<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
Registration No. 333-33817
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALLIANCE IMAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8099 33-0239910
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
OFINCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
---------------
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CALIFORNIA 92806
(714) 688-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
SMT ACQUISITION CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8099 33-0768045
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
OFINCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
---------------
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CALIFORNIA 92806
(714) 688-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROYAL MEDICAL HEALTH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
PENNSYLVANIA 8099 25-1738355
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
OFINCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
---------------
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CALIFORNIA 92806
(714) 688-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
<PAGE>
---------------
ALLIANCE IMAGING OF CENTRAL GEORGIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
GEORGIA 8099 33-0606074
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
OFINCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)
---------------
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CALIFORNIA 92806
(714) 688-7100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MR. RICHARD N. ZEHNER, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1065 NORTH PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CALIFORNIA 92806
(714) 688-7100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH COPIES TO:
ANTHONY T. ILER, ESQ. JOHN J. SUYDAM, ESQ. JAMES J. CLARK, ESQ.
IRELL & MANELLA LLP O'SULLIVAN GRAEV & CAHILL GORDON & REINDEL
333 SOUTH HOPE STREET KARABELL, LLP 80 PINE STREET
SUITE 3300 30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10005
LOS ANGELES, CALIFORNIA NEW YORK, NEW YORK 10112 (212) 701-3000
90071 (212) 408-2400
(213) 620-1555
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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 THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT 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 SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1997
PROSPECTUS
$170,000,000
ALLIANCE IMAGING, INC.
% SENIOR SUBORDINATED NOTES DUE 2005
----------
Alliance Imaging, Inc. ("Alliance") is offering $170,000,000 (the "Offering")
aggregate principal amount of its % Senior Subordinated Notes due 2005 (the
"Notes"). The Offering is part of the financing that will be used to consummate
the recapitalization of Alliance (the "Recapitalization"). The Recapitalization
will be effected pursuant to an Agreement and Plan of Merger (the
"Recapitalization Merger Agreement"). Under the terms of the Recapitalization
Merger Agreement, an entity formed by affiliates of Apollo Management, L.P.
(collectively, "Apollo") will merge with and into Alliance upon the completion
of the Offering, with Alliance as the surviving corporation. Concurrently with
the Recapitalization, Alliance will acquire (the "SMT Acquisition") all of the
capital stock of Three Rivers Holding Corp. ("Three Rivers"), a Delaware
corporation which is a wholly owned subsidiary of Apollo and the owner of all
of the capital stock of SMT Health Services Inc., a Delaware corporation
("SMT"). The consummation of the Offering, the Recapitalization and the SMT
Acquisition, and the transactions contemplated thereby, will be concurrent, and
the Offering is conditioned upon the other Transactions (as defined). As used
herein, the term "Company" refers to Alliance and its subsidiaries and SMT and
its subsidiaries on a pro forma combined basis.
Interest on the Notes will be payable semi-annually on each and , commencing
, 1998, at the rate of % per annum. The Notes will be redeemable, in whole
or in part, at the option of the Company on or after , 2001 at the redemption
prices set forth herein plus accrued interest to the date of redemption. In
addition, on or prior to , 2000, the Company may, at its option, redeem up to
40% of the aggregate principal amount of the Notes with the net cash proceeds
of one or more Equity Offerings (as defined), at the redemption price set forth
herein plus accrued interest to the date of redemption; provided, however, that
after any such redemption, 60% of the aggregate principal amount of the Notes
issued must remain outstanding.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all Senior Debt (as defined) of the
Company, including indebtedness under the Credit Agreement (as defined). The
Notes will be unconditionally guaranteed (the "Guarantees") on a senior
subordinated basis by substantially all of Alliance's domestic subsidiaries
(the "Guarantors"). The Guarantees will be general unsecured obligations of the
Guarantors and will be subordinated in right of payment to all Guarantor Senior
Debt (as defined) of the Guarantors. As of June 30, 1997, after giving pro
forma effect to the Transactions, the Company would have had approximately
$100.2 million of Senior Debt outstanding (excluding unused commitments of
$112.0 million under the Credit Agreement).
Upon a Change of Control (as defined), each holder will have the right to
require the Company to repurchase such holder's Notes at a price equal to 101%
of their principal amount plus accrued interest to the date of repurchase.
There can be no assurance that the Company will have the financial ability or
will be permitted by the Credit Agreement to repurchase the Notes. See "Risk
Factors--Repurchase of Notes upon a Change of Control." In addition, the
Company will be obligated to offer to repurchase the Notes at 100% of their
principal amount plus accrued interest to the date of repurchase in the event
of certain asset sales.
There is no existing market for the Notes, and there can be no assurance as
to the liquidity of any markets that may develop for the Notes, the ability of
the holders of the Notes to sell their Notes or the price at which such holders
would be able to sell their Notes. The Company does not intend to apply for
listing of the Notes on any securities exchange. See "Risk Factors--Absence of
Public Market."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE COMPANY(3)
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<S> <C> <C> <C>
Per Note................................. % % %
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Total.................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of original issuance of the
Notes.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Company estimated
at $ .
The Notes are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, and subject to various other conditions,
including the Underwriters' right to reject orders in whole or in part. It is
expected that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about , 1997.
JOINT BOOK-RUNNING MANAGERS
SMITH BARNEY INC.
BT ALEX. BROWN
----------
SALOMON BROTHERS INC
The date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes being offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations promulgated by the Commission. Statements made in this Prospectus,
or in any document incorporated in this Prospectus by reference, as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document
filed or incorporated by reference as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matter involved, and each such statement is qualified in its entirety
by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material may also be obtained at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees.
Such materials can also be inspected on the Internet at http://www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the places, and in
the manner, set forth above.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, so
long as the Notes remain outstanding, it will file with the Commission and
distribute to holders of the Notes copies of the financial information that
would have been contained in annual reports and quarterly reports, including
management's discussion and analysis of financial condition and results of
operations, that the Company would have been required to file with the
Commission pursuant to the Exchange Act. Such financial information will
include annual reports containing consolidated financial statements and notes
thereto, together with an opinion thereon expressed by an independent public
accounting firm, as well as quarterly reports containing unaudited condensed
consolidated financial statements for the first three quarters of each fiscal
year.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference herein the following documents filed
with the Commission pursuant to the Exchange Act:
I.
Alliance's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
II.
Alliance's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1997 and June 30, 1997; and
III. Alliance's Current Report on Form 8-K dated August 1, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
i
<PAGE>
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED
COST SAVINGS FROM THE SMT ACQUISITION CANNOT BE FULLY REALIZED; (2)
COMPETITIVE PRESSURE IN THE COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (3)
COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF ALLIANCE
AND SMT ARE GREATER THAN EXPECTED; AND (4) GENERAL ECONOMIC CONDITIONS ARE
LESS FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS WHICH COULD
AFFECT THE FINANCIAL RESULTS OF THE COMPANY AFTER THE MERGER AND SUCH FORWARD
LOOKING STATEMENTS IS INCLUDED IN THE SECTION HEREIN ENTITLED "RISK FACTORS".
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR AND PURCHASE NOTES IN THE OPEN MARKET AND MAY IMPOSE PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
ii
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus or in the documents incorporated herein by reference. Reference is
made to, and this summary is qualified in its entirety by, the more detailed
information contained elsewhere in this Prospectus and in the documents
incorporated by reference herein. Unless the context otherwise requires, the
term "Alliance" refers to Alliance Imaging, Inc., and its subsidiaries before
the Recapitalization, the term "SMT" refers to SMT Health Services Inc. and its
subsidiaries, and the term "Company" refers to Alliance and its subsidiaries
and SMT and its subsidiaries on a pro forma combined basis. The consummation of
the Offering is conditioned upon, among other things, the simultaneous
consummation of the Transactions.
THE COMPANY
The Company is a leading nationwide provider of diagnostic imaging services
and the largest operator of state-of-the-art mobile diagnostic imaging systems
and related outsourced radiology services in the United States. The Company
primarily provides magnetic resonance imaging ("MRI") systems and services to
hospitals and other health care providers on a mobile, shared user basis. The
Company also provides dedicated, full-time MRI systems and services as well as
full-service management of imaging operations for selected hospitals. The
Company's services enable small to mid-size hospitals to gain access to
advanced diagnostic imaging technology and related value-added services without
making a substantial investment in equipment and personnel.
In connection with the Offering, Alliance intends to consummate the
Recapitalization and acquire SMT, a leading provider of mobile MRI services in
the Mid-Atlantic region of the United States. Since the beginning of 1995,
Alliance and SMT have each substantially increased revenues by adding new
customers and increasing scan volumes at existing customer sites. During the
same period, the growth rate of EBITDA (as defined herein) for each of Alliance
and SMT has exceeded the growth rate of revenues principally as a result of
spreading costs (which are primarily fixed) over a larger revenue base and
implementing cost reduction and containment measures.
The Company operates a fleet of 111 MRI systems and services over 420 MRI
customers in 36 states under exclusive contracts with an average remaining
length of approximately 25 months as of July 31, 1997. Pro forma combined
revenues and adjusted EBITDA (as defined) of the Company for the six months
ended June 30, 1997 were $52.9 million and $26.5 million, respectively. See "--
Summary Pro Forma Combined Consolidated Financial Data."
INDUSTRY OVERVIEW
The diagnostic imaging industry, which involves the use of non-surgical
techniques to generate representations of internal structures and organs on
film or video, generates annual revenues in excess of $50 billion in the United
States, or 5% to 6% of total health care spending. MRI services, which involve
the use of high strength magnetic fields to produce cross-sectional images of
the anatomy, constituted approximately $6 to $7 billion of the diagnostic
imaging industry in 1996. 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 facilitates the early diagnosis of diseases and disorders, often
minimizing the cost and amount of care needed and frequently eliminating 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 the cost
efficiency and clinical effectiveness of MRI, hospitals and other health care
providers are facing competitive pressures to provide MRI technology and
related services despite budgetary limitations. Increasingly, such providers
are utilizing third parties such as the Company to provide the necessary
imaging systems and related services to avoid substantial equipment and
operating costs. Mobile MRI
<PAGE>
operators employ systems housed in specially designed trailers and typically
enter into long-term contracts to provide a specified schedule of service on a
fee-per-scan basis. Operators then design schedules for each system to rotate
among multiple hospitals in a manner that optimizes system utilization.
The MRI services industry has experienced substantial growth in demand as
measured by total scan volumes, which have increased from 5.4 million in 1990
to 8.8 million in 1996. According to an industry consultant, scan volumes are
projected to grow at approximately 7% to 8% per year through 1999 and at 5% per
year thereafter. Growth in the MRI industry is 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 encourages 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 the result of (i) economies of scale in the
provision of services to a larger customer base; (ii) cost-effective purchasing
of equipment, supplies and services by larger companies; 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 the
recent trend, management estimates that as of July 31, 1997, the top eight MRI
service providers operated only 13% of total MRI systems in the United States.
COMPETITIVE STRENGTHS
The Company attributes its market leadership and its significant
opportunities for continued growth and increased profitability to the following
strengths:
Largest Provider of Mobile MRI Services. The Company operates 111 MRI systems
in 36 states. The Company believes that the next largest mobile operator has a
fleet of approximately 70 MRI systems. Compared to its smaller competitors, the
Company believes it will benefit from (i) significant equipment purchasing
savings; (ii) attractive service and maintenance contracts from its primary
equipment suppliers; (iii) strong name recognition and a reputation for quality
service; (iv) substantial financial flexibility and access to lower-cost
capital; and (v) the ability to efficiently deploy systems in a manner which
maximizes fleet utilization while satisfying customer requirements.
Technologically Advanced MRI Fleet. On a pro forma combined basis, the
Company has invested approximately $94 million since January 1, 1995 to replace
and upgrade existing systems and to purchase new systems. As a result, the
Company believes that it has upgraded substantially all of its systems and
expects most of its capital expenditures for at least the next three to five
years to relate to new system purchases. Of the Company's 111 MRI systems, 88
are state-of-the-art, high-field 1.0 or 1.5 Tesla systems and 15 are state-of-
the-art, mid-field 0.5 Tesla systems. The Company believes its fleet is among
the newest and most advanced in the industry, enabling the Company to perform a
wider variety and greater volume of scans and produce higher quality images,
which the Company believes provides a significant competitive advantage.
Moreover, all of the Company's state-of-the-art systems are designed to
facilitate hardware and software upgrades. As a result, the Company's systems
should remain on the leading edge of technological developments. In addition,
while many of its competitors lease their systems, the Company owns the vast
majority of its systems, generally providing greater flexibility and lower
costs over the life of the systems.
Exclusive, Long-Term Contracts in Attractive Markets. The Company generates
substantially all of its revenues from exclusive, long-term contracts with
hospitals and other health care providers, with the price for its services
determined on a fee-per-scan basis. The Company's contracts typically offer
tiered pricing with lower fees on incremental scans, allowing customers to
benefit from increased scan volumes and the Company to benefit from the
operating leverage associated with increased scan volumes. Accordingly, tiered
pricing enables the Company to retain customers who may be considering
purchasing their own MRI systems rather than
2
<PAGE>
renewing a contract with a mobile provider. As of July 31, 1997, the Company
had more than 420 MRI customers under exclusive contracts which averaged
approximately 25 months in remaining length. Most of the Company's contracts
are with hospitals that have fewer than 200 beds, many of which may lack the
financial resources or patient volume to justify the purchase of an MRI system.
Superior Customer Service and Strong Customer Relationships. The Company
positions itself as a service company rather than solely as an equipment
provider and competes on the basis of value-added services in addition to
price. The Company differentiates itself from competitors by aggressively
marketing its services to referring physicians, radiologists and hospital
administrators and by having the advanced imaging systems, trained
technologists, fleet management capabilities and fleet size to accommodate the
growing needs of its customers. Value-added services offered by the Company
include patient scheduling and pre-screening, insurance pre-authorization,
appointment confirmation, billing, managed care contracting, and management
reporting services. The Company often provides two technologists per mobile
system per shift and is therefore able to accommodate higher patient volume and
operate with greater efficiency, resulting in high customer satisfaction
levels. As a result, the Company enjoys strong customer relationships, having
added more than 160 net new MRI customers from January 1, 1995 through June 30,
1997 and renewed or extended 238 of its customer contracts in this period.
Substantial Operating Leverage. Because of the significant amount of fixed
costs associated with operating an MRI system, MRI service providers benefit
from operating leverage, with increased utilization rates resulting in
significant increases in operating earnings and operating margins. On a pro
forma combined basis, the Company's average scans per system per day increased
to 7.8 for the six months ended June 30, 1997 from 7.2 for the six months ended
June 30, 1996. Over the same period, the Company's pro forma combined adjusted
EBITDA margin increased to 50.1% from 47.5%.
Favorable Payment Terms. Approximately 94% of the Company's billings are
direct to hospitals. The hospitals, in turn, generally pay the Company prior to
collecting from patients and third party payors. Accordingly, the Company's
exposure to uncollectible patient receivables is minimized. In addition,
management believes that the Company's average number of days sales outstanding
("DSO") of receivables, which was 42 days as of July 31, 1997, is among the
most favorable in the mobile MRI industry and more favorable than the DSO of
many health care companies.
Experienced Management Team. The Company's senior management team has an
average of ten years of industry experience and eight years of experience with
Alliance or SMT. The Company's senior and operating managers have successfully
developed and implemented sophisticated marketing, fleet management and
financial strategies which have enabled the Company to become the largest and
among the most efficient and profitable mobile MRI operators. Upon consummation
of the Transactions and after giving effect to the Company's option plans,
management will own in excess of 16% of the capital stock of the Company on a
fully diluted basis.
BUSINESS STRATEGY
The Company's management team has developed and implemented a business
strategy designed to maximize return on invested capital and in turn increase
revenues and EBITDA. The Company's revenues, adjusted EBITDA and adjusted
EBITDA margin on a pro forma combined basis for the six months ended June 30,
1997 increased to $52.9 million, $26.5 million and 50.1%, respectively, from
$40.0 million, $19.0 million and 47.5% for the six months ended June 30, 1996.
The Company achieved comparable customer revenue growth of 18.5% and 9.7%,
respectively, in the first six months of 1997 and in the year ended December
31, 1996. In addition, during the three months ended June 30, 1997 the Company
added a total of five net mobile MRI systems. Management believes that the
recent financial performance of the Company does not yet fully reflect the
benefit of these new systems.
3
<PAGE>
The primary components of the Company's business strategy are to (i) increase
scan volumes; (ii) maximize return on invested capital; (iii) expand the scope
of services provided; (iv) pursue strategic acquisitions; and (v) realize
operating synergies.
Increase Scan Volumes. The Company believes that the demand for MRI
procedures will continue to grow as new applications are developed and MRI
continues to gain acceptance and replace other imaging modalities. The Company
has an opportunity to significantly increase its scan volumes by both adding
new customers and increasing scans performed for existing customers. In
response to the growing demand for MRI procedures, the Company added 29 net MRI
systems and 160 net new MRI customers from January 1, 1995 to June 30, 1997.
The Company's decision to purchase new systems is typically predicated on
obtaining new customer contracts which serve as the basis of demand for the new
MRI systems.
Maximize Return on Invested Capital. The Company actively manages the
utilization of its MRI systems to maximize its return on invested capital
(i.e., the amount of cash flow generated by each system relative to the
carrying value of such system). In the six months ended June 30, 1997, on a pro
forma combined basis, the Company generated an annualized return on invested
capital of 46.2%. The Company typically upgrades the quality of its fleet in
markets where demand is greatest and redeploys less advanced systems in markets
where demand is lower in order to generate incremental cash flow. The Company
estimates that, on average, a system can be utilized in a high demand market
for approximately eight years when properly maintained and upgraded, after
which time the system can either be utilized in a market with less demand or
traded in for a new system.
Expand the Scope of Services Provided. The Company intends to leverage its
national presence and customer service capabilities by introducing new
services, the demand for which management believes will increase as hospitals
continue to outsource departments and cost centers and seek incremental revenue
sources. The Company expects to expand into open MRI services, lithotripsy
services and full-service management of hospital radiology departments. Open
MRI systems are used on claustrophobic patients and patients whose size
prohibits them from entering traditional MRI systems. Management believes that
with the introduction of its first open MRI system in the fourth quarter of
1997, the Company will be the first operator to offer mobile open MRI service.
Pursue Strategic Acquisitions. Management has designed an acquisition
strategy for the Company which capitalizes on the consolidation occurring in
the industry as well as the Company's ability to (i) access substantial and
lower cost financial resources; (ii) realize significant synergies, operating
expense reductions and overhead cost savings; (iii) apply its consolidation
strategy to expand outside of diagnostic imaging in related services; (iv)
utilize the Company's expertise in logistics and fleet management; and (v)
leverage the Company's existing customer relationships to expand into new
modalities.
