
other action or proceeding to protect and realize upon the security
interest of the Lenders in the Accounts. Each Obligor acknowledges and
agrees that the Proceeds of its Accounts remitted to or on behalf of
the Agent in accordance with the provisions hereof shall be solely for
the Agent's own convenience and that such Obligor shall not have any
right, title or interest in such Accounts or in any such other amounts
except as expressly provided herein. The Agent and the Lenders shall
have no liability or responsibility to any Obligor for acceptance of a
check, draft or other order for payment of money bearing the legend
"payment in full" or words of similar import or any other restrictive
legend or endorsement or be responsible for determining the correctness
of any remittance. Each Obligor hereby agrees to indemnify the Agent
and the Lenders from and against all liabilities, damages, losses,
actions, claims, judgments, costs, expenses, charges and reasonable
attorneys' fees suffered or incurred by the Agent or the Lenders (each,
an "Indemnified Party") because of the maintenance of the foregoing
arrangements except as relating to or arising out of the gross
negligence or willful misconduct of an Indemnified Party or its
officers, employees or agents. In the case of any investigation,
litigation or other proceeding, the foregoing indemnity shall be
effective whether or not such investigation, litigation or proceeding
is brought by an Obligor, its directors, shareholders or creditors or
an Indemnified Party or any other Person or any other Indemnified Party
is otherwise a party thereto.
(c) Access. In addition to the rights and remedies hereunder,
upon the occurrence of an Event of Default and during the continuance
thereof, the Agent shall have the right to enter and remain upon the
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various premises of the Obligors without cost or charge to the Agent,
and use the same, together with materials, supplies, books and records
of the Obligors for the purpose of collecting and liquidating the
Collateral, or for preparing for sale and conducting the sale of the
Collateral, whether by foreclosure, auction or otherwise. In addition,
the Agent may remove Collateral, or any part thereof, from such
premises and/or any records with respect thereto, in order to
effectively collect or liquidate such Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the Agent or
the Lenders to exercise any right, remedy or option under this Security
Agreement, any other Credit Document, any Hedging Agreement or as
provided by law, or any delay by the Agent or the Lenders in exercising
the same, shall not operate as a waiver of any such right, remedy or
option. No waiver hereunder shall be effective unless it is in writing,
signed by the party against whom such waiver is sought to be enforced
and then only to the extent specifically stated, which in the case of
the Agent or the Lenders shall only be granted as provided herein. To
the extent permitted by law, neither the Agent, the Lenders, nor any
party acting as attorney for the Agent or the Lenders, shall be liable
hereunder for any acts or omissions or for any error of judgment or
mistake of fact or law other than their gross negligence or willful
misconduct hereunder. The rights and remedies of the Agents and the
Lenders under this Security Agreement shall be cumulative and not
exclusive of any other right or remedy which the Agent or the Lenders
may have.
(e) Retention of Collateral. The Agent may, after providing
the notices required by Section 9-505(2) of the UCC or otherwise
complying with the requirements of applicable law of the relevant
jurisdiction, to the extent the Agent is in possession of any of the
Collateral, retain the Collateral in satisfaction of the Secured
Obligations. Unless and until the Agent shall have provided such
notices, however, the Agent shall not be deemed to have retained any
Collateral in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Agent or the Lenders are legally entitled, the Obligors shall be
jointly and severally liable for the deficiency, together with interest
thereon at the default rate specified in Section 3.1 of the Credit
Agreement for Revolving Loans that are Base Rate Loans, together with
the costs of collection and the reasonable fees of any attorneys
employed by the Agent to collect such deficiency. Any surplus remaining
after the full payment and satisfaction of the Secured Obligations
shall be returned to the Obligors or to whomsoever a court of competent
jurisdiction shall determine to be entitled thereto.
9. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Obligor hereby designates and appoints the
Agent, on behalf of the Lenders, and each of its designees or agents,
as attorney-in-fact of such Obligor, irrevocably and with power of
substitution, with authority to take any or all of the following
actions upon the occurrence and during the continuance of an Event of
Default:
(i) to demand, collect, settle, compromise, adjust,
give discharges and releases, all as the Agent may reasonably
determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any Collateral and
enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) receive, open and dispose of mail addressed to
an Obligor and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such
Obligor on behalf of and in the name of such Obligor, or
securing, or relating to such Collateral;
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(v) sell, assign, transfer, make any agreement in
respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services which have
given rise thereto, as fully and completely as though the Bank
were the absolute owner thereof for all purposes;
(vi) adjust and settle claims under any insurance
policy relating thereto;
(vii) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Security
Agreement and in order to fully consummate all of the
transactions contemplated therein;
(viii) institute any foreclosure proceedings that the
Agent may deem appropriate; and
(ix) do and perform all such other acts and things as
the Agent may reasonably deem to be necessary, proper or
convenient in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding, any Credit Document or any Hedging Agreement is in effect
or any Letter of Credit shall remain outstanding and (ii) until all of
the Commitments shall have been terminated. The Agent shall be under no
duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Agent in
this Security Agreement, and shall not be liable for any failure to do
so or any delay in doing so. The Agent shall not be liable for any act
or omission or for any error of judgment or any mistake of fact or law
in its individual capacity or its capacity as attorney-in-fact except
acts or omissions resulting from its gross negligence or willful
misconduct. This power of attorney is conferred on the Agent solely to
protect, preserve and realize upon its security interest in the
Collateral.
(b) Performance by the Agent of Obligations. If any Obligor
fails to perform any agreement or obligation contained herein, the
Agent itself may perform, or cause performance of, such agreement or
obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Obligors on a joint and several basis
pursuant to Section 11 hereof.
(c) Assignment by the Agent. The Agent may from time to time
assign the Secured Obligations and any portion thereof and/or the
Collateral and any portion thereof, and the assignee shall be entitled
to all of the rights and remedies of the Agent under this Security
Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Collateral while
being held by the Agent hereunder, the Agent shall have no duty or
liability to preserve rights pertaining thereto, it being understood
and agreed that the Obligors shall be responsible for preservation of
all rights in the Collateral, and the Agent shall be relieved of all
responsibility for the Collateral upon surrendering it or tendering the
surrender of it to the Obligors. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Agent accords its own property,
which shall be no less than the treatment employed by a reasonable and
prudent agent in the industry, it being understood that the Agent shall
not have responsibility for taking any necessary steps to preserve
rights against any parties with respect to any of the Collateral.
10. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the Agent or
any of the Lenders in cash or its equivalent, will be applied in reduction of
the Secured Obligations in the order set forth
-11-
<PAGE>
in Section 3.15(b) of the Credit Agreement, and each Obligor irrevocably waives
the right to direct the application of such payments and proceeds and
acknowledges and agrees that the Agent shall have the continuing and exclusive
right to apply and reapply any and all such payments and proceeds in the Agent's
sole discretion, notwithstanding any entry to the contrary upon any of its books
and records.
11. Costs of Counsel. If at any time hereafter, whether upon the
occurrence of an Event of Default or not, the Agent employs counsel to prepare
or consider amendments, waivers or consents with respect to this Security
Agreement, or to take action or make a response in or with respect to any legal
or arbitral proceeding relating to this Security Agreement or relating to the
Collateral, or to protect the Collateral or exercise any rights or remedies
under this Security Agreement or with respect to the Collateral, then the
Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Agent or the Lenders, all of which costs
and expenses shall constitute Secured Obligations hereunder.
12. Continuing Agreement.
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Secured Obligations remain outstanding or any Credit Document or
Hedging Agreement is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated (other than any obligations with respect to the indemnities
and the representations and warranties set forth in the Credit
Documents). Upon such payment and termination, this Security Agreement
shall be automatically terminated and the Agent and the Lenders shall,
upon the request and at the expense of the Obligors, forthwith release
all of its liens and security interests hereunder and shall execute and
deliver all UCC termination statements and/or other documents
reasonably requested by the Obligors evidencing such termination.
Notwithstanding the foregoing all releases and indemnities provided
hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or
be automatically reinstated, as the case may be, if at any time
payment, in whole or in part, of any of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Agent or any
Lender as a preference, fraudulent conveyance or otherwise under any
bankruptcy, insolvency or similar law, all as though such payment had
not been made; provided that in the event payment of all or any part of
the Secured Obligations is rescinded or must be restored or returned,
all reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Secured Obligations.
13. Amendments; Waivers; Modifications. This Security Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
14. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent
and the Lenders and their successors and permitted assigns; provided, however,
that none of the Obligors may assign its rights or delegate its duties hereunder
without the prior written consent of each Lender or the Required Lenders, as
required by the Credit Agreement. To the fullest extent permitted by law, each
Obligor hereby releases the Agent and each Lender, and its successors and
assigns, from any liability for any act or omission relating to this Security
Agreement or the Collateral, except for any liability arising from the gross
negligence or willful misconduct of the Agent, or such Lender, or its officers,
employees or agents.