Realize Operating Synergies. Management believes the Recapitalization and the
SMT Acquisition will create substantial cost savings, including (i) identified
operating and administrative cost savings; (ii) economies in purchasing
equipment, supplies and services; and (iii) route consolidation efficiencies.
Management believes the SMT Acquisition and future acquisitions will enable the
Company to redeploy systems in overlapping markets, resulting in higher
utilization rates and the opportunity to increase penetration in other markets.
4
<PAGE>
THE TRANSACTIONS
In connection with the completion of the Offering, Alliance intends to
consummate the Recapitalization pursuant to the Recapitalization Merger
Agreement. Concurrently with the Recapitalization, Alliance will consummate the
SMT Acquisition.
In connection with the Transactions, the Company expects to enter into an
agreement (the "Credit Agreement") providing for a $50 million term loan
facility (the "Term Loan Facility") and a $150 million revolving loan facility
(the "Revolving Loan Facility"), of which $38 million will be borrowed in
connection with the consummation of the Transactions. The unused portion of the
Revolving Loan Facility will be available for the Company's working capital
requirements and to finance acquisitions.
In connection with the Transactions, Apollo will invest $63.1 million and BT
Capital Partners, an affiliate of BT Alex. Brown Incorporated (the "BT
Investor"), will invest $4.8 million of cash equity in the Company
(collectively, the "Equity Investment"). Immediately following consummation of
the Transactions, Apollo will own approximately 84% of the outstanding common
stock of the Company (approximately 70% on a fully diluted basis) and the BT
Investor will own approximately 5.9% of the outstanding common stock of the
Company (approximately 5.0% on a fully diluted basis). As part of the
Recapitalization, common stock of Alliance with a value of approximately $8
million will be retained by existing stockholders of the Company, representing
approximately 10% of the outstanding common stock of the Company. In addition,
immediately following consummation of the Transactions, through a combination
of (i) the rollover of existing options (having an option value of
approximately $4.1 million) to purchase common stock of Alliance and SMT into
new options to purchase common stock of the Company and (ii) the issuance of
options pursuant to the Company's new option plan (the "New Option Plan"),
management will own in excess of 16% of the equity of the Company on a fully-
diluted basis.
The Offering, the Recapitalization, the SMT Acquisition, the Equity
Investment and the related borrowings under the Credit Agreement are
collectively referred to herein as the "Transactions." The consummation of the
Transactions will be concurrent, and the Offering is conditioned upon the other
Transactions. The approximate sources and uses of funds in connection with the
Transactions are presented in the following table, assuming the Transactions
occurred as of June 30, 1997 (dollars in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Term Loan Facility................................................ $ 50.0
Revolving Loan Facility........................................... 38.0
Notes............................................................. 170.0
Equity Investment................................................. 67.9
------
Total Sources................................................... $325.9
======
USES OF FUNDS:
Payment of cash consideration in Recapitalization(1).............. $159.8
Repay outstanding indebtedness of Alliance........................ 70.6
Acquisition of SMT(2)............................................. 88.3
Less cash on hand................................................. (12.7)
Estimated fees and expenses....................................... 19.9
------
Total Uses...................................................... $325.9
======
</TABLE>
- --------
(1) Comprised of (a) payment for shares of common stock of Alliance
(approximately $146.2 million), (b) payments with respect to outstanding
warrants and options and change of control payments under employment
agreements (approximately $11.5 million) and (c) payments pursuant to
Alliance's Long-Term Incentive Plan (approximately $2.1 million).
(2) Comprised of equity investment (approximately $33.6 million) and repayment
of SMT debt incurred in connection with the August 1997 acquisition of SMT by
Three Rivers (approximately $54.7 million).
5
<PAGE>
THE OFFERING
Issuer...................... Alliance Imaging, Inc.
Securities Offered.......... $170,000,000 in aggregate principal amount of
% Senior Subordinated Notes due 2005.
Maturity Date............... , 2005.
Payment Dates............... Interest on the Notes will accrue from the date
of issuance and will be payable semiannually on
each and , commencing , 1998.
Ranking..................... The Notes will be general unsecured obligations
of the Company and will be subordinated in right
of payment to all Senior Debt of the Company,
including the indebtedness under the Credit
Agreement. The Guarantees will be general
unsecured obligations of the Guarantors and will
be subordinated in right of payment to all
Guarantor Senior Debt of the Guarantors. As of
June 30, 1997, after giving pro forma effect to
the Transactions, the Company would have had
approximately $100.2 million of Senior Debt
outstanding (excluding unused commitments of
$112.0 million under the Credit Agreement).
Guarantees.................. The Notes will be unconditionally guaranteed on a
senior subordinated basis by the Guarantors.
The Notes will be redeemable, in whole or in
Optional Redemption......... part, at the option of the Company, at any time
on or after , 2001, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time on or prior to ,
2000, the Company may redeem up to 40% of the
aggregate principal amount of the Notes with the
net proceeds of one or more Equity Offerings at
the redemption price set forth herein plus
accrued and unpaid interest, if any, to the date
of redemption; provided, however, that after any
such redemption 60% of the aggregate principal
amount of the Notes issued must remain
outstanding. See "Description of the Notes--
Redemption."
Change of Control........... Upon the occurrence of a Change of Control, the
Company will be required to offer to purchase all
outstanding Notes at a price in cash equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of purchase. In the event of a Change of
Control, there can be no assurance that the
Company will have the financial resources or be
permitted under the terms of its other
indebtedness to repurchase the Notes. In
addition, the Credit Agreement will restrict the
Company's ability to repurchase the Notes,
including pursuant to a Change of Control Offer.
The occurrence of a default under the Indenture
(as defined) will also cause a default under the
Credit Agreement. See "Description of the Notes--
Change of Control."
6
<PAGE>
Certain Covenants........... The indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain
covenants that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries (as defined) to: incur additional
indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, merge or
consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets
of the Company and impose restrictions on the
ability of a Restricted Subsidiary to pay certain
dividends or make certain payments to the
Company. See "Description of the Notes--Certain
Covenants."
Offers to Purchase.......... In the event of certain asset sales, the Company
will be required to offer to repurchase the Notes
at a price equal to 100% of their principal
amount plus accrued interest to the date of
purchase. See "Description of the Notes--Certain
Covenants--Limitation on Asset Sales."
Use of Proceeds............. The Company intends to use the net proceeds from
the Offering to partially fund the Transactions.
See "Use of Proceeds."
For more complete information regarding the Notes, including the definitions
of certain capitalized terms used above, see "Description of the Notes."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the information
set forth under the caption "Risk Factors," and all other information set forth
in this Prospectus, in evaluating an investment in the Notes.
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical consolidated financial information of Alliance and SMT
with respect to each year in the three-year period ended December 31, 1996,
respectively, is derived from the consolidated financial statements of Alliance
and SMT. With respect to Alliance, such consolidated financial statements have
been audited by Ernst & Young LLP, independent auditors. In the case of SMT,
such consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. The financial information of Alliance and SMT for
the six months ended June 30, 1996 and June 30, 1997 are unaudited, but in the
opinion of Alliance's and SMT's managements, respectively, reflect all
adjustments necessary for a fair presentation of such information. Operating
results of Alliance and SMT for the six months ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997. The summary historical consolidated financial
information provided below should be read in conjunction with the consolidated
financial statements and notes thereto of Alliance and SMT included elsewhere
in this Prospectus. See "Index to Consolidated Financial Statements."
ALLIANCE IMAGING, INC.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.................... $ 57,875 $ 58,065 $ 68,482 $ 31,302 $ 39,911
Operating expenses,
excluding depreciation..... 31,093 28,342 32,344 15,019 17,815
Selling, general and
administrative expenses.... 6,284 6,294 8,130 3,160 3,990
Depreciation expense........ 13,424 12,202 12,737 6,048 7,144
Amortization expense,
primarily goodwill......... 943 1,345 1,952 745 1,165
Interest expense, net....... 10,758 5,053 5,758 2,683 3,557
Net income (loss)(1)........ (19,066) 4,102 12,801 3,102 5,447
CONSOLIDATED BALANCE SHEET
DATA (AT END OF PERIOD):
Cash and short-term
investments................ $ 2,478 $ 11,128 $ 10,867 $ 11,180 $ 13,817
Total assets................ 102,527 103,327 128,510 120,055 143,270
Total long-term debt,
including current
maturities................. 79,208 75,880 89,025 86,031 80,548
Redeemable preferred stock.. 15,500 16,430 4,694 15,965 --
Stockholders' equity
(deficit).................. (1,665) 1,604 16,360 5,129 41,368
OTHER DATA:
EBITDA(2)................... $ 20,498 $ 23,429 $ 28,008 $ 13,123 $ 18,106
EBITDA margin(3)............ 35.4% 40.3% 40.9% 41.9% 45.4%
Cash flows provided by (used
in):
Operating activities...... $ 12,784 $ 18,043 $ 21,731 $ 10,866 $ 13,693
Investing activities...... (19,861) (7,789) (27,936) (14,447) (19,545)
Financing activities...... 1,135 (1,604) 5,944 3,633 8,802
Capital expenditures(4)..... 22,361 11,383 34,376 17,943 20,333
Number of MRI systems at end
of period.................. 72 76 86 87 90
Comparable customer revenue
growth(5).................. (0.1)% 6.9% 8.8% 15.7% 17.3%
Average scans per MRI system
per day.................... 5.8 5.8 6.7 6.5 7.0
Ratio of earnings to fixed
charges(6)................. -- 1.9x 2.1x 2.2x 2.6x
</TABLE>
(footnotes on following page)
8
<PAGE>
SMT HEALTH SERVICES INC.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues........................... $13,235 $15,020 $19,022 $8,725 $13,014
Operating expenses, excluding
depreciation...................... 5,892 5,396 6,280 2,891 4,153
Selling, general and administrative
expenses.......................... 1,894 2,472 2,877 1,373 1,907
Depreciation and amortization...... 3,164 3,679 4,725 2,109 3,194
Interest expense, net.............. 1,590 1,620 1,851 862 805
Net income(1)...................... 410 1,373 2,411 1,020 1,459
CONSOLIDATED BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and short-term investments.... $ 2,317 $ 3,942 $ 5,043 $3,830 $13,913
Total assets....................... 20,623 23,348 39,498 28,844 50,736
Total long-term debt, including
current maturities................ 16,212 17,091 27,210 20,522 23,080
Stockholders' equity............... 3,653 5,402 11,400 7,367 25,375
OTHER DATA:
EBITDA(2).......................... $ 5,449 $ 7,152 $ 9,865 $4,461 $ 6,954
EBITDA margin(3)................... 41.2% 47.6% 51.9% 51.1% 53.4%
Cash flows provided by (used in):
Operating activities............. $ 3,630 $ 5,477 $ 7,441 $3,024 $ 6,782
Investing activities............. (261) (1,380) (2,567) (1,637) (2,976)
Financing activities............. (3,548) (3,604) (2,573) (1,168) 5,064
Capital expenditures(4)............ 4,584 5,069 18,112 7,104 5,985
Number of MRI systems at end of
period............................ 9 11 18 13 20
Comparable customer revenue
growth(5)......................... 5.2% 0.1% 12.9% 9.7% 22.0%
Average scans per MRI system per
day............................... 9.0 10.4 10.9 10.9 11.5
Ratio of earnings to fixed
charges(6)........................ 1.4x 2.0x 2.7x 2.5x 3.4x
</TABLE>
- --------
(1) Alliance's net income (loss) includes special charges of $13.3 million for
the year ended December 31, 1994 related to an equipment exchange
transaction, the impairment of certain equipment, debt restructuring and
employee severances; extraordinary gains (net of tax) of $6.3 million for
the year ended December 31, 1996 related to the early extinguishment of
debt; and an extraordinary gain (net of tax) of $1.3 million for the six
months ended June 30, 1997 related to the early extinguishment of debt.
SMT's net income includes a loss on disposal of discontinued operations of
$132,000 for the year ended December 31, 1994 and an extraordinary loss
(net of tax) of $181,000 for the six months ended June 30, 1997 related to
the early extinguishment of debt.
(2) EBITDA is defined herein as income before income taxes, plus depreciation,
amortization, net interest expense and other non-recurring items
(principally non-cash). EBITDA is presented because the Company believes it
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(3) EBITDA margin is defined herein as EBITDA divided by revenues.
(4) The substantial majority of Alliance's historical capital expenditures have
related to either major upgrades to existing systems or the replacement of
older, less-advanced systems with new, state-of-the-art technologically
advanced systems. SMT's capital expenditures related to substantially
upgrading its MRI systems as well as purchasing new systems to expand the
size of its fleet. As a result of these historical investments, the Company
believes that it has upgraded substantially all of its systems and expects
most of its capital expenditures for at least the next three to five years
to relate to net fleet additions through new system purchases.
(5) Represents period over period revenue growth for customers that generated
revenues for the entire term of both periods.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from long-term equipment operating
leases, which management believes is a reasonable approximation of an
interest factor. Alliance's earnings were insufficient to cover fixed
charges by $18.0 million for the year ended December 31, 1994.
9
<PAGE>
SUMMARY PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
consolidated financial data for the Company for the year ended December 31,
1996, and as of and for the six months ended June 30, 1997, and certain
financial ratios derived therefrom which are presented to reflect the pro forma
effect of the Transactions. The summary unaudited pro forma combined
consolidated statements of operations for the six months ended June 30, 1997
and for the year ended December 31, 1996 give effect to the Transactions as if
they had occurred on January 1, 1997 and January 1, 1996, respectively. The
summary unaudited pro forma combined consolidated balance sheet data gives
effect to the Transactions as if they occurred on June 30, 1997. The unaudited
pro forma combined consolidated financial data do not purport to be indicative
of the results of operations or financial position of the Company that would
have actually been obtained had the Transactions been completed as of the
assumed dates and for the periods presented, or which may be obtained in the
future. The unaudited pro forma combined consolidated financial data (i) have
been derived from and should be read in conjunction with the "Unaudited Pro
Forma Combined Consolidated Financial Data" and the notes thereto included
elsewhere in this Prospectus and (ii) should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the separate historical consolidated financial statements of
Alliance and SMT and the notes thereto included elsewhere in this Prospectus.
The Consolidated Statements of Operations Data and Other Data (except for
adjusted EBITDA and adjusted EBITDA margin) do not reflect anticipated cost
savings referenced in footnote 2 below. Such savings are reflected in adjusted
EBITDA and adjusted EBITDA margin. See "Index to Consolidated Financial
Statements."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................... $87,504 $ 52,925
Operating expenses, excluding depreciation.. 38,624 21,968
Selling, general and administrative ex-
penses..................................... 11,007 5,897
Depreciation expense........................ 16,085 9,381
Amortization expense, primarily goodwill.... 4,795 2,575
Interest expense, net....................... 26,480 13,240
Loss before extraordinary gains............. (9,487) (136)
OTHER DATA:
EBITDA(1)................................... $37,873 $ 25,060
EBITDA margin............................... 43.3% 47.4%
Adjusted EBITDA(2).......................... $40,753 $ 26,500
Adjusted EBITDA margin(2)................... 46.6% 50.1%
Cash interest expense(3).................... $25,459 $ 12,729
Capital expenditures........................ 52,488 26,318
Number of MRI systems at end of period...... 104 110
Comparable customer revenue growth.......... 9.7% 18.5%
Average scans per MRI system per day........ 7.4 7.8
Ratio of adjusted EBITDA to cash interest
expense(2)................................. 1.6x 2.1x
Ratio of earnings to fixed charges(4)....... -- --
<CAPTION>
AT JUNE 30, 1997
----------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments............................... $ 1,255
Total assets.................................................. 227,951
Total long-term debt, including current maturities............ 270,178
Stockholders' equity (deficit)................................ (62,796)
</TABLE>
- --------
(1) EBITDA is defined herein as income before income taxes, plus depreciation,
amortization, net interest expense and other non-recurring items (principally
non-cash). EBITDA is presented because the Company believes it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. However, EBITDA should not be considered as an alternative to
net income as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
(2) Adjusted EBITDA, adjusted EBITDA margin and the ratio of adjusted EBITDA to
cash interest expense are based on pro forma EBITDA, adjusted for expense
reductions expected to result from consolidation of identified functions,
facilities and mobile MRI routes, and the reorganization of the combined
entity (which reorganization is expected to commence immediately upon
consummation of the Transactions). Operating expenses and selling, general
and administrative expenses are expected to be reduced annually by
approximately $3.4 million. An annual management fee payable to Apollo
Management, L.P. of $500,000 has been included as an offset to the expected
reduction in selling, general and administrative expenses.
(3) Consists of interest expense, net of interest income, excluding deferred
financing costs. A 1/8% variance in interest rates would change annual
interest expense by approximately $322,000.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from long-term equipment operating leases,
which management believes is a reasonable approximation of an interest
factor. Pro forma earnings were insufficient to cover fixed charges by $9.5
million for the year ended December 31, 1996 and by $136,000 for the six
months ended June 30, 1997.
10
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the
information set forth below as well as all other information set forth in this
Prospectus, in evaluating an investment in the Notes.
SUBSTANTIAL LEVERAGE
After giving effect to the Transactions, the Company's consolidated
indebtedness will be approximately $270.2 million. This high level of
indebtedness of the Company in comparison to that of Alliance and SMT on a
historical basis may reduce the flexibility of the Company to respond to
changing business and economic conditions, as well as limit capital
expenditures of the Company. The Credit Agreement and the Indenture will
include significant operating and financial restrictions, such as limits on
the Company's ability to incur indebtedness. On a pro forma basis, after
giving effect to the Transactions, the Company's earnings would have been
insufficient to cover fixed charges by $9.5 million for the year ended
December 31, 1996, and by $136,000 for the six months ended June 30, 1997.
The Company's high degree of leverage may have important consequences for
the Company, including: (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be on terms
favorable to the Company; (ii) a substantial portion of the Company's cash
flow will be used to pay the Company's interest expense, which will reduce the
funds that would otherwise be available to the Company for its operations and
future business opportunities; (iii) a substantial decrease in net operating
cash flows or an increase in expenses of the Company could make it difficult
for the Company to meet its debt service requirements and force it to modify
its operations; (iv) the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; and (v) the
Company's high degree of leverage may make it more vulnerable to a downturn in
its business or the economy generally. Any inability of the Company to service
its indebtedness or obtain additional financing, as needed, would have a
material adverse effect on the Company. A significant portion of the
indebtedness to be incurred by the Company to finance the Transactions will
bear interest at variable rates. Any increase in the interest rates on the
Company's indebtedness will reduce funds available to the Company for its
operations and future business opportunities and will exacerbate the
consequences of the Company's leveraged capital structure.
RESTRICTIVE DEBT COVENANTS
The Indenture will contain certain covenants that, among other things, limit
the ability of the Company and its Restricted Subsidiaries to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur indebtedness that is subordinate in right of payment to any
Senior Debt and senior in right of payment to the Notes, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all of or substantially all of the assets of the Company and impose
restrictions on the ability of a Restricted Subsidiary to pay certain
dividends or make certain payments to the Company. See "Description of the
Notes--Certain Covenants." In addition, the Credit Agreement is expected to
contain a number of significant covenants that, among other things, will
restrict the ability of the Company to (i) declare dividends or redeem or
repurchase capital stock; (ii) prepay, redeem or purchase debt, including the
Notes; (iii) incur liens and engage in sale-leaseback transactions; (iv) make
loans and investments; (v) incur additional indebtedness; (vi) amend or
otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix)
enter into transactions with affiliates; and (x) alter the business it
conducts. The indebtedness outstanding under the Credit Agreement will be
guaranteed by substantially all of the Company's domestic subsidiaries and
will be secured by a first priority lien on substantially all of the
properties and assets of the Company and its subsidiaries, now owned or
acquired later, including a pledge of all of the shares of the Company's
existing and future subsidiaries and up to 65% of the shares of the Company's
future foreign subsidiaries which are owned by the Company or one of its
subsidiaries. In addition, under the Credit Agreement, the Company will also
be required to comply with financial covenants with respect to (i) a maximum
leverage
11
<PAGE>
ratio; (ii) a minimum consolidated EBITDA; (iii) a minimum interest coverage
ratio; and (iv) a minimum fixed charge coverage ratio. If the Company were
unable to borrow under the Credit Agreement due to a default, it would be left
without sufficient liquidity. See "Description of the Credit Agreement."
REGULATION
Many aspects of the medical industry in the United States, including the
Company's business, are subject to extensive federal and state government
regulation. Although the Company believes that its operations comply with
applicable regulations, there can be no assurance that subsequent adoption of
laws or interpretations of existing laws will not regulate, restrict or
otherwise adversely affect the Company's business.
The marketing and operation of the Company's MRI and computed axial
tomography ("CT") systems are subject to state laws prohibiting the practice
of medicine by non-physicians. Management believes that its operations do not
involve the practice of medicine because all professional medical services
relating to its operations, such as the interpretation of the scans and
related diagnoses, are separately provided by licensed physicians not employed
by the Company. Further, the Company believes that its operations do not
violate state laws with respect to the rebate or division of fees.
The Company is subject to federal and state laws which govern financial and
other arrangements between health care providers. These include the federal
Medicare and Medicaid anti-kickback statutes which prohibit 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
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 necessarily
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, the U.S. Department of Health and Human Services
("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
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 is a party to a partnership for
provision of MRI services. The Company believes that the partnership is in
compliance with the anti-kickback statute. The Company believes that its other
operations likewise comply with the anti-kickback statutes.
A federal law, commonly known as the "Stark Law," 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, MRI services. While implementing regulations have been issued
relating to referrals for clinical laboratory services, no implementing
regulations have been issued regarding the other designated health services,
including MRI 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 any financial
interest they may have with a health care provider to their patients to whom
they recommend that provider. 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. The Company believes its operations comply with these
federal and state physician self-referral laws.
In some states, a certificate of need ("CON") or similar regulatory approval
is required prior to the acquisition of high-cost capital items, including
diagnostic imaging systems or provision of diagnostic imaging
12
<PAGE>
services by the Company or its customers. CON regulations may limit or
preclude the Company from providing diagnostic imaging services or systems. 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. Conversely, repeal of existing CON regulations in jurisdictions where
the Company has obtained or operates under a CON could also adversely affect
the Company. 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--Regulation."
REIMBURSEMENT OF HEALTH CARE COSTS; COST CONTAINMENT PRESSURES; CONTRACTS
The majority of payments to the Company are received directly from health
care providers, rather than from private insurers, other third party payors or
governmental entities. To a lesser extent, the Company's revenues are
generated from direct billings to patients or their medical payors which are
recorded net of contractual discounts and other arrangements for providing
services at discounted prices. Under current reimbursement regulations, the
Company is prohibited from billing the insurer or the patient directly for
services provided for hospital inpatients or outpatients. Payment to health
care providers by third party payors for the Company's diagnostic services
depends substantially upon such payors' reimbursement policies. Consequently,
those policies have a direct effect on health care providers' ability to pay
for the Company's services and an indirect effect on the Company's level of
charges. Ongoing concerns about rising health care costs may cause more
restrictive reimbursement policies to be implemented in the future.
Restrictions on reimbursements to health care providers may affect such
providers' ability to pay for the services offered by the Company and could
indirectly adversely affect the Company's financial performance. See
"Business--Reimbursement."
The current health care environment is characterized by cost containment
pressures which the Company believes have resulted in decreasing revenues per
scan. Although scan prices appear to have stabilized, the Company expects
modest continuing downward pressure on pricing levels. Although the Company
has experienced increased scan volumes in 1995, 1996 and the first half of
1997, it has also had periods of declining volumes in prior years, and there
can be no assurance that the recent positive trends will continue. Among other
things, the Company is subject to the risk that customers will cease using the
Company's MRI services upon expiration of contracts and purchase or lease
their own MRI systems. In the past, when this has occurred, the Company has
generally been able to obtain replacement customers. However, it is not always
possible to immediately obtain replacement customers, and some replacement
customers have been smaller facilities and have had lower scan volumes.
RISK OF INTEGRATION; ACQUISITION STRATEGY
The anticipated benefits of the SMT Acquisition will require the integration
of Alliance's and SMT's administrative, finance, sales and marketing
organizations, the coordination of their sales efforts, the incorporation and
coordination of their scanning services in an efficient manner, and the
implementation of appropriate operations and financial and management systems
and controls in order to capture the efficiencies and the cost reductions that
are expected to result therefrom. Such integration will require substantial
attention from the Company's management team, which is not experienced in
integrating the operations of companies the size of Alliance and SMT. The
diversion of management attention, as well as any other difficulties which may
be encountered in the transition and integration process, could have an
adverse impact on the revenue and operating results of the Company. There can
be no assurance that the Company will be able to successfully integrate the
operations of Alliance and SMT or any future acquisitions.
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 the issuance of
equity or debt securities. Sufficient funds may not be available on terms
acceptable to the Company, if at all.
TECHNOLOGICAL CHANGE AND OBSOLESCENCE
The Company's services require the use of state-of-the-art medical equipment
that has been characterized by rapid technological advances. Although the
Company believes that substantially all the MRI and CT systems
13
<PAGE>
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 systems are currently manufactured by numerous companies. Competition
among manufacturers for a greater share of the MRI 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 substantial technological change, should such change
occur, there can be no assurance that the Company will be able to acquire the
new or improved systems which may be required to service its customers.
SUBORDINATION OF NOTES AND THE GUARANTEES
The Notes and the Guarantees will be unsecured and subordinated to the prior
payment in full of all Senior Debt of the Company and all Guarantor Senior
Debt of the Guarantors, respectively. As of June 30, 1997, on a pro forma
basis after giving effect to the Transactions, the aggregate outstanding
principal amount of all Senior Debt would have been approximately $100.2
million. In the event of a bankruptcy, liquidation or reorganization of the
Company, the assets of the Company or the Guarantors will be available to pay
obligations on the Notes only after all Senior Debt of the Company or all
Guarantor Senior Debt of the Guarantors, as the case may be, has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Notes. In addition, the Company may not pay principal or
premium, if any, or interest on the Notes if any Senior Debt is not paid when
due or any other default on any Senior Debt occurs and the maturity of such
Senior Debt is accelerated in accordance with its terms, unless, in either
case, such amount has been paid in full or the default has been cured or
waived and such acceleration has been rescinded. In addition, if any default
occurs with respect to certain Senior Debt and certain other conditions are
satisfied, the Company may not make any payments on the Notes for a designated
period of time. Finally, if any judicial proceeding is pending with respect to
any such default in payment on any Senior Debt or other default with respect
to certain Senior Debt, or if the maturity of the Notes is accelerated because
of a default under the Indenture and such default constitutes a default with
respect to any Senior Debt, the Company may not make any payment on the Notes.
See "Description of the Notes--Subordination."
FRAUDULENT TRANSFER CONSIDERATIONS
The payment of the consideration in the Recapitalization to the stockholders
of Alliance and the related financing (including the issuance of the Notes and
the Guarantees) may be subject to review under federal or state fraudulent
transfer laws. While the relevant laws may vary from state to state, under
such laws, if a court in a lawsuit by a creditor or a representative of
creditors of Alliance, such as a trustee in bankruptcy or one of such entities
as debtor-in-possession, were to find that, at the time of or after and giving
effect to the Transactions, Alliance (i) was insolvent or rendered insolvent
thereby, (ii) was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured,
or (iv) intended to hinder, delay or defraud creditors and, in the case of
clauses (i), (ii) and (iii), that Alliance did not receive reasonably
equivalent value or fair consideration in the Recapitalization, such court
could avoid all or a part of the payment of the consideration in the
Recapitalization and require that the stockholders, including stockholders
exercising appraisal rights, return such consideration to Alliance or to a
fund for the benefit of their respective creditors. In addition, if a court
were to find that Alliance came within any of clauses (i) through (iv) above,
Alliance, or its respective creditors or trustees in bankruptcy, could seek to
avoid the grant of security interests to the lenders under the Credit
Agreement or to subordinate or void altogether the Notes and the Guarantees.
This would result in an event of default with respect to such indebtedness
which, under the terms of such indebtedness (subject to applicable law), would
allow the lenders to terminate their obligations thereunder and to accelerate
payment of such indebtedness.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. There can be no
certainty as to what law a court would apply pursuant to applicable choice of
law provisions, although it is likely that a court would apply the law of the
state of incorporation of Alliance, federal bankruptcy law, the law of the
jurisdiction in which the headquarters of Alliance is located or the law of
the jurisdiction in which the Recapitalization is deemed to have occurred.
14
<PAGE>
Generally, however, a company would be considered insolvent for purposes of
the foregoing if the sum of such company's debts is greater than all such
company's property at a fair valuation, or if the present fair saleable value
of such company's assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
matured. There can be no assurance, however, that a court would not determine
that Alliance was insolvent at the time of or after and giving effect to the
Recapitalization. In addition, there can be no assurance that a court would
not determine, regardless of whether Alliance was solvent, that the
Recapitalization constituted a fraudulent transfer on another of the grounds
listed above. Management believes that Alliance will be solvent following the
consummation of the Transactions.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to offer
to repurchase all of the outstanding Notes at a purchase price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest,
if any, to the repurchase date. The Credit Agreement will prohibit the
repurchase of the Notes upon a Change of Control unless and until the
indebtedness under the Credit Agreement is repaid in full. There can be no
assurance that the Company will have sufficient funds available or will be
permitted by the Credit Agreement and any other indebtedness to repurchase the
Notes upon the occurrence of a Change of Control. The Change of Control
purchase feature of the Notes may in certain circumstances make more difficult
or discourage a takeover of the Company and, thus, the removal of incumbent
management. See "Description of the Notes--Change of Control."
RELIANCE ON KEY PERSONNEL
The Company's success depends in large part upon a number of key management
personnel, principally Messrs. Zehner and Pino. The loss of the service of one
or more of its executive officers or other key management personnel could have
a material adverse effect on the Company. Messrs. Zehner and Pino have entered
into employment agreements and an agreement not to compete with Alliance which
will become effective at the effective time of the Recapitalization. See
"Management--Employment and Related Agreements."
COMPETITION
The market for diagnostic imaging services and imaging systems is highly
competitive. In addition to direct competition from other mobile providers,
the Company competes with free-standing imaging centers and health care
providers that have their own diagnostic imaging systems and with equipment
manufacturers that sell or lease imaging systems to health care providers for
full-time installation. Some of the Company's direct competitors that provide
contract MRI services may have access to greater financial resources than the
Company. In addition, some of the Company's customers are capable of providing
the same services to their patients directly, 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.
CONTROL BY APOLLO
Upon consummation of the Transactions, Apollo will own approximately 84% of
the outstanding common stock of the Company (approximately 70% on a fully
diluted basis). Accordingly, Apollo and its general partner will control the
Company and have the power to elect all of its directors, appoint new
management and approve any action requiring the approval of the holders of
shares of Alliance common stock, including adopting amendments to the
Company's certificate of incorporation and approving mergers or sales of
substantially all of the Company's assets.
ABSENCE OF PUBLIC MARKET
The Notes are a new issue of securities which have no established trading
market. It is expected that the Notes will be sold to a limited number of
investors. The Company has been advised by the Underwriters that they intend
to make a market in the Notes after the consummation of this Offering;
however, the Underwriters are not obligated to do so, and any such market-
making, if commenced, may be terminated at any time without notice. No
assurance can be given as to the liquidity of the trading market, if any, that
may develop for the Notes.
15
<PAGE>
THE TRANSACTIONS
In connection with the completion of the Offering, Alliance intends to
consummate the Recapitalization pursuant to the Recapitalization Merger
Agreement. Concurrently with the Recapitalization, Alliance will consummate
the SMT Acquisition by either merging a subsidiary of Alliance into Three
Rivers or acquiring all of the capital stock of Three Rivers in exchange for
shares of common stock of the Company. Three Rivers was formed by Apollo in
connection with its acquisition of SMT. Three Rivers acquired SMT pursuant to
a tender offer and a subsequent merger of Three Rivers Acquisition Corp.
("Three Rivers Acquisition"), a wholly owned subsidiary of Three Rivers, with
and into SMT.
In connection with the Transactions, the Company expects to enter into the
Credit Agreement providing for the $50 million Term Loan Facility and the $150
million Revolving Loan Facility, of which approximately $38 million will be
borrowed in connection with the consummation of the Transactions. Immediately
following consummation of the Transactions, it is expected that the Company
will have approximately $112 million of availability under the Revolving Loan
Facility. The unused portion of the Revolving Loan Facility will be used to
provide for the Company's working capital requirements and to finance
acquisitions.
In connection with the Transactions, Apollo will invest $63.1 million and
the BT Investor will invest $4.8 million of cash equity in the Company.
Immediately following consummation of the Transactions, Apollo will own
approximately 84% of the outstanding common stock of the Company
(approximately 70% on a fully diluted basis) and the BT Investor will own
approximately 5.9% of the outstanding common stock of the Company
(approximately 5.0% on a dully diluted basis). As part of the
Recapitalization, common stock of Alliance with a value of approximately $8
million will be retained by existing stockholders of the Company, representing
approximately 10% of the outstanding common stock of the Company. In addition,
immediately following consummation of the Transactions, through a combination
of (i) the rollover of existing options (having an option value of
approximately $4.1 million) to purchase common stock of Alliance and Three
Rivers into new options to purchase common stock of the Company and (ii) the
issuance of options pursuant to the Company's New Option Plan, management of
Alliance and SMT will own in excess of 16% of the equity of the Company on a
fully-diluted basis.
A more detailed description of the Transactions is contained in Alliance's
registration statement on Form S-4 (File No. 333-33787). See "Available
Information."
16
<PAGE>
USE OF PROCEEDS
The net proceeds of the Company from the sale of the Notes are estimated to
be $163.0 million. The Company intends to use the net proceeds, together with
borrowings under the Credit Agreement, to fund the Transactions, to repay
certain outstanding indebtedness of Alliance and SMT and to pay fees and
expenses relating to the Transactions. The indebtedness of Alliance being
repaid consists of approximately $70.6 million (comprising Alliance's senior
notes and debt incurred to purchase equipment) that bears interest at rates of
8.0% to 11.4% per annum and matures from 1997 to 2002. See Note 4 of Notes to
Alliance's Consolidated Financial Statements. The indebtedness of SMT being
repaid consists of $52.8 million of indebtedness incurred in connection with
Apollo's acquisition of SMT that bears interest at rates of 8.6% to 8.9% per
annum and matures from 2001 to 2003.
The approximate sources and uses of funds in connection with the
Transactions are set forth in the following table, assuming the Transactions
occurred as of June 30, 1997.
SOURCES AND USES OF FUNDS
(IN MILLIONS)
SOURCES OF FUNDS
<TABLE>
<S> <C>
Term Loan Facility................................................ $ 50.0
Revolving Loan Facility........................................... 38.0
Notes............................................................. 170.0
Equity Investment................................................. 67.9
------
Total Sources .................................................. $325.9
======
USES OF FUNDS
Payment of cash consideration in Recapitalization(1).............. $159.8
Repay outstanding indebtedness of Alliance........................ 70.6
Acquisition of SMT(2)............................................. 88.3
Less cash on hand................................................. (12.7)
Estimated fees and expenses....................................... 19.9
------
Total Uses...................................................... $325.9
======
</TABLE>
- --------
(1) Comprised of (a) payment for shares of common stock of Alliance
(approximately $146.2 million), (b) payments with respect to outstanding
warrants and options and change of control payments under employment
agreements (approximately $11.5 million) and (c) payments pursuant to
Alliance's Long-Term Incentive Plan (approximately $2.1 million).
(2) Comprised of equity investment (approximately $33.6 million) and repayment
of SMT debt incurred in connection with the August 1997 acquisition of SMT
by Three Rivers (approximately $54.7 million).
17
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company,
assuming the Transactions had occurred on June 30, 1997. This table should be
read in conjunction with the information contained in "Use of Proceeds,"
"Unaudited Pro Forma Combined Consolidated Financial Information" and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as Alliance's and SMT's financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA AT
JUNE 30, 1997
-------------
(IN MILLIONS)
<S> <C>
Cash and short-term investments............................. $ 1.3
======
Long-term debt, including current portion:
Term Loan Facility........................................ $ 50.0
Revolving Loan Facility(1)................................ 38.0
Other debt(2)............................................. 12.2
Notes..................................................... 170.0
------
Total debt.............................................. 270.2
Stockholders' equity (deficit):
Stockholders' equity (deficit)............................ (25.8)
Accumulated deficit....................................... (37.0)
------
Total stockholders' equity (deficit).................... (62.8)
------
Total capitalization.................................. $207.4
======
</TABLE>
- --------
(1) The Revolving Loan Facility provides for borrowings of up to $150 million.
See "Description of the Credit Agreement."
(2) Consists of capitalized lease obligations and purchase money obligations
secured by equipment.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined consolidated balance sheet at
June 30, 1997 reflects the historical consolidated balance sheets of Alliance
and SMT adjusted to give effect to the Transactions as if they had occurred at
June 30, 1997. The Recapitalization will be treated as a leveraged
recapitalization in which there will be no changes to the carrying values of
Alliance's net assets and the sales and purchases of Alliance's common stock
will be accounted for as capital transactions at amounts received from or paid
to stockholders. The SMT Acquisition will be accounted for using the purchase
method pursuant to which the fair value of the shares issued to effect the SMT
Acquisition will be allocated to the fair values of the net assets of SMT
determined based on appraisals and other methods. The purchase price
allocations reflected in the pro forma combined consolidated financial
statements are based on preliminary estimates of the fair values of assets and
liabilities which may differ from the actual allocations.