15. Notices. All notices required or permitted to be given under this
Security Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
-12-
<PAGE>
16. Counterparts. This Security Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
17. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the courts of the State of North Carolina, or of the
United States for the Western District of North Carolina, and, by
execution and delivery of this Security Agreement, each Obligor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Obligor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1 of
the Credit Agreement, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the Agent to
serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Obligor in any other
jurisdiction.
(b) Each Obligor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Security Agreement brought in the courts referred to in subsection
(a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. Severability. If any provision of any of the Security Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
21. Entirety. This Security Agreement, the other Credit Documents and
the Hedging Agreements represent the entire agreement of the parties hereto and
thereto, and supersede all prior agreements and understandings, oral or written,
if any, including any commitment letters or correspondence relating to the
Credit Documents, the Hedging Agreements or the transactions contemplated herein
and therein.
22. Survival. All representations and warranties of the Obligors
hereunder shall survive the execution and delivery of this Security Agreement,
the other Credit Documents and the Hedging Agreements, the delivery of the Notes
and the making of the Loans and the issuance of the Letters of Credit under the
Credit Agreement.
23. Other Security. To the extent that any of the Secured Obligations
are now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by an Obligor), or by a
guarantee, endorsement or property of any other Person, then the Agent and the
Lenders shall have the right to proceed against such other property, guarantee
or endorsement upon the occurrence of any Event of Default, and the Agent and
the Lenders have the right, in their sole discretion, to determine which rights,
security, liens, security
-13-
<PAGE>
interests or remedies the Agent and the Lenders shall at any time pursue,
relinquish, subordinate, modify or take with respect thereto, without in any way
modifying or affecting any of them or any of the Agent's and the Lenders' rights
or the Secured Obligations under this Security Agreement, under any other of the
Credit Documents or under any Hedging Agreement.
24. Joint and Several Obligations of Obligors.
(a) Each of the Obligors is accepting joint and several
liability hereunder in consideration of the financial accommodation to
be provided by the Lenders under the Credit Agreement, for the mutual
benefit, directly and indirectly, of each of the Obligors and in
consideration of the undertakings of each of the Obligors to accept
joint and several liability for the obligations of each of them.
(b) Each of the Obligors jointly and severally hereby
irrevocably and unconditionally accepts, not merely as a surety but
also as a co-debtor, joint and several liability with the other
Obligors with respect to the payment and performance of all of the
Secured Obligations arising under this Security Agreement, the other
Credit Documents and the Hedging Agreements, it being the intention of
the parties hereto that all the Obligations shall be the joint and
several obligations of each of the Obligors without preferences or
distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein or in any other of the Credit Documents, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of
any applicable state or federal law relating to fraudulent conveyances
or transfers) then the obligations of each Guarantor hereunder shall be
limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the
Bankruptcy Code).
25. Rights of Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
[remainder of page intentionally left blank]
-14-
<PAGE>
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: INSIGHT HEALTH SERVICES CORP.,
a Delaware corporation
By:
Name:
Title:
GUARANTORS: INSIGHT HEALTH CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
RADIOLOGY SERVICES CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
OPEN MRI, INC.
By:
Name: Thomas V. Croal
Title Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
RADIOSURGERY CENTERS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
[Signatures Continued]
MTS ENTERPRISES, INC.
<PAGE>
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
QUEST FINANCIAL SERVICES, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
DIAGNOSTEMPS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
DIAGNOSTIC SOLUTIONS CORP.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF NORTH TEXAS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
[Signatures Continued]
<PAGE>
MAXUM HEALTH SERVICES
OF ARLINGTON, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
MAXUM HEALTH SERVICES
OF DALLAS, INC.
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
NORTH DALLAS DIAGNOSTIC CENTER, INC..
By:
Name: Thomas V. Croal
Title: Executive Vice President,
Chief Financial Officer and Secretary
Accepted and agreed to in Charlotte, North Carolina as of the date
first above written.
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
<PAGE>
SCHEDULE 1(b)
INTELLECTUAL PROPERTY
<PAGE>
SCHEDULE 4(a)
CHIEF EXECUTIVE OFFICE
<PAGE>
SCHEDULE 4(b)
LOCATIONS OF COLLATERAL
<PAGE>
SCHEDULE 4(c)
MERGERS, CONSOLIDATIONS, CHANGE IN STRUCTURE OR USE OF TRADENAMES
<PAGE>
SCHEDULE 5(f)(i)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS
United States Copyright Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
October 14, 1997 (as the same may be amended, modified, extended or restated
from time to time, the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"),
the undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the copyrights and copyright applications shown below to
the Agent for the ratable benefit of the Lenders:
COPYRIGHTS
----------
<TABLE>
<CAPTION>
Date of
Copyright No. Description of Copyright Copyright
------------ ------------------------ ---------
<S> <C> <C>
</TABLE>
Copyright Applications
----------------------
<TABLE>
<CAPTION>
Copyright Description of Copyright Date of Copyright
Applications No. Applied For Applications
- ---------------- ------------------------ -----------------
<S> <C> <C>
</TABLE>
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing copyrights and
copyright applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any copyright or copyright application.
Very truly yours,
__________________________________
[Obligor]
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By: ___________________________
Name: _________________________
Title: ________________________
<PAGE>
SCHEDULE 5(f)(ii)
-----------------
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
October 14, 1997 (the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"),
the undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the patents and patent applications shown below to the
Agent for the ratable benefit of the Lenders:
PATENTS
-------
<TABLE>
<CAPTION>
Description of Patent Date of
Patent No. Item Patent
---------- --------------------- -------
<S> <C> <C>
</TABLE>
Patent Applications
-------------------
<TABLE>
<CAPTION>
Patent Description of Patent Date of Patent
Applications No. Applied For Applications
- --------------- --------------------- --------------
<S> <C> <C>
</TABLE>
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing patents and
patent applications (i) may only be terminated in accordance with the terms of
the Security Agreement and (ii) is not to be construed as an assignment of any
patent or patent application.
Very truly yours,
________________________________
[Obligor]
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By:____________________________
Name: _________________________
Title: ________________________
<PAGE>
SCHEDULE 5(f)(iii)
------------------
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
October 14, 1997 (the "Security Agreement") by and among the Obligors party
thereto (each an "Obligor" and collectively, the "Obligors") and NationsBank,
N.A., as Agent (the "Agent") for the lenders referenced therein (the "Lenders"),
the undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the trademarks and trademark applications shown below to
the Agent for the ratable benefit of the Lenders:
TRADEMARKS
----------
<TABLE>
<CAPTION>
Description of Trademark Date of
Trademark No. Item Trademark
------------- ------------------------ ---------
<S> <C> <C>
</TABLE>
Trademark Applications
----------------------
<TABLE>
<CAPTION>
Trademark Description of Trademark Date of Trademark
Applications No. Applied For Applications
- ---------------- ------------------------ -----------------
<S> <C> <C>
</TABLE>
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing trademarks and
trademark applications (i) may only be terminated in accordance with the terms
of the Security Agreement and (ii) is not to be construed as an assignment of
any trademark or trademark application.
Very truly yours,
__________________________________
[Obligor]
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By: ___________________________
Name: _________________________
Title: ________________________
<PAGE>
Exhibit 1.1C
FORM OF SUBORDINATION AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of _________ __, 1997, is
entered into by NATIONSBANK, N.A., in its capacity as agent (the "Agent") for
the lending institution (the "Lenders") from time to time party to that certain
Credit Agreement, dated as of October 13, 1997 (as the same may be amended,
modified, supplemented, extended, restated, refinanced, replaced or refunded
from time to time, the "Credit Agreement") by and among InSight Health Services
Corp., a Delaware corporation (the "Borrower"), certain subsidiaries of the
Borrower as guarantors (the "Guarantors"), for the benefit of GENERAL ELECTRIC
COMPANY (together with its affiliates, "GE").
RECITALS:
GE has entered into, and may from time to time hereafter enter into,
certain equipment lease or other financing transactions with the Borrower and/or
the Guarantors under the GE Agreements hereinafter defined pursuant to which (i)
GE, as lessor, agrees to lease to the Borrower and/or such Guarantors, as
lessees, the leased equipment, under either a capital lease or an operating
lease, or GE and the Borrower and/or such Guarantors are party to any other
financing arrangement in respect of equipment, and (ii) the Borrower and/or such
Guarantors have granted GE a first priority security interest in such equipment.
The Lenders have agreed to make certain extensions of credit to the
Borrower pursuant to the Credit Agreement provided that the Agent, on behalf of
the Lenders, is granted liens and security interest in certain personal property
of the Borrower and the Guarantors, including without limitation, the GE
Collateral.
GE has agreed to enter into this Agreement in order to consent to the
security interest in favor of the Agent in the GE Collateral arising pursuant to
the GE Collateral Documents defined in the Credit Agreement, provided that such
security interest is subordinated by the Agent on the terms set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Agent hereby agrees as follows
for the benefit of GE:
SECTION 1
Definitions
1.1 For the purposes hereof:
(l) "GE Collateral" shall mean any present or future
collateral subject to a GE Agreement (including without limitation
equipment subject of any capital or operating lease between GE, on the
one hand, and either the Borrower ort any of the Guarantors , on the
other hand). subject to a financing arrangement between the Borrower or
any of the Guarantors, on the one hand, and GE, on the other hand, and
evidenced by a GE Equipment Agreement.