The following unaudited pro forma combined consolidated statements of
operations combine the historical operations of Alliance and SMT for the six
months ended June 30, 1997 and the year ended December 31, 1996, respectively,
with adjustments to reflect the Transactions as if they had occurred as of
January 1, 1997 for the six months ended June 30, 1997, and as of January 1,
1996 for the year ended December 31, 1996.
The unaudited pro forma combined consolidated financial information is based
on the consolidated financial statements of Alliance and SMT giving effect to
the Transactions under the assumptions and adjustments outlined in the
accompanying Notes to Unaudited Pro Forma Combined Consolidated Financial
Information. Such pro forma adjustments are based upon available information
and upon certain assumptions that the Company's management believes are
reasonable under the circumstances. The unaudited pro forma combined
consolidated balance sheet and statements of operations are provided for
comparative purposes only and do not purport to represent the results that
would have been obtained had the Transactions occurred on the dates indicated
or that may be achieved in the future.
The unaudited pro forma combined consolidated balance sheet and statements
of operations and accompanying notes should be read in conjunction with the
respective historical consolidated financial statements of Alliance and SMT
included elsewhere in this Prospectus. See "Index to Consolidated Financial
Statements."
19
<PAGE>
ALLIANCE IMAGING, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL FORMA
ALLIANCE SMT ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments.................. $ 13,817 $13,913 $ (26,475)(a) $ 1,255
Receivables, net.............. 9,207 2,128 -- 11,335
Other current assets.......... 1,053 679 -- 1,732
-------- ------- --------- --------
Total current assets........ 24,077 16,720 (26,475) 14,322
Equipment, net.................. 89,776 32,489 -- 122,265
Intangible assets, net.......... 27,256 590 53,320 (b) 81,166
Other assets.................... 2,161 937 7,100 (c) 10,198
-------- ------- --------- --------
Total assets................ $143,270 $50,736 $ 33,945 $227,951
======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............. $ 2,773 $ 887 $ -- $ 3,660
Accrued compensation and
related expenses............. 2,855 117 -- 2,972
Other accrued liabilities..... 8,688 1,104 (1,000)(d) 8,792
Current portion of long-term
debt......................... 19,618 5,928 (22,026)(e) 3,520
-------- ------- --------- --------
Total current liabilities... 33,934 8,036 (23,026) 18,944
Other liabilities............... 7,038 173 (2,066)(f) 5,145
Long-term debt.................. 60,930 17,152 188,576 (e) 266,658
-------- ------- --------- --------
Total liabilities........... 101,902 25,361 163,484 290,747
Stockholders' equity (deficit):
Preferred stockholders'
equity....................... 18,388 -- (18,388)(f) --
Common stockholders' equity
(deficit).................... 36,280 24,635 (86,701)(f) (25,786)
Retained earnings (accumulated
deficit) .................... (13,300) 740 (24,450)(f) (37,010)
-------- ------- --------- --------
Total stockholders' equity
(deficit).................. 41,368 25,375 (129,539) (62,796)
-------- ------- --------- --------
Total liabilities and
stockholders' equity....... $143,270 $50,736 $ 33,945 $227,951
======== ======= ========= ========
</TABLE>
See accompanying notes.
20
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(a) Reflects the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources:
Term Loan Facility........................................... $ 50,000
Revolving Loan Facility...................................... 38,000
Notes........................................................ 170,000
Equity Investment............................................ 67,900
--------
Total sources............................................. $325,900
========
Uses:
Repurchase Alliance equity................................... $159,830
Acquisition of SMT (see below)............................... 88,300
Transaction costs............................................ 12,800
Repay current debt........................................... 17,218
Repay long-term debt......................................... 53,330
Deferred financing fees for the Credit Agreement and the
Notes....................................................... 7,100
Less cash on hand............................................ (12,678)
--------
Total uses................................................ $325,900
========
Acquisition of SMT:
Net equity of SMT............................................ $ 25,375
Goodwill .................................................... 53,320
Deferred loan fees*.......................................... 2,500
Repay current debt........................................... 5,308
Repay long-term debt......................................... 15,594
Less cash on hand............................................ (13,797)
--------
Total..................................................... $ 88,300
========
Adjustment to cash:
Alliance..................................................... $(12,678)
SMT.......................................................... (13,797)
--------
Total..................................................... $(26,475)
========
</TABLE>
--------
* Incurred by Three Rivers and SMT subsequent to June 30, 1997 as a cost of
obtaining new financing in connection with Three Rivers' acquisition of
SMT. This amount will be expensed by Alliance at the time of the SMT
Acquisition because the related debt will be concurrently repaid.
(b) SMT is a provider of mobile MRI services. The SMT Acquisition will be
accounted for as a purchase and the accounts of SMT will be included in
Alliance's consolidated financial statements commencing with the date of its
acquisition. For purposes of the pro forma presentation of combined results of
operations, the SMT Acquisition is assumed to have occurred as of the
beginning of each period presented. The pro forma balance sheet presents
information as if the SMT Acquisition had occurred as of June 30, 1997. There
are no contingent payments associated with the SMT Acquisition. Substantially
all SMT Acquisition costs in excess of the fair value of net assets acquired
are expected to be accounted for as goodwill and be amortized over a 20 year
life. Goodwill is calculated by subtracting estimated fair value of the net
equity of SMT of $22.9 million (which assumes the write off of SMT's books of
$2.5 million of deferred financing fees with respect to debt repaid in
connection with the closing of the Transactions) from the accounting purchase
price of $78.7 million. The accounting purchase price is calculated by
subtracting $2.5 million (i.e., the deferred financing costs written off) and
$7.1 million (representing SMT's debt to be immediately repaid at closing, net
of cash acquired) from the total transaction value of $88.3 million. Based on
a preliminary review, SMT's net equity approximately reflects the fair value
of its net assets excluding intangibles resulting from the Three Rivers'
acquisition of SMT.
21
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET--(CONTINUED)
JUNE 30, 1997
(c) Reflects financing fees associated with the Credit Agreement and the
Notes, which will be amortized over their respective terms as follows:
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
DESCRIPTION AMOUNT PERIOD EXPENSE
----------- ------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Term Loan Facility.......................... $ 500 6 years $ 83
Revolving Loan Facility..................... 1,500 5 years 300
Notes....................................... 5,100 8 years 638
------ ------
Total................................... $7,100 $1,021
====== ======
</TABLE>
(d) Reflects income tax benefit from write-off of deferred financing fees.
(e) Reflects the following:
<TABLE>
<CAPTION>
LONG-
CURRENT TERM
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Term Loan Facility....................................... $ 500 $ 49,500
Revolving Loan Facility.................................. -- 38,000
Notes.................................................... -- 170,000
Retirement of existing current and long-term debt:
Alliance............................................... (17,218) (53,330)
SMT.................................................... (5,308) (15,594)
-------- --------
$(22,026) $188,576
======== ========
</TABLE>
(f) Reflects the following:
<TABLE>
<CAPTION>
OTHER
PREFERRED COMMON RETAINED TOTAL LONG-TERM
EQUITY* EQUITY EARNINGS EQUITY LIABILITIES TOTAL
--------- --------- -------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Repurchase Alliance
equity................. $(18,388) $(129,966) $ (9,410)** $(157,764) $(2,066) $(159,830)
Transaction costs....... -- -- (12,800) (12,800) -- (12,800)
Write-off deferred
financing costs from
SMT Acquisition........ -- -- (2,500) (2,500) -- (2,500)
Income tax benefit from
deferred financing
costs write-off........ -- -- 1,000 1,000 -- 1,000
Proceeds from sale of
stock in
Recapitalization....... -- 34,300 -- 34,300 -- 34,300
Issuance of common stock
in SMT Acquisition..... -- 33,600 -- 33,600 -- 33,600
Eliminate historical net
equity of SMT.......... -- (24,635) (740) (25,375) -- (25,375)
-------- --------- -------- --------- ------- ---------
$(18,388) $ (86,701) $(24,450) $(129,539) $(2,066) $(131,605)
======== ========= ======== ========= ======= =========
</TABLE>
--------
* Alliance's Series C and Series D Convertible Preferred Stock will be
converted into Alliance Common Stock prior to the closing of the
Transactions.
** Estimated cash used to settle outstanding employee stock options and
change in control payments.
The gross amount to be paid for Alliance common stock is $154.2 million
which represents the $11.00 per share repurchase price multiplied by
14,023,350 total shares. The total of 14,023,350 shares is comprised of the
sum of: (1) 10,943,138 shares of Alliance common stock outstanding as of July
31, 1997; (2) 80,212 shares of Alliance common stock to be issued with respect
to the conversion of all Alliance Series C convertible preferred stock; and
(3) 3,000,000 shares of Alliance common stock to be issued with respect to the
conversion of all outstanding shares of Alliance Series D convertible
preferred stock. The gross amount is increased by $2.1 million in payment of
the net value of warrants canceled and reduced by $8.0 million (727,273 shares
at $11.00 per share) with respect to the retained shares, and $18.4 million
related to the carrying value of Alliance's preferred equity converted to
common shares, resulting in a net payment for Alliance equity of $129,966,000.
22
<PAGE>
ALLIANCE IMAGING, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
ALLIANCE SMT ADJUSTMENTS COMBINED(A)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................... $39,911 $13,014 $ -- $52,925
Costs and expenses:
Operating expenses,
excluding depreciation..... 17,815 4,153 -- 21,968
Selling, general and
administrative expenses.... 3,990 2,127 (220)(b) 5,897
Depreciation expense........ 7,144 3,117 (880)(c) 9,381
Amortization expense,
primarily goodwill......... 1,165 77 1,333 (c) 2,575
Interest expense, net....... 3,557 805 8,878 (d) 13,240
------- ------- ------- -------
Total costs and expenses.. 33,671 10,279 9,111 53,061
------- ------- ------- -------
Income (loss) before income
taxes and extraordinary gain. 6,240 2,735 (9,111) (136)
Income tax benefit (expense).. (2,125) (1,095) 3,220 (e) --
------- ------- ------- -------
Income (loss) before
extraordinary gain........... $ 4,115 $ 1,640 $(5,891) $ (136)
======= ======= ======= =======
OTHER PRO FORMA DATA:
EBITDA........................ $25,060
EBITDA margin................. 47.4%
Adjusted EBITDA(f)............ $26,500
Adjusted EBITDA margin(f)..... 50.1%
Cash interest expense......... $12,729
Ratio of adjusted EBITDA to
cash interest expense(f)..... 2.1x
Ratio of earnings to fixed
charges...................... -- (g)
</TABLE>
See accompanying notes.
23
<PAGE>
ALLIANCE IMAGING, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
ALLIANCE SMT ADJUSTMENTS COMBINED(A)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................... $68,482 $19,022 $ -- $87,504
Costs and expenses:
Operating expenses,
excluding depreciation..... 32,344 6,280 -- 38,624
Selling, general and
administrative expenses.... 8,130 2,577 300 (b) 11,007
Depreciation expense........ 12,737 4,548 (1,200)(c) 16,085
Amortization expense,
primarily goodwill......... 1,952 177 2,666 (c) 4,795
Interest expense, net....... 5,758 1,851 18,871 (d) 26,480
------- ------- -------- -------
Total costs and expenses.. 60,921 15,433 20,637 96,991
------- ------- -------- -------
Income (loss) before income
taxes and extraordinary gain. 7,561 3,589 (20,637) (9,487)
Income tax benefit (expense).. (1,060) (1,178) 2,238 (e) --
------- ------- -------- -------
Income (loss) before
extraordinary gain........... $ 6,501 $ 2,411 $(18,399) $(9,487)
======= ======= ======== =======
OTHER PRO FORMA DATA:
EBITDA........................ $37,873
EBITDA margin................. 43.3%
Adjusted EBITDA(f)............ $40,753
Adjusted EBITDA margin(f)..... 46.6%
Cash interest expense......... $25,459
Ratio of adjusted EBITDA to
cash interest expense(f)..... 1.6x
Ratio of adjusted earnings to
fixed charges................ -- (g)
</TABLE>
See accompanying notes.
24
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
(a) Non-recurring charges aggregating $23.7 million (comprised of $9.4 million
used to settle outstanding employee stock options and other change in
control payments, $12.8 million of transaction costs and a $1.5 million
write-off of deferred financing costs from the SMT Acquisition, net of
related estimated tax benefit) will be charged to operations upon the
closing of the Recapitalization and SMT Acquisition. These amounts have
not been reflected in the unaudited pro forma combined consolidated
statements of operations.
(b) A nonrecurring special charge of $220,000 for the six months ended June
30, 1997 and a nonrecurring special credit of $300,000 for the year ended
December 31, 1996 (both included in SMT's historical selling, general and
administrative expenses herein) have been eliminated by pro forma
adjustment.
(c) Reflects a decrease in depreciation on SMT's equipment reflecting a change
in accounting estimate from a five year life with a 20% residual value to
an eight year life with a 20% residual value. The amounts also reflect the
amortization of the excess of cost over the fair value of assets acquired
over 20 years on a straight line basis.
(d) Interest expense, as adjusted, reflects the elimination of historical
interest expense due to the retirement of substantially all of the
existing debt obligations and assumes that the following indebtedness was
outstanding as of the beginning of the respective reporting periods:
<TABLE>
<CAPTION>
ANNUAL
INTEREST
PRINCIPAL EXPENSE
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Term Loan Facility, interest at LIBOR plus 2.50%
(currently 8.25%)..................................... $ 50,000 $ 4,125
Revolving Loan Facility, interest at LIBOR plus 2.25%
(currently 8.0%) (including 0.5% annual commitment fee
on pro forma unutilized balance of $112 million)...... 38,000 3,600
Notes, assumed interest at 9.75%....................... 170,000 16,575
Other debt, weighted average interest at approximately
9.5%.................................................. 12,178 1,159
--------
Cash interest expense.................................. 25,459
Amortization of deferred financing fees................ 1,021
--------
Total interest expense............................... $ 26,480
========
</TABLE>
A 1/8% variance in interest rates would change annual interest expense by
approximately $322,000.
(e) Income tax adjustments reflect estimated statutory rates applied to the
pro forma adjustments excluding book/tax differences associated with
nondeductible amortization expense. In accordance with FAS 109,
"Accounting for Income Taxes", due to the occurrence of the loss before
income taxes and extraordinary items, a tax benefit has not been recorded
for the year ended December 31, 1996.
(f) Adjusted EBITDA, adjusted EBITDA margin, and the ratio of adjusted EBITDA
to cash interest expense are based on pro forma EBITDA, adjusted for
expense reductions expected to result from consolidation of identified
functions, facilities and mobile MRI routes, and the reorganization of the
combined entity (which reorganization is expected to commence immediately
upon consummation of the Transactions). Operating expenses and selling,
general and administrative expenses are expected to be reduced annually by
approximately $3.4 million. An annual management fee payable to Apollo
Management, L.P. of $500,000 has been included as an offset to the
expected reduction in selling, general and administrative expenses.
(g) Pro forma combined earnings were insufficient to cover fixed charges by
$9.5 million for the year ended December 31, 1996, and $136,000 for the
six months ended June 30, 1997.
25
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ALLIANCE
The following selected historical consolidated financial information of
Alliance with respect to each year in the five-year period ended December 31,
1996 is derived from the consolidated financial statements of Alliance. The
consolidated financial statements of Alliance for each of the years in the
three-year period ended December 31, 1996, are included elsewhere in this
Prospectus. Such consolidated financial statements have been audited by Ernst
& Young LLP, independent auditors. The financial information for the six
months ended June 30, 1996 and June 30, 1997 is unaudited, but in the opinion
of management of Alliance reflects all adjustments necessary for a fair
presentation of such information. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1997. The selected financial
information provided below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Alliance and the notes thereto
included elsewhere in this Prospectus. See "Index to Consolidated Financial
Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues................ $ 63,695 $ 60,728 $ 57,875 $ 58,065 $ 68,482 $ 31,302 $ 39,911
Costs and expenses:
Operating expenses,
excluding
depreciation.......... 32,043 31,768 31,093 28,342 32,344 15,019 17,815
Selling, general and
administrative
expenses.............. 5,842 6,538 6,284 6,294 8,130 3,160 3,990
Depreciation expense... 12,408 13,617 13,424 12,202 12,737 6,048 7,144
Amortization expense,
primarily goodwill.... 737 790 943 1,345 1,952 745 1,165
Interest expense, net.. 10,846 10,507 10,758 5,053 5,758 2,683 3,557
Special charges........ -- 17,500 13,339 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............ 61,876 80,720 75,841 53,236 60,921 27,655 33,671
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary gains.... 1,819 (19,992) (17,966) 4,829 7,561 3,647 6,240
Provision (benefit) for
income taxes........... 766 (5,300) 1,100 727 1,060 545 2,125
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gains.... 1,053 (14,692) (19,066) 4,102 6,501 3,102 4,115
Extraordinary gains, net
of taxes............... -- -- -- -- 6,300 -- 1,332
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(1).... $ 1,053 $(14,692) $(19,066) $ 4,102 $ 12,801 $ 3,102 $ 5,447
======== ======== ======== ======== ======== ======== ========
CONSOLIDATED BALANCE
SHEET DATA
(AT END OF PERIOD):
Cash and short-term
investments............ $ 4,508 $ 8,420 $ 2,478 $ 11,128 $ 10,867 $ 11,180 $ 13,817
Total assets............ 133,920 117,096 102,527 103,327 128,510 120,055 143,270
Long-term debt,
including current
maturities............. 90,456 95,986 79,208 75,880 89,025 86,031 80,548
Redeemable preferred
stock.................. -- -- 15,500 16,430 4,694 15,965 --
Stockholders' equity
(deficit).............. 29,601 14,909 (1,665) 1,604 16,360 5,129 41,368
OTHER DATA:
EBITDA(2)............... $ 25,810 $ 22,422 $ 20,498 $ 23,429 $ 28,008 $ 13,123 $ 18,106
EBITDA margin(3)........ 40.5% 36.9% 35.4% 40.3% 40.9% 41.9% 45.4%
Cash flows provided by
(used in):
Operating activities.. $ 15,952 $ 12,708 $ 12,784 $ 18,043 $ 21,731 $ 10,866 $ 13,693
Investing activities.. (18,650) (14,188) (19,861) (7,789) (27,936) (14,447) (19,545)
Financing activities.. (534) 5,392 1,135 (1,604) 5,944 3,633 8,802
Capital expenditures(4). 21,123 19,184 22,361 11,383 34,376 17,943 20,333
Number of MRI systems at
end of period.......... 70 71 72 76 86 87 90
Comparable customer
revenue growth(5)...... NA NA (0.1)% 6.9% 8.8% 15.7% 17.3%
Average scans per MRI
system per day......... 6.3 5.7 5.8 5.8 6.7 6.5 7.0
Ratio of earnings to
fixed charges(6)....... 1.2x -- -- 1.9x 2.1x 2.2x 2.6x
</TABLE>
- --------
(1) Net income (loss) includes special charges of $13.3 million for the year
ended December 31, 1994 related to an equipment exchange transaction, the
impairment of certain equipment, debt restructuring and employee
severances; extraordinary gains (net of tax) of $6.3 million for the year
ended December 31, 1996 related to the early extinguishment of debt; and
an extraordinary gain (net of tax) of $1.3 million for the six months
ended June 30, 1997 related to the early extinguishment of debt.
(2) EBITDA is defined herein as income before income taxes, plus depreciation,
amortization, net interest expense and other non-recurring items
(principally non-cash). EBITDA is presented because the Company believes
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income as a measure of operating
results or to cash flows as a measure of liquidity in accordance with
generally accepted accounting principles.
(3) EBITDA margin is defined herein as EBITDA divided by revenues.
(4) The substantial majority of historical capital expenditures have related
to either major upgrades to existing systems or the replacement of older,
less-advanced systems with new, state-of-the-art technologically advanced
systems. As a result of these historical investments, the Company believes
that it has upgraded substantially all of its systems and expects most of
its capital expenditures for at least the next three to five years to
relate to net fleet additions through new system purchases.
(5) Represents period over period revenue growth for customers that generated
revenues for the entire term of both periods.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from long-term equipment operating
leases, which management believes is a reasonable approximation of an
interest factor. Earnings were insufficient to cover fixed charges by
$20.0 million and $18.0 million for the years ended December 31, 1993 and
1994, respectively.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF SMT
The selected historical consolidated financial information of SMT with
respect to each year in the five-year period ended December 31, 1996 is
derived from the consolidated financial statements of SMT. The consolidated
financial statements of SMT for each of the years in the three-year period
ended December 31, 1996, are included elsewhere in this Prospectus. Such
consolidated financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors. The financial information for the six months ended June
30, 1996 and June 30, 1997 is unaudited, but in the opinion of management of
SMT reflects all adjustments necessary for a fair presentation of such
information. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997. The selected consolidated financial information
provided below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of SMT and the notes thereto included
elsewhere in this Prospectus. See "Index to Consolidated Financial
Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues................ $ 8,629 $11,844 $13,235 $15,020 $19,022 $ 8,725 $ 13,014
Costs and expenses:
Operating expenses,
excluding
depreciation.......... 3,510 5,257 5,892 5,396 6,280 2,891 4,153
Selling, general and
administrative
expenses.............. 1,360 1,604 1,894 2,472 2,877 1,373 1,907
Depreciation and
amortization.......... 2,070 2,756 3,164 3,679 4,725 2,109 3,194
Interest expense, net.. 1,462 1,654 1,590 1,620 1,851 862 805
Other.................. 16 678 59 2 (300) -- 220
------- ------- ------- ------- ------- -------- --------
Total costs and
expenses............. 8,418 11,949 12,599 13,169 15,433 7,235 10,279
------- ------- ------- ------- ------- -------- --------
Income (loss) from
continuing operations
before income taxes and
extraordinary item..... 211 (105) 636 1,851 3,589 1,489 2,735
Provision (benefit) for
income taxes........... (32) (36) 94 478 1,178 469 1,095
------- ------- ------- ------- ------- -------- --------
Income (loss) from
continuing operations
before extraordinary
item................... 243 (69) 542 1,373 2,411 1,020 1,640
Discontinued operations,
net..................... (92) (2,242) (132) -- -- -- --
Extraordinary item, net
of income taxes......... -- -- -- -- -- -- (181)
------- ------- ------- ------- ------- -------- --------
Net income (loss)(1).... $ 151 $(2,311) $ 410 $ 1,373 $ 2,411 $ 1,020 $ 1,459
======= ======= ======= ======= ======= ======== ========
CONSOLIDATED BALANCE
SHEET DATA (AT END OF
PERIOD):
Cash and short-term
investments............ $ 2,695 $ 2,227 $ 2,317 $ 3,942 $ 5,043 $ 3,830 $ 13,913
Total assets............ 18,739 18,392 20,623 23,348 39,498 28,844 50,736
Long-term debt and
capital lease
obligations including
current maturities..... 12,321 14,292 16,212 17,091 27,210 20,522 23,080
Stockholders' equity.... 5,554 3,243 3,653 5,402 11,400 7,367 25,375
OTHER DATA:
EBITDA(2)............... $ 3,759 $ 4,983 $ 5,449 $ 7,152 $ 9,865 $ 4,461 $ 6,954
EBITDA margin(3)........ 43.6% 42.1% 41.2% 47.6% 51.9% 51.1% 53.4%
Cash flows provided by
(used in):
Operating activities... $ 1,608 $ 2,808 $ 3,630 $ 5,477 $ 7,441 $ 3,024 $ 6,782
Investing activities... (1,874) (275) (261) (1,380) (2,567) (1,637) (2,976)
Financing activities... 2,579 (3,002) (3,548) (3,604) (2,573) (1,168) 5,064
Capital expenditures(4). 6,760 4,663 4,584 5,069 18,112 7,104 5,985
Number of MRI systems at
end of period.......... 8 9 9 11 18 13 20
Comparable customer
revenue growth(5)...... NA NA 5.2% 0.1% 12.9% 9.7% 22.0%
Average scans per MRI
system per day......... 9.1 9.1 9.0 10.4 10.9 10.9 11.5
Ratio of earnings to
fixed charges(6)....... 1.1x -- 1.4x 2.0x 2.7x 2.5x 3.4x
</TABLE>
- --------
(1) Net income includes a loss on disposal of discontinued operations of
$132,000 for the year ended December 31, 1994 and an extraordinary loss
(net of tax) of $181,000 for the six months ended June 30, 1997 related to
the early extinguishment of debt.
(2) EBITDA is defined herein as income before income taxes, plus depreciation,
amortization, net interest expense and other non-recurring items
(principally non-cash). EBITDA is presented because the Company believes
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income as a measure of operating
results or to cash flows as a measure of liquidity in accordance with
generally accepted accounting principles.
(3) EBITDA margin is defined herein as EBITDA divided by revenues.
(4) Capital expenditures relate to substantially upgrading MRI systems as well
as purchasing new systems to expand the size of the fleet. As a result of
these historical investments, the Company believes that it has upgraded
substantially all of its systems and expects most of its capital
expenditures for at least the next three to five years to relate to net
fleet additions through new system purchases.
(5) Represents period over period revenue growth for customers that generated
revenues for the entire term of both periods.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from long-term equipment operating
leases, which management believes is a reasonable approximation of an
interest factor. Earnings were insufficient to cover fixed charges by
$105,000 for the year ended December 31, 1993.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Alliance and SMT should be read in conjunction with Alliance's
and SMT's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
OVERVIEW
The Company is a leading nationwide provider of diagnostic imaging services
and the largest operator of state-of-the-art mobile diagnostic imaging systems
and related outsourced radiology services in the United States. The Company
primarily provides MRI systems and services to hospitals and other health care
providers on a mobile, shared user basis. The Company also provides dedicated,
full-time MRI systems and services as well as full-service management of
imaging operations for selected hospitals. The Company's services enable small
to mid-size hospitals to gain access to advanced diagnostic imaging technology
and related value-added services without making a substantial investment in
equipment and personnel. The Company operates a fleet of 111 MRI systems and
services over 420 MRI customers in 36 states under exclusive contracts with an
average remaining length of approximately 25 months as of July 31, 1997.
The Company's revenues are principally a function of the number of systems
in service, scan volumes and fees per scan. The Company generates
substantially all of its revenues under exclusive one to eight-year contracts
with hospitals and health care providers. The Company's contracts typically
offer tiered pricing with lower fees per scan on incremental scans, allowing
customers to benefit from increased scan volumes and the Company to benefit
from the operating leverage associated with increased scan volumes. The
Company expects modest continuing downward pressure on pricing levels as a
result of cost containment measures in the health care industry. However, in
many cases higher scan volumes justify lower prices on incremental scans.
The principal components of the Company's operating costs include salaries
paid to technologists and drivers, annual system maintenance costs, insurance
and transportation costs. Because a majority of these expenses are fixed,
increased revenues as a result of higher scan volumes significantly improve
the Company's profitability while lower scan volumes result in lower
profitability.
Since the beginning of 1995, Alliance and SMT have each substantially
increased revenues by adding new customers and increasing scan volumes at
existing customer sites. During the same period, the growth rate of EBITDA for
each of Alliance and SMT increased more rapidly than the growth rate of
revenues as a result of spreading costs (which are primarily fixed) over a
larger revenue base and implementing cost reduction and containment measures.
Alliance has historically focused on maximizing cash flow and return on
invested capital nationwide, deploying new and upgraded systems in high volume
markets and redeploying older, less advanced systems with lower carrying
values in lower volume markets. Alliance's ongoing equipment trade-in and
upgrade program has substantially improved the marketability and productivity
of its MRI systems. Because Alliance owns substantially all of its MRI
systems, it periodically evaluates its older, less marketable MRI systems to
determine if it is more beneficial to continue to use such systems in lower
volume markets, which are profitable but produce less revenue, or to trade in
such equipment in connection with new system purchases. Since January 1, 1995,
Alliance has invested approximately $66 million to upgrade and expand its
fleet and currently maintains one of the most advanced fleets in the industry.
In the last three years, SMT has focused on the development of efficient
routes and the maximization of capacity utilization across the Mid-Atlantic
region of the United States. Since January 1, 1995, SMT has invested
approximately $29 million to upgrade and expand its fleet of MRI systems and,
accordingly, employs substantially all new or upgraded premium MRI systems. In
1996, SMT purchased seven new systems and upgraded three existing systems for
a total investment of $18.1 million.
28
<PAGE>
The Company also provides CT services and imaging systems. Revenues from CT
services and imaging systems accounted for less than 5% of the Company's
revenues for the year ended December 31, 1996.
On June 24, 1997, Three Rivers, which is wholly owned by Apollo, and Three
Rivers Acquisition, which is wholly owned by Three Rivers, entered into an
Agreement and Plan of Merger with SMT, pursuant to which Three Rivers
Acquisition commenced an offer to purchase all outstanding shares of common
stock of SMT for $11.75 per share. Following the expiration of the offer on
August 5, 1997, Three Rivers Acquisition acquired approximately 91.9% of the
issued and outstanding shares of common stock of SMT. On September 29, 1997,
SMT became a wholly owned subsidiary of Three Rivers. Upon consummation of the
SMT Acquisition, SMT will become an indirect wholly owned subsidiary of
Alliance. Immediately following the Recapitalization and the SMT Acquisition,
Apollo will own approximately 84% of the issued and outstanding common stock
of Alliance and Alliance's existing shareholders will own approximately 10%.
See "The Transactions." The pro forma effect of the Transactions is set forth
under "Unaudited Pro Forma Combined Consolidated Financial Information" and
the notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS OF ALLIANCE
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
Revenues for the first six months of 1997 were $39,911,000, an increase of
$8,609,000, or 27.5%, over 1996. This increase reflects a scan-based MRI
revenue increase of $7,879,000, or 28.4%, ($2,309,000, or 8.3%, as a result of
MRI operations acquired subsequent to the first quarter of 1996), resulting
from a 30.4% increase in total scan volume partially offset by a 1.6% decrease
in the average revenue realized per MRI scan. The average daily scan volume
per MRI system increased 7.7% to 7.0 from 6.5 in 1996. Management attributes
the volume increase to Alliance's continuing MRI systems upgrade program,
which has enabled Alliance to obtain new, long-term contracts from both
existing and new customers, and to the effect of recently implemented
marketing programs. Management believes the decrease in average revenue
realized per scan is the result of: continuing competitive pressure in the MRI
service industry and cost containment efforts by health care payors; obtaining
contracts with customers that have high scan volumes which justify lower scan
prices; and many customers achieving discount price levels on incremental scan
volumes. CT revenues increased $397,000, or 21.6%, as a result of internal
growth and the fourth quarter 1996 acquisition of a small CT business. Other
revenues increased $300,000 primarily as a result of the implementation in
late 1996 of a program providing management services for a large portfolio of
imaging systems owned by others.
Alliance operated 90 MRI systems at June 30, 1997 compared to 87 MRI systems
at June 30, 1996. The average number of MRI systems operated by Alliance was
87 during the first half of 1997, compared to 82 during the first half of
1996.
Operating expenses, excluding depreciation, totaled $17,815,000 in the first
six months of 1997, an increase of $2,796,000, or 18.6%, from the first six
months of 1996. Payroll and related employee expenses increased $1,250,000, or
18.5%, primarily as a result of an increase in operating staffing levels
necessary to support revenue growth. Repairs and maintenance expense increased
$364,000, or 50.5%, due to an increased number of systems in service. Fuel and
other vehicle expenses collectively increased $291,000, or 46.9%, primarily
due to increasing fuel prices and the addition of new mobile MRI systems.
Preventative maintenance and cryogen contract expense increased $139,000, or
3.1%, due to the expiration of the warranties on an increased number of MRI
systems. Other operating expenses (including insurance, equipment rental,
supplies and professional services) increased $752,000, or 30.6%, as a result
of the increased level of operations.
Depreciation expense during the first six months of 1997 totaled $7,144,000,
an increase of $1,096,000, or 18.1%, from the 1996 level principally due to a
higher amount of depreciable assets associated with equipment
29
<PAGE>
additions and upgrades. Amortization expense during the first six months of
1997 increased $420,000, or 56.4%, over the 1996 period as a result of
goodwill amortization associated with recent business acquisitions.
Selling, general and administrative expenses totaled $3,990,000 in the first
six months of 1997, an increase of $830,000, or 26.3%, from the same period in
1996. Professional services expenses increased $297,000, or 118.8%, primarily
due to costs associated with increased investor relations efforts and merger
and acquisition activity. Payroll and related expenses increased $228,000 or
8.9%, primarily as a result of increased staffing levels necessary to support
Alliance's increased level of operations. Other expenses increased primarily
as a result of expanded marketing programs and costs associated with
relocating Alliance's corporate offices.
Interest expense of $3,557,000 in the first six months of 1997 was $874,000,
or 32.6%, higher than the same period in 1996, as a result of higher average
outstanding debt balances during 1997 as compared to 1996. This increase was
primarily related to the senior bridge loan (which was converted into Series D
convertible preferred stock on March 26, 1997), to the financing of several
new imaging systems during the first half of 1997, and to debt assumed in
connection with acquisitions made subsequent to the first half of 1996.
An income tax provision of $2,125,000 was recorded in the first six months
of 1997, which was higher than the tax provision recorded in the same period
in 1996 by $1,580,000, or 289.9%. The increase resulted from the increase in
income before taxes and an increase in Alliance's effective tax rate. The
effective income tax rate increased to 34.1% in 1997 from 14.9% in 1996
because Alliance's taxable income in 1997 is expected to exceed remaining
available net operating loss carryforwards.
Alliance's income before extraordinary gain was $4,115,000 in the first six
months of 1997 compared to net income of $3,102,000 in the first six months of
1996, an increase of $1,013,000, or 32.7%, primarily attributable to the
increase in revenues achieved without a proportionate increase in costs and
administrative expenses. Alliance reported an extraordinary gain, net of
income taxes, in the first quarter of 1997 of $1,332,000 on early
extinguishment of debt in January 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for 1996 were $68,482,000, an increase of $10,417,000, or 17.9%,
over 1995. On April 26, 1996, Alliance acquired all of the outstanding shares
of Royal Medical Health Services, Inc. ("Royal") and certain related assets.
Excluding revenues of $2,895,000 from operations which were sold in the second
half of 1995, the increase in revenues was $13,312,000, or 24.1%, with Royal
accounting for $4,694,000, or 8.5% of the increase. This increase reflects a
scan-based MRI revenues increase of $10,897,000, or 22.0%, ($4,532,000, or
9.2%, as a result of the Royal acquisition), resulting from a 23.4% increase
in total scan volume partially offset by a 1.1% decrease in the average
revenues realized per MRI scan. Royal accounted for 9.8% of the scan volume
increase and 0.1% of the offsetting price per scan decrease. The average
number of scans per day for each MRI system increased 15.5% to 6.7 in 1996
from 5.8 in 1995. Management attributes the non-Royal volume increase to
Alliance's continuing MRI systems upgrade program, which has enabled Alliance
to obtain new long-term contracts from both existing and new customers, and to
the effect of some smaller acquisitions. Management believes the decrease in
average revenues realized per scan is the result of: continuing competitive
pressure in the MRI service industry and cost containment efforts by health
care payors; obtaining contracts with customers that have high scan volumes
which justify lower scan prices; and many customers achieving discount price
levels on incremental scan volumes. Revenues under fixed fee contracts
increased $893,000, or 43.8%, resulting from an increased number of MRI
systems under such arrangements. Other revenues increased $891,000 primarily
as a result of Alliance selling its investment in London-based Alliance
Medical, Ltd. and recording a gain of $750,000. CT revenues increased
$632,000, or 21.8%, primarily as a result of the third quarter 1995 and fourth
quarter 1996 acquisitions of two CT businesses.
Alliance operated 86 MRI systems at December 31, 1996 compared to 76 MRI
systems at December 31, 1995. The average number of MRI systems operated by
Alliance was 85 during 1996, compared to 74 during 1995.
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Operating expenses, excluding depreciation, totaled $32,344,000 in 1996, an
increase of $4,002,000, or 14.1%, from 1995. Excluding expenses of $1,008,000
related to operations which were sold in the second half of 1995, the increase
in operating expenses was $5,010,000, or 18.3%, with Royal contributing
$2,333,000, or 8.5% of the increase. Payroll and related employee expenses
increased $1,789,000, or 15.0%, which was in line with the revenue increase.
Equipment rental expense increased $898,000, or 60.4%. The increase resulted
from higher number of rented MRI systems in operation and Alliance's leasing
of 20 new tractors in 1996. Other operating expenses increased $751,000, which
was offset by a $761,000 decrease in preventive maintenance contract and
cryogen expense, primarily as a result of more efficient systems and lower
contract rates associated with Alliance's equipment upgrade program.
Depreciation expense during 1996 totaled $12,737,000, an increase of
$535,000, or 4.4%. Excluding depreciation expense of $638,000 related to
operations which were sold in the second half of 1995, depreciation expense
increased $1,173,000, or 10.1%, from the 1995 level principally due to a
higher amount of depreciable assets associated with equipment additions and
upgrades and the Royal acquisition. Amortization expense in 1996 increased
$607,000, or 45.1%, over the 1995 period as a result of the Royal acquisition
and four smaller acquisitions in late 1995 and 1996.