(m) "GE Agreements" means, collectively, any present or future
operating leases, capital leases, purchase money financing arrangements
and other agreements pursuant to which GE sells, leases or otherwise
transfers equipment to the Borrower or any of the Guarantors.
(n) "GE Obligations" means all of the principal, interest,
premium, penalties, fees, expenses, indemnities and other liabilities
and obligations payable by Borrower and/or any Guarantor under all GE
Agreements.
<PAGE>
1.2 The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.
SECTION 2
Consent to Second Lien
2.1 GE hereby consents to the granting by the Borrower and the
Guarantors of a second priority security interest in the GE Collateral and
agrees that the granting thereof shall not constitute a default under the GE
Agreements or any other documents executed in connection with the transactions
evidenced by the GE Agreements.
SECTION 3
Subordination of Liens
3.1 Notwithstanding anything to the contrary contained in the Credit
Documents, the Agent hereby (a) acknowledges that the GE Collateral is (and/or
will be from time to time) subject to Liens on and security interests in favor
of each of the Agent (arising under the Credit Documents) and GE (arising under
the GE Agreements), (b) hereby expressly subordinates its interest in and to any
present or future GE Collateral to the prior interests of GE arising under the
GE Agreements, and (c) agrees that any Lien or security interest of GE is and
shall remain prior to any Lien or security interest in or to any present or
future GE Collateral and that the Agent's Lien and security interest in and to
any present or future GE Collateral shall at all times remain subordinated to
any such Lien or security interest of GE in the GE Collateral.
3.2 Until such time as all GE Obligations shall have been paid
irrevocably in full and the GE Agreements shall have been terminated, the Agent
agrees that it will not commence or continue any foreclosure or liquidation
proceedings or remedies in respect of any of the GE Collateral. In the event
that any of the GE Collateral, or any collections or other proceeds thereof,
shall be received by the Agent at any time for any reason, such GE Collateral
and/or proceeds shall be held in trust for the benefit of, and promptly remitted
to GE.
3.3 Notwithstanding anything to the contrary contained in this
Agreement, the Agent may file UCC financing statements and continuation
statements to preserve its Liens and security interests in the GE Collateral and
may file such claims and proofs of claim and take such other action as may be
necessary to enforce its claim in any bankruptcy, insolvency, reorganization,
liquidation or similar proceeding. The Agent agrees not to initiate, prosecute,
encourage, or cooperate with any other Person to initiate or prosecute any
claim, action or other proceeding (a) challenging the enforceability of GE's
claim, (b) challenging the perfection or enforceability of any Liens or security
interests in GE Collateral securing any GE Obligations or (c) asserting any
claims which the Borrower or any Guarantor may hold with respect to GE or the GE
Obligations.
3.4 No right of GE to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act by
GE, or by any noncompliance by the Borrower or any Guarantor with the terms and
provisions and covenants herein, regardless of any knowledge thereof such holder
may have or otherwise be charged with.
SECTION 4
Modification of GE Obligations; Reliance
4.1 The Agent consents that, without the necessity of any reservation of
rights against the Agent, and without notice to or further assent by the Agent,
the GE Obligations and any document or instrument evidencing or
<PAGE>
governing the terms of any GE Obligations or any collateral security documents
or guaranties or documents relating to the GE Obligations may be amended,
modified, supplemented or terminated, in whole or in part, as GE may deem
advisable from time to time, and any GE Collateral at any time securing payment
of any of the GE Obligations may be sold, exchanged, waived, surrendered or
released, in each case all without notice to or further assent by the Agent,
which will remain bound under this Agreement, and all without impairing,
abridging, releasing or affecting the subordination provided for herein,
notwithstanding any such renewal, extension, modification, acceleration,
compromise, amendment, supplement, termination, sale, exchange, waiver,
surrender or release. The Agent waives any and all notice of the creation,
modification, renewal, extension or accrual of any of the GE Obligations.
SECTION 5
Miscellaneous
5.1 No failure to exercise, and no delay in exercising on the part of
GE, from time to time, any rights, power and privileges under the GE
Obligations, or any right, power or privilege under this Agreement shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege under this Agreement preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided in this Agreement and in any agreement relating to any of the
GE Obligations and all other agreements, instruments and documents referred to
in any of the foregoing are cumulative and shall not be exclusive of any rights
or remedies provided by law.
5.2 Except as otherwise expressly provided herein, all notices and
other communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the business day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third business day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address set forth below, or at such other address as
such party may specify by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
c/o Insight Health Services Corp.
4400 MacArthur Boulevard
Suite 800
Newport Beach, CA 92600
Attn: Thomas V. Croal, CFO
Telephone: (714) 476-0733
Telecopy: (714) 851-5981
with a copy to:
TC Group, L.L.C.
1001 Pennsylvania Avenue
Washington, DC 20004-2505
Attn: David Dupree
Telephone: (202) 626-1250
Telecopy: (202) 347-1818
<PAGE>
if to the Agent:
NationsBank, N. A.
Independence Center, 15th Floor
NC1-001-15-04
101 North Tryon Street
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-1108
Telecopy: (704) 388-9436
with a copy to:
NationsBank, N. A.
700 Louisiana Street
Houston, Texas 77002
Attn: Scott Singhoff
Telephone: (713) 247-6961
Telecopy: (713) 247-6360
if to GE:
General Electric Company
20825 Swenson Drive, Suite 100
Waukesha, Wisconsin
Attn: Richard S. Berger
Telephone: (414) 798-4500
Telecopy: (414) 798-4573
5.3 This Agreement and the rights and obligations of the parties under
this Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York applicable to contracts made and to be
performed in such state, and shall be binding upon and inure to the benefit of
GE, the Agent and their respective successors, transferees and assigns.
5.4 This Agreement may be executed by the parties hereto in any number
of separate counterparts all of which taken together shall constitute one and
the same instrument.
5.5 The subordination provisions contained herein are for the benefit
of GE and its successors and assigns as holder from time to time of GE
Obligations and may not be rescinded or canceled or modified in any way, nor,
unless otherwise expressly provided for herein, may any provision of this
Agreement be waived or changed without the express prior written consent thereto
of GE.
5.6 This Agreement shall (i) become effective as of the date hereof at
such time as a counterpart hereof shall have been executed by each of the Agent,
GE, the Borrower, the Guarantors and (ii) shall remain in effect until such time
as all GE Obligations shall have been paid irrevocably in full and the
agreements evidencing any GE Obligations shall have been terminated.
IN WITNESS WHEREOF, the Agent has caused this Agreement to be executed
by its duly authorized officer as of the day and year first above written.
NATIONSBANK, N.A.,
in its capacity as Agent for the Lenders
under the Credit Agreement
<PAGE>
By: __________________________________
Title: _______________________________
Acknowledged and accepted:
GENERAL ELECTRIC COMPANY,
By: ___________________________
Title:_________________________
[Signatures Continued]
<PAGE>
Each of the undersigned agrees to comply with the provisions of this Agreement
applicable to it.
INSIGHT HEALTH SERVICES CORP.
By: ___________________________
Title: ________________________
Date: _________________________
INSIGHT HEALTH CORP.
By: ___________________________
Title: ________________________
Date: _________________________
RADIOLOGY SERVICES CORP.
By: ___________________________
Title: ________________________
Date: _________________________
OPEN MRI, INC.
By: ___________________________
Title: ________________________
Date: _________________________
MAXUM HEALTH CORP.
By: ___________________________
Title: ________________________
Date: _________________________
RADIOSURGERY CENTERS, INC.
By: ___________________________
Title: ________________________
Date: _________________________
MTS ENTERPRISES, INC.
By: ___________________________
Title: ________________________
Date: _________________________
QUEST FINANCIAL SERVICES, INC.
By: ___________________________
<PAGE>
Title: ________________________
Date: _________________________
MAXUM HEALTH SERVICES CORP.
By: ___________________________
Title: ________________________
Date: _________________________
DIAGNOSTEMPS, INC.
By: ___________________________
Title: ________________________
Date: _________________________
DIAGNOSTIC SOLUTIONS CORP.
By: ___________________________
Title: ________________________
Date: _________________________
MAXUM HEALTH SERVICES
OF NORTH TEXAS, INC.
By: ___________________________
Title: ________________________
Date: _________________________
MAXUM HEALTH SERVICES
OF ARLINGTON, INC.
By: ___________________________
Title: ________________________
Date: _________________________
MAXUM HEALTH SERVICES
OF DALLAS, INC.
By: ___________________________
Title: ________________________
Date: _________________________
NORTH DALLAS DIAGNOSTIC CENTER, INC..