Selling, general and administrative expenses totaled $8,130,000 in 1996, an
increase of $1,836,000, or 29.2%, from 1995. Excluding expenses of $369,000
related to operations sold in the second half of 1995, selling, general and
administrative expenses increased $2,205,000, or 37.2%. Payroll and related
expenses increased $1,457,000, primarily as a result of increased employee
compensation related to increased sales commissions, performance compensation
in connection with the increase in net income, early achievement of long term
incentive plan objectives and increased staffing levels. Bad debt expense
increase $567,000 in 1996 compared to 1995.
Interest expense of $5,758,000 in 1996 was $705,000, or 14.0%, higher than
1995, primarily as a result of higher average outstanding debt balances during
1996 as compared to 1995. This increase related to debt assumed in connection
with the Royal acquisition and additional borrowing related to equipment
additions.
An income tax provision of $1,060,000 was recorded in 1996. Alliance's pre-
tax income in 1996 was substantially offset by net operating loss
carryforwards; however, certain federal alternative minimum taxes and state
tax liabilities applied to this income, giving rise to the tax provision
recorded. In 1995, an income tax provision of $727,000 was recorded, also
related to certain federal alternative minimum taxes and state tax
liabilities. Alliance's 1996 effective tax rate of approximately 14% of pre-
tax income before extraordinary gains was comparable to the 1995 rate. At
December 31, 1996, Alliance had approximately $26,400,000 of net operating
loss carryovers available for federal regular income tax purposes to offset
future taxable income, subject to certain limitations. Approximately
$4,500,000 of this amount is not subject to such limitations; consequently,
approximately $6,700,000 of operating loss carryovers is available in 1997 for
regular federal income tax purposes. Alliance expects its future effective tax
rate to increase as these net operating loss carryovers are fully utilized.
Alliance's net income before extraordinary gains was $6,501,000 in 1996
compared to net income of $4,102,000 in 1995, an increase of $2,399,000, or
58.5%, primarily attributable to the increase in revenues achieved without a
proportionate increase in operating and selling, general and administrative
expenses. Alliance reported extraordinary gains, net of income taxes, in the
fourth quarter of 1996 of approximately $6,300,000 on early extinguishment of
debt.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for 1995 were $58,065,000, an increase of $190,000, or 0.3%, over
1994. This increase reflects a $1,557,000 increase in MRI revenues under fixed
fee contracts and an increase in CT and other revenues totaling $125,000,
offset by a $1,492,000, or 2.9%, decrease in scan-based MRI revenues. The
decrease in scan-based MRI revenues resulted from a 5.8% increase in scan
volume offset by an 8.2% decrease in average revenues
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realized per MRI scan. Management attributes the volume increases to
Alliance's continuing MRI systems upgrade program, which has enabled Alliance
to obtain new long-term contracts from both existing and new customers. The
average number of scans per day for each MRI system remained unchanged at 5.8.
Management believes the decrease in average revenues realized per scan is the
result of continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payors, as well as obtaining contracts with
customers that have high scan volumes which justify lower scan prices on
incremental scan volume. The increase in MRI revenues under fixed fee
contracts is a result of a higher number of systems deployed in full-time
temporary assignments, including several older systems awaiting trade-in on
new equipment. CT and other revenues increases are generally associated with
the acquisition of a mobile CT business and the gain on sale of equipment and
a related service contract, offset by lower other imaging revenue resulting
from the disposition of Alliance's full-service imaging center in Fresno,
California as of September 30, 1995. Alliance operated 76 MRI systems at
December 31, 1995, compared to 72 systems at December 31, 1994. The average
number of MRI systems operated by Alliance was 74 in 1995, compared with 73
during 1994.
Operating expenses, excluding depreciation, totaled $28,342,000 in 1995, a
decrease of $2,751,000, or 8.8%, from 1994. Payroll and related employee
expenses decreased $336,000, or 2.7%, to $12,153,000 due to more efficient
staffing associated with cost reduction efforts and a larger number of systems
staffed by customer personnel in 1995. Maintenance and cryogen contract
expense declined $54,000, or 0.6%, to $9,313,000, as a result of an increased
number of newer, efficiently-operating systems in the fleet in 1995 and lower
contract rates, partially offset by an increased number of systems. Equipment
rental expense decreased $931,000, or 38.1%, to $1,515,000, as operating
leases expired and Alliance returned the related equipment to the lessor. The
leased equipment was generally replaced with low cost used MRI systems
purchased by Alliance. Professional medical services, supplies, site fees and
repairs expenses collectively decreased $1,443,000, or 40.0%, to $2,805,000,
primarily as a result of reduced physician staffing and other cost control
efforts at Alliance's full-service imaging center in Fresno, California, which
was disposed of effective September 30, 1995.
Depreciation expense during 1995 decreased $1,222,000, or 9.1%, from the
1994 level due to a lower amount of depreciable assets, resulting from
equipment write-downs in late 1994, partially offset by equipment additions in
1995. Amortization expense in 1995 increased $402,000, or 42.6%, over 1994
because of the revision of the amortization period for goodwill from 40 to 25
years, effective October 1, 1994, and a small business acquisition in 1995.
Selling, general and administrative expenses were essentially unchanged from
the prior year. Payroll and related employee expenses increased $627,000, or
15.6%, as a result of long-term deferred incentive compensation costs and
inflationary pressures. Bad debt expense decreased $609,000, or 100%, to zero
in 1995 as a result of revised billing practices and continuing intensive
collection efforts, primarily with respect to Alliance's retail accounts
receivable.
Interest expense of $5,053,000 in 1995 was $5,705,000, or 53.0%, lower than
in 1994 primarily as a result of Alliance's comprehensive debt restructuring,
effective as of December 31, 1994, and lower average outstanding debt balances
in 1995.
Alliance recorded special charges totaling $13,339,000 in the fourth quarter
of 1994. No such charges were incurred in 1995. Including these charges, the
loss before taxes totaled ($17,966,000) in 1994, compared to income before
taxes of $4,829,000 in 1995, an improvement of $22,795,000. Although the
preceding amounts before taxes are not representative of operating performance
in accordance with GAAP, they have been provided to highlight the significant
non-recurring element contained within the GAAP net income measurement. This
improvement resulted from significantly reduced operating expenses (including
depreciation), substantially lower interest expense and the absence of special
charges in 1995. Income before taxes in 1995 increased $9,456,000 over 1994's
loss before taxes without the effects of special charges.
An income tax provision of $727,000 was recorded in 1995. Alliance's pre-tax
income in 1995 was substantially offset by net operating loss carryforwards;
however, certain federal alternative minimum taxes and
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state tax liabilities applied to this income, giving rise to the tax provision
recorded. In 1994, an income tax provision of $1,100,000 was recorded as a
result of federal alternative minimum tax and certain state income taxes
related to cancellation of debt income for tax purposes associated with
Alliance's financial restructuring, as well as increased valuation allowances
for deferred tax assets. However, these reserved tax assets may be available
to reduce future income tax provisions. At December 31, 1995, Alliance had
approximately $33,000,000 in federal net operating loss carryforwards
available to offset future taxable income, subject to certain limitations.
Alliance's net income was $4,102,000 in 1995, compared to a net loss of
($19,066,000) in 1994, an increase of $23,168,000, primarily attributable to
the increased operating profits, lower interest expense and absence of special
charges in 1995, as explained above. Net income in 1995 increased $9,354,000
over the net loss in 1994 without the effect of the special charges and
related tax impact. Although the preceding amount of net loss excluding the
effects of special charges and income taxes is not representative of operating
performance in accordance with GAAP, it has been provided to highlight the
significant non-recurring element contained within the GAAP net loss
measurement. This increase is attributable to higher operating profit and
lower interest expense in 1995.
RESULTS OF OPERATIONS OF SMT
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 increased $4,289,000, or
49%, to $13,014,000 compared to $8,725,000 for the six months ended June 30,
1996. The increase in revenues is principally due to three new MRI systems
placed into service during the latter part of the 1996 first quarter, four
additional systems subsequently placed into service during 1996, and a new
system placed into service during mid-April 1997. In addition, the upgrade of
three systems to newer technology during 1996 and increased utilization of
SMT's mobile MRI systems also contributed to the increased revenues. Revenues
derived from hospitals which SMT serviced in both comparable periods increased
approximately 22% during the six months ended June 30, 1997 compared to the
six months ended June 30, 1996, primarily as a result of increased scan
volume. SMT operated an average of approximately 18.5 systems during the six
months ended June 30, 1997 compared to approximately 13 systems during the six
months ended June 30, 1996. During the six months ended June 30, 1997, SMT
performed 31,900 MRI scans representing an increase of 11,273, or 55%, over
the 20,627 MRI scans during the six months ended June 30, 1996. Average scans
per day per system increased 0.6 to 11.5 during the six months ended June 30,
1997 compared to 10.9 during the six months ended June 30, 1996. The average
fee per scan approximated $396 for the six months ended June 30, 1997 versus
$414 for the six months ended June 30, 1996. The $18, or 4%, decrease in
average fee per scan primarily related to discounted fees on incremental
scans.
Operating expenses increased $1,262,000, or 44%, to $4,153,000 during the
six months ended June 30, 1997 compared to $2,891,000 during the six months
ended June 30, 1996. Approximately $970,000, or 77% of the increase, is due to
operating expenses associated with three new systems purchased in the first
quarter of 1996, the four additional systems subsequently purchased during
1996, and the new system placed into service during April 1997. The remaining
increase of $292,000, or 23%, is primarily due to higher payroll costs for
operational personnel. Operating expenses per scan decreased $10, or 7%, to
approximately $130 compared to $140 per scan during the six months ended June
30, 1996 primarily due to higher scan volumes.
Depreciation and amortization expenses increased $1,085,000, or 52%, for the
six months ended June 30, 1997 to $3,194,000 from $2,109,000 during the six
months ended June 30, 1996. This increase was primarily due to depreciation
expense associated with the three new systems purchased in the first quarter
of 1996, the four additional systems subsequently purchased during 1996, the
new system placed into service in April 1997, as well as the upgrade of three
systems to newer technology during 1996.
Selling, general and administrative costs for the six months ended June 30,
1997 increased $534,000 to $1,907,000, or 14% of revenues, compared to
$1,373,000, or 16% of revenues, during the six months ended June
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30, 1996. The increase is primarily due to an approximate $308,000 increase in
executive compensation and costs related to SMT's management bonus plan, an
approximate $94,000 increase in marketing expenses, $41,000 increase in
miscellaneous taxes, $35,000 increase in travel and entertainment, $26,000
increase in director fees and expenses, and $16,000 increase in insurance
costs, partially offset by a reduction in consulting expenses.
Interest expense for the six months ended June 30, 1997 increased $133,000
to $1,080,000 from $946,000 during the six months ended June 30, 1996,
primarily as a result of the three new systems purchased in the first quarter
of 1996, the four additional systems subsequently purchased during 1996, the
new system purchased in April 1997, as well as the upgrade of three systems to
newer technology during 1996. This increase was partially offset by interest
savings of approximately $114,000 related to the payoff of three leases in
March 1997. Interest expense decreased as a percentage of revenue to 8% in the
six months ended June 30,1997 compared to 11% of revenue during the six months
ended June 30, 1996.
SMT recorded $220,000 of expenses with respect to professional fees incurred
related to its tender offer and merger.
SMT reported income before extraordinary loss of $1,640,000 during the six
months ended June 30, 1997 versus $1,020,000 during the six months ended June
30, 1996. Income tax expense for the six months ended June 30, 1997 was
$1,095,000, an effective tax rate of approximately 40%, as compared to income
tax expense of $469,000, an effective tax rate of approximately 32%, for the
six months ended June 30, 1996. SMT reported an extraordinary loss on early
extinguishment of debt of $181,000, net of an income tax benefit of $115,000,
primarily as a result of prepayment penalties related to the repayment of
debt.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SMT achieved a considerable increase in profitability during 1996. Net
income during 1996 increased $1,038,000, or 76%, to $2,411,000 from $1,373,000
during 1995. The increase in profitability is principally due to increased
revenues attributed to new systems placed into service in late 1995, seven
additional systems placed into service throughout 1996, the upgrade of four
systems to newer technology in 1996, as well as increased utilization of SMT's
mobile MRI systems. Lower financing costs and higher down payments on new and
upgraded mobile MRI systems have also contributed to the increased
profitability during 1996. SMT operated an average of approximately 14 systems
during 1996.
Revenues during 1996 increased $4,002,000, or 27%, to $19,022,000 compared
to $15,020,000 in 1995. Excluding 1995 revenues of approximately $548,000
related to SMT's cardiac partnerships, which were sold on June 30, 1995,
mobile MRI revenues increased approximately 32%. This increase in revenues was
primarily attributed to the aforementioned new systems placed into service
during late 1995, the seven additional systems placed into service during
1996, the upgrade of four systems to newer technology in 1996 and the
increased utilization of SMT's existing mobile MRI systems. Revenues derived
from hospitals which SMT serviced in both comparable periods increased
approximately 13% in 1996 compared to 1995 primarily as a result of increased
MRI procedures. During 1996, SMT performed 45,185 MRI scans, representing an
increase of 12,103 scans, or 37%, over the 33,082 MRI scans during 1995.
Average scans per day per system increased 0.5 to 10.9 scans per day during
1996 compared to 10.4 during 1995. The average fee per scan for 1996
approximated $408 for 1996 versus $435 for 1995. The $27, or 6%, decrease in
average fee per scan primarily related to discounted fees on incremental scan
volume provided to customers based upon higher scan volumes.
Operating expenses increased $884,000, or 16%, to $6,280,000 during 1996
compared to $5,396,000 in 1995. Excluding approximately $179,000 of operating
expenses associated with the cardiac partnerships which were sold on June 30,
1995, mobile MRI operating expenses increased $1,063,000 primarily due to
approximately $1,350,000 of operating expenses associated with SMT's new
systems purchased in late 1995 and the seven systems added during 1996,
partially offset by a decrease of approximately $287,000, or 6%, in operating
expenses of systems in operation for both comparable periods. This 6% decrease
was primarily a result of $141,000 savings on state sales tax on certain
systems, $122,000 savings on lower maintenance and cryogen
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contracts, $64,000 savings on the rental of tractors used to transport the MRI
systems and $42,000 savings on general repairs and maintenance costs,
partially offset by higher payroll costs for operating personnel. Operating
expenses per scan decreased $24, or 15%, to approximately $139 compared to
$163 per scan during 1995.
Depreciation and amortization expenses increased $1,046,000, or 28%, in 1996
to $4,725,000 from $3,679,000 in 1995. This increase was primarily due to
depreciation expense associated with SMT's new systems purchased during late
1995, the seven additional systems placed into service in 1996, as well as the
four systems upgraded during 1996.
Selling, general and administrative costs for 1996 increased $405,000 to
$2,877,000, or 15% of revenues, compared to $2,472,000, or 16% of revenues in
1995. The increase was primarily due to an approximate $200,000 increase in
executive compensation and costs related to SMT's management bonus plan. The
remaining increase is due to higher corporate expenses such as travel,
insurance and costs associated with SMT's Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") accreditation.
Interest expense for 1996 increased $284,000 to $2,041,000 from $1,758,000
in 1995, primarily as a result of the new systems purchased during late 1995,
the seven additional systems placed into service in 1996 as well as the four
systems upgraded during 1996. However, interest expense decreased as a
percentage of revenue to 11% in 1996 compared to 12% of revenue in 1995. This
decrease as a percentage of revenue was primarily due to higher down payments
on new and upgraded mobile MRI systems as well as more favorable lease terms
obtained on equipment financings and refinancings during 1995 and 1996.
Other expense in 1996 reflects a $300,000 net state sales tax refund. The
refund was the result of sales tax paid to a certain state over a period of
time which SMT determined (by obtaining a private letter ruling from the
state) was actually exempt from such tax. SMT obtained formal notice of the
refund in September 1996 and received the cash refund in January 1997.
SMT reported net income of $2,411,000 in 1996 versus $1,373,000 in 1995.
Income tax expense for 1996 was $1,178,000, an effective tax rate of
approximately 33%, as compared to income tax expense of $478,000, an effective
tax rate of approximately 26%, for 1995. Income tax expense for 1996 reflects
a net $105,000 deferred tax benefit resulting from an adjustment to SMT's
federal net operating loss carryforward. Excluding the $105,000 tax
adjustment, SMT's effective tax rate for 1996 approximated 36%. The increase
in income tax expense reflects the significant increase in profitability of
SMT during 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
SMT realized a significant increase in profitability during 1995. Net income
during 1995 increased $963,000, or 235%, to $1,373,000 from $410,000 during
1994. The increase in profitability is primarily due to increased revenues,
lower costs due to increased utilization of SMT's systems, the impact of a
cost reduction program begun in 1994 and lower financing costs.
Revenues during 1995 increased $1,785,000, or 13%, to $15,020,000 compared
to $13,235,000 in 1994. Revenues, excluding $548,000 and $1,018,000 for 1995
and 1994, respectively, related to the Cardiac and Nuclear SPECT partnerships
which SMT sold on June 30, 1995, increased 19% from 1994 to 1995. This
increase is primarily due to increased utilization of SMT's MRI systems.
Revenues of existing systems increased approximately 8% in 1995 compared to
1994. Further, SMT operated an average of ten systems during 1995 versus nine
systems in 1994. During 1995, SMT performed 33,082 MRI scans, representing an
increase of 7,587 scans, or 30%, over the 25,495 scans performed during 1994.
Average scans per day averaged 10.4 during 1995 compared to approximately 9.0
scans per day during 1994. The average fee per scan for 1995 approximated $435
versus $476 per scan during 1994. The $41, or 9% decrease in average fee per
scan is primarily due to discounted fees on incremental scans.
Operating expenses during 1995 decreased $496,000, or 8%, to $5,396,000
compared to $5,892,000 in 1994. This decrease was primarily due to various
cost containment measures implemented during late 1994 and
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early 1995, as well as the purchase and upgrade during November 1994 of a
mobile system which had previously been leased on an annual basis by SMT
pursuant to an operating lease (accordingly, its lease payment was treated
entirely as an operating expense). As a result of the purchase and upgrade,
the lease costs were treated as depreciation and interest expenses. Operating
expenses of existing systems decreased approximately 2% in 1995 compared to
1994, excluding the aforementioned lease adjustment. During 1994 and early
1995, SMT renegotiated its mobile MRI system maintenance contracts, property
insurance rates and several other major operating expenditures resulting in
annual cost savings of approximately $250,000. Operating expense per system
decreased $68, or 29%, to $163 from $231 per scan during 1994.