By: ___________________________
Title: ________________________
Date: _________________________
<PAGE>
<PAGE>
Exhibit 2.1(b)(i)
FORM OF NOTICE OF BORROWING
NationsBank, N. A.,
as Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, Insight Health Services Corp. (the "Borrower"), refers
to the Credit Agreement dated as of October 14, 1997 (as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"), among the
Borrower, the Guarantors, the Lenders and NationsBank, N. A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. [The Borrower hereby
gives notice pursuant to Section 2.1 of the Credit Agreement that it requests a
Revolving Loan advance under the Credit Agreement, and in connection therewith
sets forth below the terms on which such Loan advance is requested to be made]
[The Borrower hereby gives notice pursuant to Section 2.3 of the Credit
Agreement that it requests an Acquisition Loan advance under the Credit
Agreement, and in connection therewith sets forth below the terms on which such
Loan advance is requested to be made]:
<TABLE>
<S> <C> <C>
(A) Date of Borrowing (which is a Business Day) _______________________
(B) Principal Amount of Borrowing _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the last day thereof _______________________
</TABLE>
In accordance with the requirements of Section 5.3, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c) and (d) of such Section, are true and correct.
INSIGHT HEALTH SERVICES CORP.
By: ____________________________________
Name: __________________________________
Title: _________________________________
<PAGE>
Exhibit 2.1(e)
FORM OF REVOLVING NOTE
$_________________ June 12, 1998
FOR VALUE RECEIVED, INSIGHT HEALTH SERVICES CORP., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of October 14, 1997 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________) or, if less than such principal
amount, the aggregate unpaid principal amount of all Revolving Loans made by the
Lender to the Borrower pursuant to the Credit Agreement, and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates selected in accordance with Section
2.1(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on Schedule A attached hereto and
incorporated herein by reference, or on a continuation thereof which shall be
attached hereto and made a part hereof; provided, however, that any failure to
endorse such information on such schedule or continuation thereof shall not in
any manner affect the obligation of the Borrower to make payments of principal
and interest in accordance with the terms of this Note.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
INSIGHT HEALTH SERVICES CORP.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
SCHEDULE A TO THE
REVOLVING NOTE
OF ______________
DATED JUNE 12, 1998
<TABLE>
<CAPTION>
Unpaid Name of
Type Principal Person
of Interest Payments Balance Making
Date Loan Period Principal Interest of Note Notation
- ---- ---- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 2.3(e)
FORM OF ACQUISITION LOAN NOTE
$_________________ June 12, 1998
FOR VALUE RECEIVED, INSIGHT HEALTH SERVICES CORP., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of October 14, 1997 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________) or, if less than such principal
amount, the aggregate unpaid principal amount of all Acquisition Loans made by
the Lender to the Borrower pursuant to the Credit Agreement, and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates selected in accordance with Section
2.3(d) of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on Schedule A attached hereto and
incorporated herein by reference, or on a continuation thereof which shall be
attached hereto and made a part hereof; provided, however, that any failure to
endorse such information on such schedule or continuation thereof shall not in
any manner affect the obligation of the Borrower to make payments of principal
and interest in accordance with the terms of this Note.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
<PAGE>
SCHEDULE A TO THE
ACQUISITION LOAN NOTE
OF ______________
DATED JUNE 12, 1998
<TABLE>
<CAPTION>
Unpaid Name of
Type Principal Person
of Interest Payments Balance Making
Date Loan Period Principal Interest of Note Notation
- ---- ---- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 2.4(f)
FORM OF TRANCHE A TERM NOTE
$_________________ June 12, 1998
FOR VALUE RECEIVED, INSIGHT HEALTH SERVICES CORP., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 North Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the Credit Agreement dated as of October 14, 1997 among the Borrower,
the Guarantors, the Lenders and the Agent (as it may be as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________DOLLARS ($____________), and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates selected in accordance with Section 2.4(e)
of the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender shall become immediately
due and payable, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on Schedule A attached hereto and
incorporated herein by reference, or on a continuation thereof which shall be
attached hereto and made a part hereof; provided, however, that any failure to
endorse such information on such schedule or continuation thereof shall not in
any manner affect the obligation of the Borrower to make payments of principal
and interest in accordance with the terms of this Note.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
<PAGE>
SCHEDULE A TO THE
TRANCHE A TERM NOTE
OF _____________
DATED JUNE 12, 1998
<TABLE>
<CAPTION>
Unpaid Name of
Type Principal Person
of Interest Payments Balance Making
Date Loan Period Principal Interest of Note Notation
- ---- ---- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 3.2
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N. A.,
as Agent for the Lenders
101 North Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, Insight Health Services Corp. (the "Borrower"), refers
to the Credit Agreement dated as of October 14, 1997 (as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"), among the
Borrower, the Guarantors, the Lenders and NationsBank, N. A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an
extension or conversion of a [Revolving Loan] [Acquisition Loan] [Tranche A Term
Loan] outstanding under the Credit Agreement, and in connection therewith sets
forth below the terms on which such extension or conversion is requested to be
made:
<TABLE>
<S> <C> <C>
(A) Loan Type/Tranche _______________________
(B) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) _______________________
(C) Principal Amount of Extension or Conversion _______________________
(D) Interest rate basis _______________________
(E) Interest Period and the last day thereof _______________________
</TABLE>
In accordance with the requirements of Section 5.3, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c) and (d) of such Section, are true and correct.
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
<PAGE>
Exhibit 7.1(c)
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, 19___.
I, ______________________, [Title] of Insight Health Services Corp.
(the "Borrower") hereby certify that, to the best of my knowledge and belief,
with respect to that certain Credit Agreement dated as of October 14, 1997 (as
amended, modified, restated or supplemented from time to time, the "Credit
Agreement"; all of the defined terms in the Credit Agreement are incorporated
herein by reference) among the Borrower, the Guarantors, the Lenders and
NationsBank, N. A., as Agent:
a. The company-prepared financial statements which accompany this
certificate are true and correct in all material respects and
have been prepared in accordance with GAAP applied on a
consistent basis, subject to changes resulting from normal
year-end audit adjustments.
b. Since ___________ (the date of the last similar certification,
or, if none, the Closing Date) no Default or Event of Default
has occurred under the Credit Agreement;
c. Consolidated Capital Expenditures for the current fiscal
year as of the date hereof are $__________________; and
d. Capital expenditures for Open MRI and its Subsidiaries for the
current fiscal year as of the date hereof are
$_________________.
Delivered herewith are detailed calculations demonstrating compliance
by the Credit Parties with the financial covenants contained in Section 7.11 of
the Credit Agreement as of the end of the fiscal period referred to above.
This ______ day of ___________, 19__.
INSIGHT HEALTH SERVICES CORP.
By:
Name:
Title:
<PAGE>
Attachment to Officer's Certificate
Computation of Financial Covenants
<PAGE>
Exhibit 7.12
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________,
19__, is by and between _____________________, a ___________________ (the
"Subsidiary"), and NATIONSBANK, N. A., in its capacity as Agent under that
certain Credit Agreement (as it may be amended, modified, restated or
supplemented from time to time, the "Credit Agreement"), dated as of October 14,
1997, by and among Insight Health Services Corp., a Delaware corporation (the
"Borrower"), the Guarantors, the Lenders and NationsBank, N. A., as Agent. All
of the defined terms in the Credit Agreement are incorporated herein by
reference.
The Subsidiary is an Additional Credit Party, and, consequently, the
Credit Parties are required by Section 7.12 of the Credit Agreement to cause the
Subsidiary to become a "Guarantor".
Accordingly, the Subsidiary hereby agrees as follows with the Agent,
for the benefit of the Lenders:
1. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement, and
shall have all of the obligations of a Guarantor thereunder as if it had
executed the Credit Agreement. The Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
applicable to the Guarantors contained in the Credit Agreement. Without limiting
the generality of the foregoing terms of this paragraph 1, the Subsidiary hereby
(i) jointly and severally together with the other Guarantors, guarantees to each
Lender and the Agent, as provided in Section 4 of the Credit Agreement, the
prompt payment and performance of the Credit Party Obligations in full when due
(whether at stated maturity, as a mandatory prepayment, by acceleration or
otherwise) strictly in accordance with the terms thereof.
2. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Security Agreement, and shall have all the obligations of an "Obligor" (as such
term is defined in the Security Agreement) thereunder as if it had executed the
Security Agreement. The Subsidiary hereby ratifies, as of the date hereof, and
agrees to be bound by, all of the terms, provisions and conditions contained in
the Security Agreement. Without limiting generality of the foregoing terms of
this paragraph 2, the Subsidiary hereby grants to the Agent, for the benefit of
the Lenders, a continuing security interest in, and a right of set off against
any and all right, title and interest of the Subsidiary in and to the Collateral
(as such term is defined in Section 2 of the Security Agreement) of the
Subsidiary. The Subsidiary hereby represents and warrants to the Agent that:
(i) The Subsidiary's chief executive office and chief place of
business are (and for the prior four months have been) located at the
locations set forth on Schedule 1 attached hereto and the Subsidiary
keeps its books and records at such locations.
(ii) The type of Collateral owned by the Subsidiary and the
location of all Collateral owned by the Subsidiary is as shown on
Schedule 2 attached hereto.