Depreciation and amortization expense increased $516,000, or 16%, to
$3,679,000 in 1995 from $3,164,000 in 1994. The increase was primarily due to
higher depreciation expense associated with SMT's new systems purchased in
February and September of 1995 as well as its upgraded and refinanced systems.
Selling, general and administrative costs for 1995 increased $578,000 to
$2,472,000, or 16% of revenues, compared to $1,894,000, or 14% of revenues for
1994. The increase was primarily due to increased marketing expenses,
increases in professional expenses related to SMT's shareholder rights plan
and various securities filings and increased compensation costs related to
SMT's management bonus plan.
Interest expense for 1995 increased $120,000 to $1,758,000 from $1,638,000
but decreased as a percentage of revenue to 12% of revenue versus 13% of
revenue in 1994. The increase in interest expense primarily reflects the
interest payments on the two new systems purchased during 1995. The decrease
in interest expense as a percentage of revenues reflects the more favorable
lease terms obtained on the systems refinanced during 1994 and 1995.
Income tax expense for 1995 was $478,000 as compared to income tax expense
of $94,000 for 1994. This increase reflects the significant increase in
profitability of SMT during 1995.
LIQUIDITY AND CAPITAL RESOURCES
Alliance generated $12.8 million, $18.0 million and $21.7 million from
operating activities in 1994, 1995 and 1996 respectively, and $10.9 million
and $13.7 million in the first six months of 1996 and 1997, respectively. The
increase in cash provided by operating activities reflects the increase in
scan volumes and improved operating performance. Capital expenditures,
consisting primarily of new equipment purchases, totaled $22.4 million, $11.4
million and $34.4 million in 1994, 1995 and 1996, respectively, and $20.3
million in the first six months of 1997. Since January 1, 1995, Alliance has
upgraded 22 MRI systems and purchased 27 new MRI systems, including
replacement systems. As of December 31, 1996, Alliance had binding equipment
purchase commitments totalling approximately $29.2 million. Alliance expects
to purchase the equipment under these commitments in 1997 and finance such
purchases with installment debt primarily provided by the equipment
manufacturers.
SMT generated $3.6 million, $5.5 million, and $7.4 million from operating
activities in 1994, 1995 and 1996, respectively, and $3.0 million and $6.8
million in the first six months of 1996 and 1997, respectively. The increase
in cash provided by operating activities reflects the increase in scan volumes
and improved operating performance. Capital expenditures, consisting primarily
of new equipment purchases, totaled $4.6 million, $5.1 million and $18.1
million in 1994, 1995 and 1996, respectively and $6.0 million in the first six
months of 1997. Since January 1, 1995, SMT has purchased 17 new MRI systems,
including six replacement systems.
The Company's primary cash needs consist of capital expenditures and debt
service. The Company incurs capital expenditures for the purposes of (i)
providing routine upgrades of its MRI systems; (ii) replacing or making major
upgrades to older, less advanced systems with new state-of-the-art systems;
and (iii) purchasing new systems. The Company estimates that routine annual
upgrade expenditures average approximately $25,000
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per system or approximately $2.8 million in the aggregate, based on the fleet
size at June 30, 1997. In addition to these routine expenditures, the Company
expects capital expenditures to be approximately $26 million in the last six
months of 1997 which reflects the anticipated purchase of 14 new systems,
including replacement systems. The Company expects capital expenditures to be
approximately $35 million in 1998, which includes the anticipated purchase of
20 new MRI systems. The Company's decision to purchase a new system is
typically predicated on obtaining new or extending existing customer contracts
which serve as the basis of demand for the new system.
After giving effect to the Transactions, the Company will be capitalized
with $170.0 million of Notes, a $200.0 million Credit Agreement consisting of
a $50.0 million Term Loan Facility and approximately $38.0 million of
borrowings under a $150.0 million Revolving Loan Facility and $12.2 million of
other obligations. The Notes will bear interest at the rate per annum set
forth on the cover page of this Prospectus, payable semiannually, and will
require no principal repayments until maturity. The Term Loan will mature on
the sixth anniversary of the initial borrowing and will require annual
principal repayments of $0.5 million per year during the first five years and
$47.5 million in the sixth year. The Revolving Loan Facility will mature on
the fifth anniversary of the initial borrowing and will have mandatory
commitment reductions of $75.0 million on the fourth and fifth anniversaries
of the initial borrowing. The interest rate under the Credit Agreement is
expected to be based on LIBOR. The Credit Agreement will contain restrictive
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, liens and encumbrances, and
prepayments of other indebtedness. See "Description of the Credit Agreement".
The Company believes that after giving effect to the Transactions and the
incurrence of indebtedness related thereto, based on current levels of
operations and anticipated growth, its cash from operations, together with
other available sources of liquidity, including borrowings available under the
Revolving Loan Facility, 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 Credit Agreement. In addition, the Company continually evaluates
potential acquisitions and expects to fund such acquisitions from its
available sources of liquidity, including borrowings under the Revolving Loan
Facility.
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 the issuance of
equity or debt securities on terms acceptable to the Company, if at all.
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INDUSTRY
Diagnostic Imaging. Diagnostic imaging involves the use of non-surgical
techniques to generate representations of internal organs on film or video.
Diagnostic imaging systems have evolved from conventional x-rays to the
advanced technologies of MRI, CT, ultrasound, nuclear medicine, mammography,
positron emission tomography ("PET") and fluoroscopy. The market for
diagnostic imaging services in the United States is estimated to be in excess
of $50 billion annually, or 5% to 6% of total health care spending. MRI
services constituted approximately $6 to $7 billion of the diagnostic imaging
industry in 1996.
Patients are typically billed for diagnostic imaging services by their
hospitals. The bill consists of a technical fee or charge for use of the
equipment as well as a professional fee for the services of the radiologist
who interprets the data. Hospitals which outsource diagnostic imaging
equipment and services pay providers directly and collect fees for service and
technical charges from payors.
Magnetic Resonance Imaging. Magnetic resonance imaging involves the use of
high strength magnetic fields to produce computer-processed cross-sectional
images of the anatomy. MRI services are provided by hospitals with in-house
systems, independent fixed site operators and independent mobile operators.
The approximately 4,000 MRI systems in the United States include 2,400
hospital owned systems, 1,000 independent fixed site systems and approximately
600 mobile systems. The MRI industry has experienced rapid growth as a result
of increased physician acceptance of diagnostic imaging, substitution of MRI
for other imaging modalities (including x-ray based techniques), expanding
applications for MRI technology and health care reform which encourages
outpatient services. Total scan volumes have increased from 5.4 million in
1990 to 8.8 million in 1996. According to an industry consultant, scan volumes
are projected to grow at approximately 7% to 8% per year through 1999 and at
5% per year thereafter.
The MRI services industry is highly fragmented. Recently, however, the
industry has begun to undergo consolidation. The Company believes such
consolidation is primarily the result of (i) economies of scale in the
provision of services to a larger customer base; (ii) cost-effective
purchasing of equipment, supplies and services by larger companies; 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 the recent trend, management estimates that as of July 31, 1997, the
top eight MRI service providers operated only 13% of the total MRI systems in
the United States.
The history of the MRI industry can be divided into three periods: (i)
initial growth from 1984-1992; (ii) downturn in 1993-1994; and (iii) renewed
growth and consolidation beginning in 1995-1996. The increased use of MRI as a
diagnostic tool between 1984 and 1992 resulted from a variety of factors
including falling equipment costs, increased physician acceptance of the
technology, increased number of clinical applications and Medicare reform
enacted by Congress in 1983, which encouraged outpatient treatment.
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
tremendous scrutiny to control costs and further contributed to the decrease
in use of MRI by the medical profession. Simultaneously, the shift towards
health maintenance organizations and the trend to decrease utilization of
outpatient services and accept declining reimbursement rates (a 20% decline in
reimbursement rates was experienced between 1992-1994) 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, development of new practical uses of MRI and increased Medicare
reimbursement (1%-2% increase per year between 1994-1996) resulted in
increased MRI use beginning in 1995-1996. See "Business--Reimbursement."
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Imaging Systems and Technology. MRI technology dates back to 1971 when Dr.
Raymond Damadian began applying principles of magnetic resonance to the field
of diagnostic imaging. In 1984, the FDA approved the sale of MRI systems to
community hospitals and private clinics. A principal element underlying
magnetic resonance imaging is that atoms in various kinds of body tissue
behave differently in response to a magnetic field, enabling the
differentiation of internal organs and structures and normal and diseased
tissue. MRI facilitates the diagnosis of diseases and disorders at an early
state, often minimizing the cost and amount of care needed and frequently
eliminates the need for invasive diagnostic procedures. MRI is the preferred
imaging modality for the brain, the spine and other internal organs because it
produces a superior image of soft tissue, without artifacts from bony
structures that are sometimes apparent with x-ray based imaging techniques. In
addition, unlike x-rays and CT, MRI does not expose patients to ionizing
radiation. Applications for MRI include detection of brain lesions, such as
multiple sclerosis, tumors, strokes and infections, spinal injuries, diseases
and congenital disorders, and heart, chest, abdomen, ligament, tendon and
joint injuries or diseases.
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. The
patient spends approximately 15 to 45 minutes inside the magnet, depending
upon the type of MRI system and diagnostic study, during which time images of
multiple planes are acquired. Images obtained from an MRI examination are
displayed on a computer screen in the form of a cross-section of the organ or
tissue. This information can be stored on magnetic media for future access or
printed on film for interpretation by a physician and retention in the
patient's files.
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, Siemens Medical Systems, Phillips N.V. and Picker International.
These manufacturers also supply maintenance and service under warranties and
contracts. Industry participants typically enter into contracts with the
manufacturers after the 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).
Research and Contrast Enhancement. Research is currently being conducted for
additional uses of MRI and the Company believes more applications for MRI may
be developed in the future. Contrast agents enhance the use of MRI in the
detection of neurological lesions, including specific types of brain tumors.
Contrast agents also enhance images of the post-operative spine, and are under
investigation for use in the liver and other organ systems. MRI's role in the
evaluation of cardiac disease and diseases of the bone marrow and joints is
also on the increase. New technological developments are expected to extend
the clinical uses of this technology and to increase the number of scans
performed by the Company's customers. In October 1995, Medicare began to
reimburse MRA procedures on a limited basis. MRA utilizes MRI technology to
view blood flow of the head and neck. Prior to October 1995, MRA procedures
were considered experimental and were not reimbursed by Medicare. Some MRA
procedures have been approved by Medicare; it is expected that additional MRA
procedures will be approved in the near future.
Mobile MRI. Mobile MRI operators provide a cost-effective alternative
enabling hospitals to access MRI technology. Mobile MRI operators use
specially designed vans or trailers to transport MRI systems to hospitals and
provide trained technologists to perform the scans. Operators typically enter
into long-term contracts to provide a scheduled amount of service on a fee-
per-scan basis. Operators then design schedules for each system to rotate
among multiple hospitals in a manner that optimizes the utilization of each
system.
Mobile MRI systems typically operate in non-metropolitan areas, targeting
small to mid-sized hospitals that do not own imaging systems. These hospitals
often cannot afford the significant capital investment associated with MRI
systems or lack the patient volume to utilize the systems in a cost-effective
manner. In addition, CON and other licensing requirements in many states have
further limited hospitals' ability to purchase MRI systems. However, such
hospitals need state-of-the-art diagnostic imaging technology to remain
competitive. In addition, many medical professionals have become increasingly
aware of the risks of medical malpractice suits and believe that such risks
would be reduced by utilizing state-of-the-art medical technology and related
services.
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BUSINESS
GENERAL
The Company is a leading nationwide provider of diagnostic imaging services
and the largest operator of state-of-the-art mobile diagnostic imaging systems
and related outsourced radiology services in the United States. The Company
primarily provides MRI systems and services to hospitals and other health care
providers on a mobile, shared user basis. The Company also provides dedicated,
full-time MRI systems and services as well as full-service management of
imaging operations for selected hospitals. The Company's services enable small
to mid-size hospitals to gain access to advanced diagnostic imaging technology
and related value-added services without making a substantial investment in
equipment and personnel.
In connection with the Offering, Alliance intends to consummate the
Recapitalization and acquire SMT, a leading provider of mobile MRI services in
the Mid-Atlantic region of the United States. Since the beginning of 1995,
Alliance and SMT have each substantially increased revenues by adding new
customers and increasing scan volumes at existing customer sites. During the
same period, the growth rate of EBITDA for each of Alliance and SMT has
exceeded the growth rate of revenues principally as a result of spreading
costs (which are primarily fixed) over a larger revenue base and implementing
cost reduction and containment measures.
The Company operates a fleet of 111 MRI systems and services over 420 MRI
customers in 36 states under exclusive contracts with an average remaining
length of approximately 25 months as of July 31, 1997. Pro forma combined
revenues and adjusted EBITDA of the Company for the six months ended June 30,
1997 were $52.9 million and $26.5 million, respectively.
COMPETITIVE STRENGTHS
The Company attributes its market leadership and its significant
opportunities for continued growth and increased profitability to the
following strengths:
Largest Provider of Mobile MRI Services. The Company operates 111 MRI
systems in 36 states. The Company believes that the next largest mobile
operator has a fleet of approximately 70 MRI systems. Compared to its smaller
competitors, the Company believes it will benefit from (i) significant
equipment purchasing savings; (ii) attractive service and maintenance
contracts from its primary equipment suppliers; (iii) strong name recognition
and a reputation for quality service; (iv) substantial financial flexibility
and access to lower-cost capital; and (v) the ability to efficiently deploy
systems in a manner which maximizes fleet utilization while satisfying
customer requirements.
Technologically Advanced MRI Fleet. On a pro forma combined basis, the
Company has invested approximately $94 million since January 1, 1995 to
replace and upgrade existing systems and to purchase new systems. As a result,
the Company believes that it has upgraded substantially all of its systems and
expects most of its capital expenditures for at least the next three to five
years to relate to new system purchases. Of the Company's 111 MRI systems, 88
are state-of-the-art, high-field 1.0 or 1.5 Tesla systems and 15 are state-of-
the-art, mid-field 0.5 Tesla systems. The Company believes its fleet is among
the newest and most advanced in the industry, enabling the Company to perform
a wider variety and greater volume of scans and produce higher quality images,
which the Company believes provides a significant competitive advantage.
Moreover, all of the Company's state-of-the-art systems are designed to
facilitate hardware and software upgrades. As a result, the Company's systems
should remain on the leading edge of technological developments. In addition,
while many of its competitors lease their systems, the Company owns the vast
majority of its systems, generally providing greater flexibility and lower
costs over the life of the systems.
Exclusive, Long-Term Contracts in Attractive Markets. The Company generates
substantially all of its revenues from exclusive, long-term contracts with
hospitals and other health care providers, with the price for its services
determined on a fee-per-scan basis. The Company has 61, 94 and 109 contracts
that will expire, if not renewed or extended, in 1997, 1998 and 1999,
respectively. The Company's contracts typically offer tiered pricing with
lower fees on incremental scans, allowing customers to benefit from increased
scan volumes and the Company to benefit from the operating leverage associated
with increased scan volumes. Accordingly, tiered
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pricing enables the Company to retain customers who may be considering
purchasing their own MRI systems rather than renewing a contract with a mobile
provider. As of July 31, 1997, the Company had more than 420 MRI customers
under exclusive contracts which averaged approximately 25 months in remaining
length. Most of the Company's contracts are with hospitals that have fewer
than 200 beds, many of which may lack the financial resources or patient
volume to justify the purchase of an MRI system.
Superior Customer Service and Strong Customer Relationships. The Company
positions itself as a service company rather than solely as an equipment
provider and competes on the basis of value-added services in addition to
price. The Company differentiates itself from competitors by aggressively
marketing its services to referring physicians, radiologists and hospital
administrators and by having the advanced imaging systems, trained
technologists, fleet management capabilities and fleet size to accommodate the
growing needs of its customers. Value-added services offered by the Company
include patient scheduling and pre-screening, insurance pre-authorization,
appointment confirmation, billing, managed care contracting, and management
reporting services. The Company often provides two technologists per mobile
system per shift and is therefore able to accommodate higher patient volume
and operate with greater efficiency, resulting in high customer satisfaction
levels. As a result, the Company enjoys strong customer relationships, having
added more than 160 net new MRI customers from January 1, 1995 through June
30, 1997 and renewed or extended a substantial majority of its customer
contracts in this period.
Substantial Operating Leverage. Because of the significant amount of fixed
costs associated with operating an MRI system, MRI service providers benefit
from operating leverage, with increased utilization rates resulting in
significant increases in operating earnings and operating margins. On a pro
forma combined basis, the Company's average scans per system per day increased
to 7.8 for the six months ended June 30, 1997 from 7.2 for the six months
ended June 30, 1996. Over the same period, the Company's pro forma combined
adjusted EBITDA margin increased to 50.1% from 47.5%.
Favorable Payment Terms. Approximately 94% of the Company's billings are
direct to hospitals. The hospitals, in turn, generally pay the Company prior
to collecting from patients and third party payors. Accordingly, the Company's
exposure to uncollectible patient receivables is minimized. In addition,
management believes that the Company's average number of DSO of receivables,
which was 42 days as of July 31, 1997, is among the most favorable in the
mobile MRI industry and more favorable than the DSO of many health care
companies.
Experienced Management Team. The Company's senior management team has an
average of ten years of industry experience and eight years of experience with
Alliance or SMT. The Company's senior and operating managers have successfully
developed and implemented sophisticated marketing, fleet management and
financial strategies which have enabled the Company to become the largest and
among the most efficient and profitable mobile MRI operators. Upon
consummation of the Transactions and after giving effect to the Company's
option plans, management will own in excess of 16% of the capital stock of the
Company on a fully diluted basis.
BUSINESS STRATEGY
The Company's management team has developed and implemented a business
strategy designed to maximize return on invested capital and in turn increase
revenues and EBITDA. The Company's revenues, adjusted EBITDA and adjusted
EBITDA margin on a pro forma combined basis for the six months ended June 30,
1997 increased to $52.9 million, $26.5 million and 50.1%, respectively, from
$40.0 million, $19.0 million and 47.5% for the six months ended June 30, 1996.
The Company achieved comparable customer revenue growth of 18.5% and 9.7%,
respectively, in the first six months of 1997 and in the year ended December
31, 1996. In addition, during the three months ended June 30, 1997, the
Company added a total of five net mobile MRI systems. Management believes that
the recent financial performance of the Company does not yet fully reflect the
benefit of these new systems.
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The primary components of the Company's business strategy are to (i)
increase scan volumes; (ii) maximize return on invested capital; (iii) expand
the scope of services provided; (iv) pursue strategic acquisitions; and (v)
realize operating synergies.