(iii) The Subsidiary's legal name is as shown in this
Agreement and the Subsidiary has not in the past four months changed
its name, been party to a merger, consolidation or other change in
structure or used any tradename except as set forth in Schedule 3
attached hereto.
(iv) The patents and trademarks listed on Schedule 4 attached
hereto constitute all of the registrations and applications for the
patents and trademarks owned by the Subsidiary.
3. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Pledge Agreement, and shall have all the obligations of a "Pledgor" thereunder
as if it had executed the Pledge Agreement. The Subsidiary hereby ratifies, as
of the date hereof, and agrees to be bound by, all the terms, provisions and
conditions contained in the Pledge Agreement. Without limiting the generality of
the foregoing terms of this paragraph 3, the Subsidiary hereby pledges and
-1-
<PAGE>
assigns to the Agent, for the benefit of the Lenders, and grants to the Agent,
for the benefit of the Lenders, a continuing security interest in any and all
right, title and interest of the Subsidiary in and to Pledged Shares (as such
term is defined in Section 2 of the Pledge Agreement) listed on Schedule 5
attached hereto and the other Pledged Collateral (as such term is defined in
Section 2 of the Pledge Agreement).
4. The address of the Subsidiary for purposes of all notices and other
communications is ____________________, ____________________________, Attention
of ______________ (Facsimile No. ____________).
5. The Subsidiary hereby waives acceptance by the Agent and the Lenders
of the guaranty by the Subsidiary under Section 4 of the Credit Agreement upon
the execution of this Agreement by the Subsidiary.
6. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
7. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Subsidiary has caused this Joinder Agreement to
be duly executed by its authorized officers, and the Agent, for the benefit of
the Lenders, has caused the same to be accepted by its authorized officer, as of
the day and year first above written.
[SUBSIDIARY]
By:
Name:
Title:
Acknowledged and accepted:
NATIONSBANK, N. A., as Agent
By:
Name:
Title:
<PAGE>
Schedule 1
TO FORM OF JOINDER AGREEMENT
[Chief Executive Office and
Chief Place of Business of Subsidiary]
<PAGE>
Schedule 2
TO FORM OF JOINDER AGREEMENT
[Types and Locations of Collateral]
<PAGE>
Schedule 3
TO FORM OF JOINDER AGREEMENT
[Tradenames]
<PAGE>
Schedule 4
TO FORM OF JOINDER AGREEMENT
[Patents and Trademarks]
<PAGE>
Schedule 5
TO FORM OF JOINDER AGREEMENT
[Pledged Shares]
<PAGE>
Exhibit 11.3(b)
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of October 14, 1997,
as amended and modified from time to time thereafter (the "Credit Agreement")
among Insight Health Services Corp., the other Credit Parties party thereto, the
Lenders party thereto and NationsBank, N.A., as Agent. Terms defined in the
Credit Agreement are used herein with the same meanings.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Credit Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Credit Documents. After
giving effect to such sale and assignment, the Assignee's Commitment and the
amount of the Loans owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Credit Party or
the performance or observance by any Credit Party of any of its obligations
under the Credit Documents or any other instrument or document furnished
pursuant thereto; and (iv) attaches the Notes held by the Assignor and requests
that the Agent exchange such Notes for new Notes payable to the order of the
Assignee in an amount equal to the Commitment assumed by the Assignee pursuant
hereto and to the Assignor in an amount equal to the Commitment retained by the
Assignor, if any, as specified on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 3.11.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
-1-
<PAGE>
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and unused fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date hereof.
____________________, as Assignor
By:
Name:
Title:
_____________________, as Assignee
By:
Name:
Title:
Notice address of Assignee:
Assignee
==========================
Attn: _____________________
Telephone: (___) ________
Telecopy: (___) ________
-2-
<PAGE>
CONSENTED TO:
NATIONSBANK, N.A., *
as Agent
By:
Name:
Title:
Insight Health Services Corp.*
By:
Name:
Title:
- ----------
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
-3-
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C> <C>
(a) Date of Assignment:
(b) Legal Name of Assignor:
(c) Legal Name of Assignee:
(d) Effective Date of Assignment* :
(e) Revolving Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(f) Revolving Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(g) Revolving Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(h) Revolving Committed Amount as of Effective Date $_____________
(i) Dollar Amount of Assignor's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (g)) $_____________
(j) Dollar Amount of Assignee's Revolving Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (f)) $_____________
(k) Tranche A Term Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(l) Tranche A Term Loan Commitment Percentage of Assignee after
giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(m) Tranche A Term Loan Commitment Percentage of Assignor after
giving effect to this Assignment and Acceptance
on the Effective Date (set forth to at least 8 decimals) %
(n) Outstanding Balance of Tranche A Term Loan as of Effective Date $_____________
(o) Principal Amount of Assignor's portion of the Tranche A Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth
in (n) multiplied by the percentage set forth in (m)) $_____________
(p) Principal Amount of Assignee's portion of the Tranche A Term
Loan after giving effect to this Assignment and Acceptance on
Effective Date (the amount set forth in (n)
multiplied by the percentage set forth in (l)) $_____________
</TABLE>
- --------
* This date should be no earlier than five Business Days after delivery of this
Assignment and Acceptance to the Agent.
4
<PAGE>
<TABLE>
<S> <C> <C>
(q) Acquisition Loan Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(r) Acquisition Loan Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(s) Acquisition Loan Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(t) Acquisition Loan Committed Amount as of Effective Date $_____________
(u) Dollar Amount of Assignor's Acquisition Loan Commitment
Percentage as of the Effective Date (the amount set
forth in (t) multiplied by the percentage set forth in (s)) $_____________
(v) Dollar Amount of Assignee's Acquisition Loan Commitment
Percentage as of the Effective Date (the amount set
forth in (t) multiplied by the percentage set forth in (r)) $_____________
</TABLE>
5
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION
- ------------------------------------------------------------------------ --------------------
<S> <C>
InSight Health Corp..................................................... Delaware
Radiosurgery Centers, Inc............................................. Delaware
Mississippi Mobile Technology, Inc.................................... Mississippi
Maxum Health Corp....................................................... Delaware
Quest Financial Services, Inc......................................... Delaware
Maxum Health Services Corp............................................ Delaware
Diagnostic Solutions Corp........................................... Delaware
Diagnostic Solutions Corp. II..................................... Delaware
Diagnos Temps, Inc. Delaware
MTS Enterprises, Inc. Texas
Maxum Health Services of Arlington, Inc............................. Texas
Maxum Health Services of Dallas, Inc................................ Texas
Maxum Health Services of North Texas, Inc. Texas
NDDC, Inc........................................................... Texas
Open MRI, Inc........................................................... Delaware
Radiology Services Corp................................................. Delaware
Signal Medical Services, Inc............................................ Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
July 29, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our reports included herein and to the references
to our firm under the headings "Experts" and "Summary Consolidated Historical
Financial Data" in the prospectus.
KPMG Peat Marwick LLP
Hartford, Connecticut
July 31, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of InSight Health
Services Corp. on Form S-4 of our report for Maxum Health Corp. dated March 1,
1996, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the Headings "Selected
Historical Consolidated Financial and Operating Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
July 29, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of InSight Health
Services Corp. on Form S-4 of our report dated January 20, 1997, appearing in
the Prospectus which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
BAKER NEWMAN & NOYES
LIMITED LIABILITY COMPANY
July 29, 1998
<PAGE>
EXHIBIT 99.1
FORM OF LETTER OF TRANSMITTAL
INSIGHT HEALTH SERVICES CORP.
OFFER FOR
ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS, DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED
SECURITIES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME
ON THE EXPIRATION DATE.
THE EXCHANGE AGENT IS:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Dept. Two International Place
PO Box 778 Corporate Trust Window, 4th Floor
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attn: Kellie Mullen Attn: Kellie Mullen
</TABLE>
BY FACSIMILE:
(for Eligible Institutions Only)
State Street Bank and Trust Company
CONFIRM BY FAX
Attn: Corporate Trust Operations
(617) 664-5290
CONFIRM BY TELEPHONE:
(617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated , 1998 (the "Prospectus") of InSight Health Services
Corp. (the "Issuer") and this Letter of Transmittal (the "Letter"), which
together constitute the Issuer's offer (the "Exchange Offer") to exchange an
aggregate principal amount of up to $100,000,000 of 9 5/8% Series B Senior
Subordinated Notes Due 2008 (the "Exchange Notes") of the Issuer, which have
been registered under the Securities Act of 1933, as amended, for a like
principal amount of the Issuer's issued and outstanding 9 5/8% Senior
Subordinated
<PAGE>
Notes Due 2008 (the "Outstanding Notes" and, with the Exchange Notes, the
"Notes"). Capitalized terms used but not defined herein have the meanings given
to them in the Prospectus.
For each Outstanding Note accepted for exchange and not validly withdrawn,
the holder of such Outstanding Note will receive an Exchange Note having a
principal amount equal to that of the surrendered Outstanding Note. If the
Exchange Offer has not been consummated on or prior to December 9, 1998 or a
shelf registration statement is not declared effective when required, then the
Issuer will pay liquidated damages to each Holder of Outstanding Notes for the
first 90 days following such date in an amount equal to $.05 per week per $1,000
principal amount of Outstanding Notes held by such Holder. The amount of
liquidated damages will increase by an additional $.05 per week per $1,000
principal amount of Outstanding Notes at the beginning of each subsequent 90-day
period until the Exchange Offer is consummated or the shelf registration is
declared effective, up to a maximum amount of liquidated damages of $.30 per
week per $1000 principal amount of Outstanding Notes.
The Exchange Notes will bear interest from the last interest payment date of
the Outstanding Notes to occur prior to the issue date of the Exchange Notes at
the same rate and upon the same terms as the Outstanding Notes. Holders whose
Outstanding Notes are accepted for exchange will not receive interest on such
Outstanding Notes for any period subsequent to the last interest payment date of
the Outstanding Notes to occur prior to the issue date of the Exchange Notes or,
if no such interest has been paid, from June 12, 1998, and will be deemed to
have waived the right to receive any payment in respect of interest on the
Outstanding Notes accrued from and after such date.
Pursuant to the Registration Rights Agreement, dated as of June 12, 1998, by
and among the Issuer, the Subsidiary Guarantors and the Initial Purchasers (the
"Registration Rights Agreement"), the Issuer has agreed to keep the Exchange
Offer open for not less than 30 days and not more than 45 days after the date
notice thereof is mailed to the holders of the Outstanding Notes (or longer if
required by applicable law). The Issuer shall notify the holders of the
Outstanding Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M. New York City time, on the next business day
after the previously scheduled Expiration Date, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
entitled "Exchange Offer--Certain Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Outstanding Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
This Letter is to be completed by a holder of Outstanding Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Outstanding Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the section entitled "Exchange Offer--Procedures for Tendering
Outstanding Notes." Holders of Outstanding Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and deliver all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, may tender their Outstanding
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the section entitled "Exchange Offer--Guaranteed Delivery
Procedures." Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Outstanding Notes must
complete this Letter of Transmittal in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE
BOX BELOW.
List below the Outstanding Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Outstanding Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES
(SEE INSTRUCTIONS 2, 3, AND 8)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE(S) TENDERED PURSUANT TO THIS LETTER
HOLDER(S) OR CEDE & CO. PARTICIPANT(S) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TITLE OF AGGREGATE PRINCIPAL
SECURITIES AND PRINCIPAL AMOUNT OF
CERTIFICATE AMOUNT OF OUTSTANDING
NUMBER(S)(1) OUTSTANDING NOTES
NOTES TENDERED(2)
(Must be in
denominations of
principal amount
of $1,000 or
integral
multiples
thereof)
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
---------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Certificate numbers not required if Outstanding Notes are being tendered by
book-entry transfer.
(2) Unless otherwise indicated, a holder will be deemed to have tendered ALL of
the Outstanding Notes represented in column 2.
<PAGE>
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________________
Account Number: ________________________________________________________________
Transaction Code Number: _______________________________________________________
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): _______________________________________________
Window Ticket Number (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution which guaranteed delivery: _________________________________
If delivered by Book-Entry Transfer, complete the following:
Account Number: ________________________________________________________________
Transaction Code Number: _______________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
You are entitled to as many copies as you may reasonably request. If you
need more than 10 copies, please so indicate by noting the number of copies
required below: .
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of
Outstanding Notes indicated above. The undersigned has completed, executed and
delivered this Letter to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the
Outstanding Notes tendered hereby, the undersigned hereby transfers to, or upon
the order of, the Issuer all right, title and interest in and to such
Outstanding Notes as are being tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Issuer) with respect to the tendered Outstanding Notes with full
power of substitution to (i) deliver certificates for such Outstanding Notes to
the Issuer and deliver all accompanying evidences of transfer and authenticity
to, or upon the order of, the Issuer, (ii) present such Outstanding Notes for
transfer on the books of the Issuer and (iii) receive for the account of the
Issuer all benefits and otherwise exercise all rights of the beneficial
ownership of such Outstanding Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
to be irrevocable from and after the Expiration Date and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender and transfer the Outstanding Notes tendered hereby
and that the Issuer will acquire such Outstanding Notes free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim when the same are accepted by the Issuer. The undersigned hereby further
represents that (i) any Exchange Notes acquired in exchange for Outstanding
Notes tendered hereby will have been acquired in the ordinary course of business
of the person receiving such Exchange Notes, whether or not
<PAGE>
such person is the undersigned, (ii) neither the holder of such Outstanding
Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and (iii)
neither the holder of such Outstanding Notes nor any such other person is an
"affiliate," as described in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Issuer.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Outstanding Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. However, the undersigned acknowledges that the Issuer
has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of the
Exchange Notes and that it has no arrangement or understanding with respect to
the distribution of the Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Outstanding
Notes, it represents that the Outstanding Notes to be exchanged for Exchange
Notes were acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment, transfer and sale of the Outstanding Notes
tendered hereby. All authority conferred or agreed to be conferred in this
Letter and every obligation of the undersigned hereunder shall be binding upon
the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter or in the Prospectus under the section
entitled "Exchange Offer--Withdrawal Rights."
For the purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Outstanding Notes when, as and if the Issuer has given
oral and written notice thereof to the Exchange Agent.
If any tendered Outstanding Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted
Outstanding Notes will be returned (or, in the case of Outstanding Notes
tendered by book-entry transfer through the Book-Entry Transfer Facility, will
be promptly credited to an account maintained at the Book-Entry Transfer
Facility), without expense, to the undersigned at the address shown below or at
a different address as may be indicated herein under the "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
<PAGE>
The undersigned understands that tenders of Outstanding Notes pursuant to
the procedures described in the Prospectus under the section entitled "Exchange
Offer--Procedures for Tendering Outstanding Notes" and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Issuer upon the terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the Exchange Notes (and, if applicable,
substitute certificates representing Outstanding Notes for any Outstanding Notes
not exchanged) in the name(s) of the undersigned or, in the case of a book-entry
delivery of Outstanding Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the Exchange Notes (and, if applicable, substitute certificates
representing Outstanding Notes for any Outstanding Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of
Outstanding Notes." In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Outstanding Notes
accepted for exchange in the name(s) of, and return any certificates for
Outstanding Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned understands that the Issuer has no obligations pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Outstanding Notes from the name of the registered holder(s) thereof if the
Issuer does not accept for exchange any of the Outstanding Notes so tendered.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Outstanding Notes not exchanged
and/or Exchange Notes are to be issued in the name of someone other than the
person or person(s) whose signature(s) appear(s) on this Letter below, or if
Outstanding Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the Book-Entry
Transfer Facility other than the account indicated above.
Issue: Exchange Notes and/or Outstanding Notes to:
Name: __________________________________________________________________________
(Please Type or Print)
Name: __________________________________________________________________________
(Please Type or Print)
Address: _______________________________________________________________________
Employer Identification or Social Security Number: _____________________________
(Complete Substitute Form W-9)
/ / Credit non-accepted Outstanding Notes delivered by book-entry transfer to
the following Book-Entry Transfer Facility account:
________________________________________________________________________________
(Book-entry Transfer Facility Account Number, if applicable)
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Outstanding Notes not exchanged
and/or Exchange Notes are to be sent to someone other than the person or persons
whose signature(s) appear(s) on this Letter below or to such person or persons
at an address other than shown in the box entitled "Description of Outstanding
Notes" on this Letter above.
Mail: Exchange Notes and/or Outstanding Notes to:
Name: __________________________________________________________________________
(Please Type or Print)
Name: __________________________________________________________________________
(Please Type or Print)
Address: _______________________________________________________________________
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (TOGETHER
WITH THE CERTIFICATES FOR OUTSTANDING NOTES OR A BOOK-ENTRY CONFIRMATION AND
ANY OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
I hereby TENDER the Outstanding Notes described above in the box entitled
"Description of Outstanding Notes" pursuant to the terms of the Exchange Offer.
X____________________________________ ___________________________________, 1998
X____________________________________ ___________________________________, 1998
X____________________________________ ___________________________________, 1998
Signature(s) of Owner(s) Date
Area Code and Telephone Number: ________________________________________________
If a holder is tendering any Outstanding Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Outstanding Notes or on a security position listing or by any person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 4.
Name(s): _______________________________________________________________________
(Please Type or Print)
Name:(s): ______________________________________________________________________
(Please Type or Print)
Capacity: ______________________________________________________________________
<PAGE>
Address: _______________________________________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
Signature(s) Guaranteed by an Eligible Institution:
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Area Code and Telephone Number)
Dated: ___________________________________________________________________, 1998
<PAGE>
IMPORTANT TAX INFORMATION
Under U.S. federal income tax laws, a registered holder of Notes is required
to provide the Trustee (as defined in the Prospectus) (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below or otherwise establish a basis for exemption from backup withholding. If
such holder is an individual, the TIN is his or her U.S. social security number.
If the Trustee is not provided with the correct TIN, a $50 penalty may be
imposed by the Internal Revenue Service, and payments made to such holder with
respect to Notes may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. A Form W-8 can
be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31% of
any payments made to the holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to Notes, the
holder is required to provide the Trustee with: (i) the holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such holder is awaiting a TIN) and that (A) such holder
is exempt from backup withholding, (B) the holder has not been notified by the
Internal Revenue Service that the holder is subject to backup withholding as a
result of failure to report all interest or dividends or (C) the Internal
Revenue Service has notified the holder that the holder is no longer subject to
backup withholding; and (ii) if applicable, an adequate basis for exemption.
<PAGE>
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, N.A.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------
SUBSTITUTE Part I--PLEASE PROVIDE
FORM W-9 YOUR TIN IN THE BOX AT
Department of the Treasury RIGHT AND CERTIFY BY -------------------
Internal Revenue Service SIGNING AND DATING Social Security Number
Payor's Request for Taxpayer BELOW. OR -------------------
Identification Number (TIN) Employer Identification Number
----------------------------------------------------------
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding; or (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of failure to report all
interest or dividends; or (c) the IRS has notified me that I am no longer subject to
backup withholding.
</TABLE>
<TABLE>
<S> <C> <C> <C>
PART II--AWAITING PART III--EXEMPT / /
TIN / /
</TABLE>
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2).
Signature _______________________________ Date ______________________________
Please fill out your name and address below:
________________________________________________________________________________
Name
________________________________________________________________________________
Address (Number and street)
________________________________________________________________________________
City, State and Zip Code
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART II OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number to the
payor by the time of payment, 31% of all reportable payments made to me will
be withheld until I provide a number and that, if I do not provide my taxpayer
identification number within 60 days, such retained amounts shall be remitted
to the IRS as backup withholding.
Signature ________________________________________ Date ___________________
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (TOGETHER
WITH THE CERTIFICATES FOR OUTSTANDING NOTES OR A BOOK-ENTRY CONFIRMATION AND
ANY OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX ABOVE.
This letter must be used to forward, and must accompany, all certificates for
Outstanding Notes tendered pursuant to the Exchange Offer.
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES.
This letter is to be completed by holders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in the Prospectus under the section
entitled "Exchange Offer--Book-Entry Transfer." Certificates for all physically
tendered Outstanding Notes, or Book-Entry Confirmation, as the case may be, as
well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Outstanding Notes tendered hereby must be
in denominations of $1,000 or integral multiples thereof.
The method of delivery of this Letter, the Outstanding Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received and confirmed by the
Exchange Agent. If Outstanding Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. No Letters or Outstanding Notes should be sent to the Issuer.
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, (ii) cannot deliver their Outstanding
Notes, this Letter or any other documents required hereby to the Exchange Agent
prior to the Expiration Date or (iii) cannot comply with the procedures for
book-entry tender on a timely basis must tender their Outstanding Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
Pursuant to such procedures: (i) such tender must be made through an Eligible
Institution (as defined below); (ii) prior to the Expiration Date, the Exchange
Agent must have received from the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile
transmission (immediately followed by mail or hand delivery)) setting forth the
name and address of the holder, the certificate number(s) of such Outstanding
Notes (except in the case of book-entry tenders) and the principal amount of
Outstanding Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter (or a facsimile hereof) together with the certificate(s) representing the
Outstanding Notes (except in the case of book-entry tenders) and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter (or
facsimile hereof), as well as all other documents required by this Letter and
the certificate(s) representing all tendered Outstanding Notes in proper form
for transfer or a Book-Entry Confirmation with respect to such Outstanding
Notes, must be received by the Exchange Agent within five business days after
the Expiration Date, all as provided in the Prospectus under the section
entitled "Exchange Offer--Guaranteed Delivery Procedures." Any holder who wishes
to tender his Outstanding Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the
<PAGE>
Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Outstanding Notes
according to the guaranteed delivery procedures set forth above. As used in this
Letter, "Eligible Institution" shall mean a firm which is a member of a
registered securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States or which is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
All questions as to the validity, eligibility (including time of receipt),
acceptance and withdrawal of tendered Outstanding Notes will be determined by
the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Issuer's
acceptance of which would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Issuer shall
determine. Neither the Issuer, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Outstanding Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Outstanding Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in this Letter, as soon as practicable following the
Expiration Date.
See the section entitled "Exchange Offer" in the Prospectus.
2. TENDER BY HOLDER.
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. Any beneficial owner whose Outstanding Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact the registered holder promptly and
instruct such registered holder to tender on behalf of such beneficial owner. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing this Letter and delivering such owner's
Outstanding Notes, either make appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
3. PARTIAL TENDERS AND WITHDRAWALS.
Tenders of Outstanding Notes will be accepted only in denominations of
$1,000 or integral multiples thereof. If less than all of a holder's Outstanding
Notes are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Outstanding Notes to be tendered in the box above entitled
"Description of Outstanding Notes--Principal Amount of Outstanding Notes
Tendered." A reissued certificate representing the balance of nontendered
Outstanding Notes will be sent to such tendering holder (except in the case of
book-entry tenders), unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. All of the Outstanding Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
Any holder who has tendered Outstanding Notes may withdraw the tender by
delivering written notice of withdrawal to the Issuer prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at its
address set forth on the first page of this Letter. Any such notice of
withdrawal must (i) specify the name of the person having deposited the
Outstanding Notes to be withdrawn (the "Depositor"); (ii) identify the
Outstanding Notes to be withdrawn (including the certificate number or numbers
and principal amount of
<PAGE>
such Outstanding Notes (except in the case of book-entry tenders)); (iii) be
signed by the holder in the same manner as the original signature on this Letter
by which such Outstanding Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee (as defined in the Prospectus) register the transfer of such Outstanding
Notes into the name of the person withdrawing the tender, and (iv) specify the
name in which any such Outstanding Notes are to be registered, if different from
that of the Depositor. If Outstanding Notes have been delivered or otherwise
identified to the Exchange Agent, the name of the registered holder and the
certificate numbers of the particular Outstanding Notes withdrawn must also be
furnished to the Exchange Agent as aforesaid prior to the physical release of
the withdrawn Outstanding Notes. If the Outstanding Notes have been tendered
pursuant to the procedures for book-entry tender set forth in the Prospectus, a
notice of withdrawal must specify, in lieu of certificate numbers, the name and
account number at the Book-Entry Transfer Facility to be credited with the
withdrawn Outstanding Notes. Outstanding Notes properly withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer;
provided, however, that withdrawn Outstanding Notes may be retendered by again
following one of the procedures herein at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. All questions as to the validity, form and
eligibility (including time of receipt) of notice of withdrawal will be
determined by the Issuer, whose determinations will be final and binding on all
parties. Neither the Issuer, the Exchange Agent nor any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification. See the section entitled "Exchange Offer--Withdrawal Rights" in
the Prospectus.
4. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURE.
If this Letter is signed by the registered holder of the Outstanding Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates (if applicable) without any change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Outstanding Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Outstanding Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Outstanding Notes are to be reissued,
to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder(s) appear(s) on the
certificate(s).
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Issuer,
proper evidence satisfactory to the Issuer of their authority to so act must be
submitted.
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 4 must be guaranteed by an Eligible
Institution.
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Outstanding Notes are tendered: (i) by a registered holder of such
Outstanding Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Outstanding Notes) who has not
completed the box entitled "Special Issuance Instructions" on this Letter or
(ii) for the account of an Eligible Institution.
<PAGE>
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Outstanding Notes should indicate in the applicable box
the name and address in or to which Exchange Notes issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Outstanding Notes not
exchanged are to be issued or sent, if different from the name or address of the
Person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Holders tendering Outstanding Notes by book-entry transfer may
request that Outstanding Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such holder may designate
hereon. If no such instructions are given, such Outstanding Notes not exchanged
will be returned to the name or address of the person signing this Letter.
6. WAIVER OF CONDITIONS.
Subject to the terms and conditions set forth in the Prospectus, the Issuer
reserves the absolute right to waive satisfaction of any or all conditions
enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Outstanding Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their
Outstanding Notes for exchange.
Neither the Issuer, the Exchange Agent nor any other person is obligated to
give notice of defects or irregularities with respect to any tender of
Outstanding Notes, nor shall any of them incur any liability for failure to give
any such notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address indicated on the first page of this Letter.
<PAGE>
EXHIBIT 99.2
FORM OF NOTICE OF GUARANTEED DELIVERY
NOTICE OF GUARANTEED DELIVERY
FOR
INSIGHT HEALTH SERVICES CORP.
As set forth in the Prospectus dated , 1998 (the "Prospectus") of InSight
Health Services Corp. (the "Issuer") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Issuer's offer
(the "Exchange Offer") to exchange its outstanding 9 5/8% Senior Subordinated
Notes Due 2008 (the "Outstanding Notes") for its Series B 9 5/8% Senior
Subordinated Notes Due 2008 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended, if the Letter of Transmittal or
any other documents required thereby cannot be delivered to the Exchange Agent,
or the procedure for book-entry transfer cannot be completed, prior to 5:00
P.M., New York City time, on the Expiration Date (as defined herein). This form
may be delivered by an Eligible Institution by hand or transmitted by facsimile
transmission, overnight courier or mail to the Exchange Agent as set forth
below. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED SECURITIES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION
DATE.
DELIVERY TO: State Street Bank and Trust Company, N.A., as Exchange Agent
If by Mail, Hand or Overnight Courier:
State Street Bank and Trust Company, N.A.
61 Broadway, 15th Floor
New York, New York 10006
Attention: __________
or
If by Facsimile:
(212) 612-3201
(for Eligible Institutions only)
Confirm by Telephone:
(212) 612-3450
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA A FACSIMILE,
OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Outstanding Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and subject to
the conditions to the Exchange Offer set forth in the Prospectus and the Letter
of Transmittal, receipt of which is hereby acknowledged, the principal amount of
Outstanding Notes set forth below pursuant to the guaranteed delivery procedures
described in the Prospectus under the section entitled "Exchange
Offer--Guaranteed Delivery Procedures."
The undersigned understands that tenders of Outstanding Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Outstanding Notes pursuant
to the Exchange Offer may only be withdrawn prior to 5:00 P.M., New York City
time, on the Expiration Date pursuant to the procedures described in the
Prospectus under the section entitled "Exchange Offer--Withdrawal Rights."
Tenders of Outstanding Notes may also be withdrawn if the Exchange Offer is
terminated without any such Outstanding Notes being purchased thereunder or as
otherwise provided in the Prospectus.
All authority thereto conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, executors, administrators, successors,
assigns, trustees in bankruptcy and other legal representatives of the
undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Principal Amount of Outstanding Notes: _________________________________________
Name(s) of Holder(s): __________________________________________________________
Address: _______________________________________________________________________
Area Code and Telephone No.: ___________________________________________________
<TABLE>
<S> <C>
Signature(s) Dated:
Dated:
Signature(s)
</TABLE>
The Depository Trust Company Account No.: ______________________________________
This Notice of Guaranteed Delivery must be signed by (i) the Holders(s) of
Outstanding Notes exactly as its (their) name(s) appear on a security position
listing maintained by The Depository Trust Company as the owner of Outstanding
Notes or (ii) by person(s) authorized to become Holder(s) by documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES) OF PERSON SIGNING ABOVE.
Name(s):________________________________________________________________________
Capacity:_______________________________________________________________________
Address(es):____________________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to
the Exchange Agent of a confirmation of the book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at The Depository Trust
Company, pursuant to the procedures for book-entry transfer set forth in the
Prospectus, with delivery of either a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any required
signatures and any other documents required by the Letter of Transmittal, will
be received by the Exchange Agent within five New York Stock Exchange trading
days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OUTSTANDING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME
PERIOD SET FORTH HEREIN AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS
TO THE UNDERSIGNED.
<TABLE>
<S> <C>
Name of Firm Authorized Signature
DTC Participant Number Title
Address Name (Please Print or Type)
City State Zip Code Area Code and Telephone No.
Contact Name Date
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
FORM OF LETTERS TO DTC PARTICIPANTS
OFFER FOR
ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OF
INSIGHT HEALTH SERVICES, CORP.
To The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by InSight Health Services Corp. (the "Issuer") to exchange its 9 5/8% Series B
Senior Subordinated Notes Due 2008 (the "Exchange Notes"), pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding
9 5/8% Senior Subordinated Notes Due 2008 (the "Outstanding Notes") upon the
terms and subject to the conditions set forth in the Issuer's Prospectus dated
, 1998, and the related Letter of Transmittal (which together constitute
the "Exchange Offer").
Enclosed herewith are copies of the following documents;
1. Prospectus dated , 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Book-Entry Transfer Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Outstanding Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS
EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Outstanding
Notes being tendered.
To participate in the Exchange Offer, a beneficial holder must cause a DTC
Participant to tender such holder's Outstanding Notes to the account of State
Street Bank and Trust Company, N.A. (the "Exchange Agent") maintained at The
Depository Trust Company ("DTC") for the benefit of the Exchange Agent through
DTC's Automated Tender Offer Program ("ATOP"), including transmission of a
computer-generated message that acknowledges and agrees to be bound by the terms
of the Letter of Transmittal. By complying with DTC's ATOP procedures with
respect to the Exchange Offer, the DTC Participant confirms on behalf of itself
and the beneficial owners of tendered Outstanding Notes all provisions of the
Letter of Transmittal applicable to it and such beneficial owners as fully as if
it completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes will
represent to the Issuer that (i) the Exchange Notes acquired in the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is such holder, (ii)
neither the holder of the Outstanding Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, (iii) if the holder is not a broker-dealer or is a
broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, neither the holder nor any such other person is
engaged in or intends to participate in
<PAGE>
a distribution of the Exchange Notes or has any arrangement or understanding
with respect to the distribution of the Exchange Notes and (iv) neither the
holder nor any such person is an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act. If the tendering holder is a broker-dealer
that will receive Exchange Notes for its own account pursuant to the Exchange
Offer, you represent on behalf of such broker-dealer that the Outstanding Notes
to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The enclosed Instruction to the Book Entry Transfer Participant from Owner
contains an authorization by the beneficial owners of the Outstanding Notes for
you to make the foregoing representations.
The Issuer will not pay any fee or commission to any broker or dealer or to
any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Outstanding Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Outstanding Notes [pursuant to the Exchange Offer, except as otherwise
provided in Instruction 5 of the enclosed Letter of Transmittal.]
Additional copies of the enclosed material may be obtained from State Street
Bank and Trust Company, N.A., 61 Broadway, 15th Floor, New York, NY 10006,
Attention: .
Very truly yours,
INSIGHT HEALTH SERVICES CORP.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF INSIGHT HEALTH SERVICES CORP. OR STATE STREET BANK AND TRUST COMPANY,
N.A., OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF
IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
EXHIBIT 99.4
FORM OF LETTER TO CLIENTS
AND FORM OF INSTRUCTION TO BOOK-ENTRY TRANSFER PARTICIPANTS
OFFER FOR
ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
OF
INSIGHT HEALTH SERVICES CORP.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1998 of InSight Health
Services Corp. (the "Issuer") and a related Letter of Transmittal (which
together constitute the "Exchange Offer") relating to the offer by the Issuer to
exchange its 9 5/8% Series B Senior Subordinated Notes Due 2008 (the "Exchange
Notes"), pursuant to an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 9 5/8% Senior Subordinated Notes Due 2008 (the "Outstanding Notes")
upon the terms and subject to the conditions set forth in the Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Outstanding
Notes being tendered.
We are the participant in a book-entry transfer facility of Outstanding
Notes held by us for your account. A tender of such Outstanding Notes can be
made only by us as the participant in such book-entry transfer facility and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Outstanding Notes held
by us for your account.
We request instructions as to whether you wish to tender any or all of the
Outstanding Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal
that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes will
represent to the Issuer that (i) the Exchange Notes acquired in the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, (ii) the holder of the Outstanding Notes has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, (iii) if the holder is not a broker-dealer or is a
broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, the holder is not engaged in and does not intend
to participate in a distribution of the Exchange Notes and that it has no
arrangement or understanding with respect to the distribution of the Exchange
Notes and (iv) the holder is not an "affiliate" of the Issuer within the meaning
of Rule 405 under the Securities Act. If the tendering holder is a broker-dealer
that will receive Exchange Notes for its own account pursuant to the Exchange
Offer, we will represent on behalf of such broker-dealer that the Outstanding
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
<PAGE>
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER OF
INSIGHT HEALTH SERVICES CORP.
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
To Participant of the Book Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1998 of InSight Health Services Corp. (the "Issuer") and a related Letter of
Transmittal (which together constitute the "Exchange Offer"). Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
This will instruct you, the book-entry transfer facility participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Outstanding Notes held by you for the account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (fill in amount):
$ of the 9 5/8% Senior Subordinated Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you (check
appropriate statement):
A. To TENDER the following Outstanding Notes held by you for the account
of the undersigned (insert principal amount of Outstanding Notes to be
tendered): $ of the 9 5/8% Senior Subordinated Notes Due 2008, and not
to tender other Outstanding Notes, if any, held by you for the account or the
undersigned;
OR
B. NOT to tender any Outstanding Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Outstanding Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to; the representations that (i) the
Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, (ii) the undersigned has no
arrangement nor understanding with any person to participate in the distribution
of such Exchange Notes, (iii) if the undersigned is not a broker-dealer or is a
broker-dealer but will not receive Exchange Notes for its own account in
exchange for Outstanding Notes, the undersigned is not engaged in and does not
intend to participate in a distribution of the Exchange Notes and that it has no
arrangement or understanding with respect to the distribution of the Exchange
Notes and (iv) the undersigned is not an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act. If the undersigned is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account pursuant to the Exchange Offer, it represents
that such Outstanding Notes to be exchanged for the Exchange Notes were acquired
by it as a result of market-making activities or other trading activities, and
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
SIGN HERE
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
Date: __________________________________________________________________________