Increase Scan Volumes. The Company believes that the demand for MRI
procedures will continue to grow as new applications are developed and MRI
continues to gain acceptance and replace other imaging modalities. The Company
has an opportunity to significantly increase its scan volumes by both adding
new customers and increasing scans performed for existing customers. In
response to the growing demand for MRI procedures, the Company added 29 net
MRI systems and 160 net new MRI customers from January 1, 1995 to June 30,
1997. The Company expects to add 34 net MRI systems by the end of 1998. The
Company's decision to purchase new systems is typically predicated on
obtaining new customer contracts which serve as the basis of demand for the
new MRI systems.
Maximize Return on Invested Capital. The Company actively manages the
utilization of its MRI systems to maximize its return on invested capital
(i.e., the amount of cash flow generated by each system relative to the
carrying value of such system). In the six months ended June 30, 1997, on a
pro forma combined basis, the Company generated an annualized return on
invested capital of 46.2%. The Company typically upgrades the quality of its
fleet in markets where demand is greatest and redeploys less advanced systems
in markets where demand is lower in order to generate incremental cash flow.
The Company estimates that, on average, a system can be utilized for
approximately eight years in a high demand market when properly maintained and
upgraded, after which time the system can either be utilized in a market with
less demand or traded in for a new system.
Expand the Scope of Services Provided. The Company intends to leverage its
national presence and customer service capabilities by introducing new
services, the demand for which management believes will increase as hospitals
continue to outsource departments and cost centers and seek incremental
revenue sources. The Company expects to expand into open MRI services,
lithotripsy services (which involves the utilization of sound waves to
eliminate kidney stones and urinary calculus in the bladder) and full-service
management of hospital radiology departments. Open MRI systems are used on
claustrophobic patients and patients whose size prohibits them from entering
traditional MRI systems. Management believes that with the introduction of its
first open MRI system in the fourth quarter of 1997, the Company will be the
first operator to offer mobile open MRI service.
Pursue Strategic Acquisitions. Management has designed an acquisition
strategy for the Company which capitalizes on the consolidation occurring in
the industry as well as the Company's ability to (i) access substantial and
lower cost financial resources; (ii) realize significant synergies, operating
expense reductions and overhead cost savings; (iii) apply its consolidation
strategy to expand outside of diagnostic imaging in related services; (iv)
utilize the Company's expertise in logistics and fleet management; and (v)
leverage the Company's existing customer relationships to expand into new
modalities.
Realize Operating Synergies. Management believes the Recapitalization and
the SMT Acquisition will create substantial cost savings, including (i)
identified operating and administrative cost savings; (ii) economies in
purchasing equipment, supplies and services; and (iii) route consolidation
efficiencies. Management believes the SMT Acquisition and future acquisitions
will enable the Company to redeploy systems in overlapping markets, resulting
in higher utilization rates and the opportunity to increase penetration in
other markets.
OPERATIONS
Customer Base. The Company believes that many hospitals and other health
care providers require access to MRI services to remain competitive in the
health care marketplace. Regulatory and licensing requirements in many states
may also limit access to MRI systems. In addition, many health care providers
lack sufficient patient volume or financial resources to justify the purchase
of an MRI system. Such providers contract for mobile, shared-user systems or
single-user, full-time systems to gain access to MRI technology and to provide
comprehensive MRI services to their patients. In addition, many health care
providers, regardless of whether their patient utilization levels and
financial resources justify the purchase of an MRI system, prefer to contract
with the Company for full-time or shared-user imaging systems to (i) obtain
the use of an MRI system without any
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capital investment or financial risk; (ii) retain the ability to switch system
types and avoid technological risk; (iii) obtain MRI services in jurisdictions
in which the use of the Company's services facilitates the procurement of
regulatory approvals; (iv) avoid future uncertainty as to reimbursement
policies; (v) eliminate the need to recruit, train and manage qualified
technologists; (vi) outsource their entire MRI service to obtain access to
needed technology while avoiding financial investment or risk and obtaining
management expertise; or (vii) provide additional imaging services when
patient demand exceeds their in-house capability.
The Company's MRI and CT services, which include imaging systems,
technologists and support services, are provided on both a mobile, shared-user
basis and on a full-time basis to single customers. As of July 31, 1997, the
Company provided imaging systems and related technologists and support
services to 460 customers (424 for MRI services and 60 for CT services; some
customers contract for both modalities) consisting primarily of small to mid-
sized hospitals (i.e., hospitals with 50-200 beds). The Company believes that
many of such hospitals lack the patient volume or financial resources to
justify the purchase of an MRI system. As of July 31, 1997, the Company
provided services and equipment to customers in 36 states.
Typically, the Company's MRI systems are contracted on average for five to
six days a week. The Company believes that as customers become familiar with
the basic or expanded technology and its applications, the corresponding MRI
system's rate of usage generally increases, causing the number of scans per
day to increase and eventually leading to requests for additional days of
usage.
Contract Terms. Contract fees are charged on a fee-per-scan, fee-per-day or
fee-per-month basis (with numerous variations within each billing method to
accommodate particular customers' needs). Generally, the Company provides
technologists under contracts billed on a fee-per-scan or fee-per-day basis
but not under contracts billed on a fee-per-month basis. Although a typical
contract offers daily flat-rate options, most customers currently pay on a
fee-per-scan basis. The amount of fees paid on this basis depends upon the
type of imaging system provided, the term of the contract, the types and
number of scans performed as well as the day of the week on which scans are
performed. The contracts typically allow the Company to reduce the number of
days of service provided based upon the customer's scan volume, or to
terminate the contract if the Company is unable to realize a profit on the
services provided. The Company typically enters into exclusive, one to eight
year contracts that include automatic renewal provisions. In addition, the
Company's marketing representatives consistently seek to renew and extend
contracts prior to expiration. From January 1, 1995 through June 30, 1997, the
Company renewed or extended 238 of its customer contracts. As of July 31,
1997, the Company's contracts averaged approximately 25 months in remaining
length.
Imaging Systems. At July 31, 1997, the Company operated 111 MRI systems and
11 CT systems. Of the 111 MRI systems, 88 are state-of-the-art, high-field 1.0
or 1.5 Tesla systems and 15 are state-of-the-art, mid-field 0.5 Tesla systems.
These systems are designed to facilitate hardware and software upgrades. As a
result, the Company's systems should remain at the leading edge of
technological developments. Further, of the 111 MRI systems, 99 are housed in
mobile coaches and 12 are housed in relocatable modular buildings on hospital
campuses or installed in the hospital facility. Substantially all of the
imaging systems are owned by the Company. One of such systems is a fixed-site
system at a large hospital in Georgia operated by a partnership of which a
subsidiary of the Company is a partner.
The Company orders substantially all of its imaging systems from major
medical device manufacturers, primarily General Electric Medical Systems,
Siemens Medical Systems and Picker International. Generally, the Company
orders its imaging systems from such major manufacturers while simultaneously
contracting with health care providers for their use, thereby reducing the
Company's system utilization risk. The Company's MRI systems are installed in
specially-designed trailers or relocatable, modular buildings. The trailers
and relocatable modular buildings are designed jointly by the imaging system
manufacturer and the housing manufacturer and are designed to provide image
quality identical to those installed in hospital facilities.
Fleet Management. The Company seeks to maximize cash flow and return on
assets by actively managing its fleet to maximize utilization. The Company
employs logistics management systems and redeploys or trades in
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older MRI systems when it purchases new MRI systems. MRI systems are currently
scheduled for as little as one-half day and up to seven days per week at any
particular facility. Generally, technologists and a driver are assigned to
each of the mobile operating systems. Movement of the systems typically occurs
at night via a fleet of Company-owned or leased tractors. The drivers move the
systems and activate them upon arrival at each imaging site so that the
systems are operational when the Company's technologists arrive on the
following scheduled imaging day.
Regional Management. The Company's seven regional offices market, manage and
staff the operation of its imaging systems. The Company's regional offices are
located in Anaheim and Roseville, California; Pittsburgh, Pennsylvania;
Chicago, Illinois; Colorado Springs, Colorado; Burlington, Connecticut; and
Macon, Georgia. Each region has individuals responsible for sales and
operations management.
Licensing and JCAHO Accreditation. Most states do not currently license MRI
providers such as the Company, although many do subject such providers to CON
requirements. Hospitals with which the Company has contracted are subject to a
variety of regulations and standards of state licensing and other authorities
and accrediting bodies such as the JCAHO. As an outside vendor, the Company
may be required to comply with such regulations and standards to enable the
hospitals with which it has contracted to maintain their permits, approvals
and accreditation.
During January 1997, SMT received accreditation with commendation from
JCAHO. Alliance is in the process of seeking accreditation from JCAHO. As of
June 30, 1997, SMT is the only mobile JCAHO accredited provider. Management
believes that accreditation is of significant importance to hospital
administrators, who frequently have the responsibility of selecting outsourced
service providers.
CUSTOMER SUPPORT
As part of its full service package, the Company provides several levels of
support to a hospital or health care provider. The Company's technologists who
staff the MRI systems regularly work with the hospital radiologists, referring
physicians and nursing staff to perform the scans. The technologists also work
with regional technical advisors who are specialists in MRI technology and
consult on specialized technical problems, hold periodic training sessions for
the technologists, radiologists, referring physicians and health care
customers and provide problem-solving services. These specialists play a
central role in the Company's retention of accounts and building of scan
volumes. Management believes that targeted direct marketing at each hospital
with assigned responsibility for support services is a key element for
broadening the awareness of MRI technology, building scan volumes and
obtaining contract renewals.
SALES AND MARKETING
Currently, the Company's sales force consists of 13 members who identify and
contact candidates for the Company's services each with the overall management
and sales responsibility for a specific region of the country. Direct
marketing plays a primary role in the Company's development of new customers.
The Company employs 13 marketing representatives who develop scan volumes at
existing and new customer locations by introducing the Company's services to
referring physicians and keeping such physicians apprised of the Company's MRI
service capabilities. In addition, certain of the Company's executive officers
and regional vice presidents spend a portion of their time marketing the
Company's services. The Company believes that having senior managers involved
in sales and contract negotiations enhances its ability to obtain new and
retain existing customers.
MAINTENANCE
For its MRI and CT systems, the Company primarily relies upon the
manufacturer to provide maintenance and service under warranties and service
contracts. These service contracts require the Company to pay fixed monthly
fees or variable fees on a risk-sharing basis.
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Timely, effective service is essential to maintaining high utilization rates
on the Company's MRI systems. If the Company experiences greater than
anticipated malfunctions of its equipment or if it is unable to promptly
obtain the service necessary to keep its systems functioning effectively, its
business could be adversely affected.
The Company contracts with the MRI equipment manufacturers for comprehensive
maintenance programs on its systems to minimize downtime (the period of time
equipment is unavailable during scheduled use hours because of malfunctions).
These maintenance contracts commence upon the expiration of the applicable
warranty period. The systems are generally warranted by the systems
manufacturer for a specified period of time, usually one year to eighteen
months from the date of purchase. During the warranty period and maintenance
contract term, the Company receives uptime guarantees (a guarantee that
equipment will function for a specified percentage of scheduled use hours.)
However, these guarantees are not expected to substantially compensate the
Company for loss of revenue for downtime.
REIMBURSEMENT
Substantially all the Company's revenues are derived directly from health
care providers rather than from private insurers, other third party payors or
governmental entities. Consequently, the Company historically has not had
material direct exposure to, or direct connection with, patient billing,
collections or reimbursement by insurance companies, other third parties or
Medicare. However, to a lesser extent, the Company's revenues are generated
from direct billings to patients or their third party payors which are
recorded net of contractual discounts and other arrangements for providing
services at less than established patient billing rates. On a pro forma basis,
net revenues from direct patient billing would have amounted to approximately
6% of the Company's revenue in 1996.
Most private health care insurers, including various Blue Cross and Blue
Shield Plans, reimburse approximately 70% to 100% of the health care
provider's charge for MRI and CT scans. Such insurers may impose limits on
reimbursement for imaging services or deny reimbursement for tests that do not
follow recommended diagnostic procedures. Because patient reimbursement may
indirectly affect the levels of fees the Company can charge its customers by
constricting the health care providers' profit margin, widespread application
of restricted or denied reimbursement schedules could adversely affect the
Company's business. Conversely, at lower reimbursement rates, a health care
provider might find it financially unattractive to own an MRI or CT system,
but could benefit from purchasing the Company's services.
Congress has attempted to restrict rising federal reimbursement costs under
the Medicare program by setting predetermined payment amounts for
reimbursement of inpatient services according to each patient's diagnosis
related group ("DRG"). Because a DRG rate compensates a hospital for all
services rendered to a patient, a hospital cannot be separately reimbursed by
Medicare for an MRI scan or other procedure performed on an inpatient. DRG
payment rates for inpatient services became effective in the early 1980's and
have been adjusted downward since then. Currently, those payment rates are not
applicable to outpatient services; instead, Medicare reimbursement for imaging
services furnished in a hospital outpatient setting is subject to alternative,
generally more favorable, payment limits tied to the physician fee schedule
described below. However, it is possible that DRG payment rates or other
limits might be implemented with respect to outpatient services in the future.
Because payments have generally been less restricted in non-hospital
outpatient settings, in prior years there has been rapid growth in MRI systems
at non-hospital free-standing facilities which provide outpatient services.
HHS, as required by statute, has issued fee schedules for reimbursing
physicians who treat Medicare patients. Under these fee schedules, physician
reimbursement for professional services is based on a set of values assigned
to each service provided by a physician. The fee schedules also generally
apply to reimbursement for technical services (such as those provided by the
Company) except in limited circumstances. There can be no assurance that
Medicare payments will remain comparable to present levels. In particular, on
June 18, 1997, the Health Care Financing Administration ("HCFA") issued a
proposed rule affecting, among other things, the practice expense component of
the physician fee schedule, physician supervision requirements for certain
diagnostic tests and the adoption of a new definition of an independent
diagnostic testing facility. Under the proposed rule, the
45
<PAGE>
Relative Value Units ("RVU") for MRI scans would be relatively unchanged, but
the RVUs for MRI scans with contrast would be reduced significantly. The
proposed effective date of the rule is January 1, 1998. However, as part of
federal budget legislation recently signed into law, implementation of the
practice expense changes will be delayed until January 1, 1999, with a three
year transition period for implementing the new method for calculating
practice expenses. While the impact of the proposed changes is dependent on
numerous factors, including whether the proposed rule is adopted substantially
in the proposed form and whether the Company's hospital customers will seek
similar adjustments in payments to the Company for scans with contrast agents
to the extent they are currently charged additional amounts for contrast
exams, there can be no assurance that such practice expense changes will not,
directly or indirectly, have a material adverse effect on the Company's
business or results of operations.
The Budget Reconciliation Act for 1998 that was recently signed into law
contains a number of changes to the Medicare program which will adversely
affect hospitals and which could therefore potentially have an impact on
suppliers of goods and services to hospitals, including the Company. In
particular, among other things, the Act requires implementation of a
prospective payment system for outpatient services beginning in 1999; and
reduces hospital inpatient reimbursement for both operating and capital
expenses compared with reimbursement levels that would have prevailed absent
any change in law. The Company believes that approximately 15% to 20% of its
hospital customers' MRI revenues are derived from Medicare patients.
REGULATION
Many aspects of the health care industry in the United States, including the
Company's business, are subject to extensive federal and state government
regulation. Although the Company believes that its operations comply with
applicable regulations, there can be no assurance that subsequent adoption of
laws or interpretations of existing laws will not regulate, restrict or
otherwise adversely affect the Company's business.
The marketing and operation of the Company's MRI and CT systems are subject
to state laws prohibiting the practice of medicine by non-physicians and the
rebate or division of fees between physicians and non-physicians. Management
believes that its operations do not involve the practice of medicine because
all professional medical services relating to its operations, such as the
interpretation of the scans and related diagnoses, are separately provided by
licensed physicians not employed by the Company. Further, the Company believes
that its operations do not violate state laws with respect to the rebate or
division of fees.
The Company is subject to federal and state laws which govern financial and
other arrangements between health care providers. These include the federal
Medicare and Medicaid anti-kickback statutes which prohibit 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 the Medicare, Medicaid or other federal health care
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 necessarily
limited to items and services paid for under the 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 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 is a party to a partnership for the provision of MRI services. The
46
<PAGE>
Company believes that the partnership is in compliance with the anti-kickback
statute. The Company believes that its other operations likewise comply with
the anti-kickback statutes.
A federal law, commonly known as the "Stark Law," 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
others, MRI services. While implementing regulations have been issued relating
to referrals for clinical laboratory services, no implementing regulations
have been issued regarding the other designated health services, including MRI
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 any financial
interest they may have with a health care provider to their patients to whom
they recommend that provider. 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. The Company believes its operations comply with these
federal and state physician self-referral laws.
In some states, a CON or similar regulatory approval is required prior to
the acquisition of high-cost capital items, including diagnostic imaging
systems or provision of diagnostic imaging services by the Company or its
customers. CON regulations may limit or preclude the Company from providing
diagnostic imaging services or systems. 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. Conversely, repeal of existing
CON regulations in jurisdictions where the Company has obtained or operates
under a CON could also adversely affect the Company. 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.
LIABILITY INSURANCE
While the Company's imaging systems are at a customer's facility, they
operate only under the direction of licensed physicians on the customer's
staff who direct the procedures, supervise the Company's technologists and
interpret the results of the examinations. Currently, there are no known
biological hazards associated with MRI. However, there is a risk of harm to a
patient who has a ferrous material or certain types of cardiac pacemakers
within his or her body. Patients are carefully screened to safeguard against
this risk. To protect against possible exposure for professional liability,
the Company maintains professional liability insurance.
COMPETITION
The market for diagnostic imaging services and imaging systems is highly
competitive. In addition to direct competition from other mobile providers,
the Company competes with free-standing imaging centers and health care
providers that have their own diagnostic imaging systems and with equipment
manufacturers that sell or lease imaging systems to health care providers for
full-time installation. Some of the Company's direct competitors which provide
contract MRI services may have access to greater financial resources than the
Company. In addition, some of the Company's customers are capable of providing
the same services to their patients directly, 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. The Company competes against other MRI
service providers on the basis of quality of services, quality and magnetic
field strength of imaging systems, price, availability and reliability.
EMPLOYEES
As of July 31, 1997, on a pro forma combined basis, the Company had 599
employees, of whom approximately 497 were trained diagnostic imaging
technologists, patient coordinators, technical support staff or other field
operations personnel. Of the Company's employees, 145 are employed on a part-
time or "as needed" basis. None of the Company's employees are represented by
a labor organization and the Company is not aware
47
<PAGE>
of any activity seeking such organization. The Company considers its relations
with its employees to be satisfactory.
PROPERTIES
The Company leases approximately 15,000 square feet of space in an office
building in Anaheim, California for its executive and principal administrative
offices. This office will be expanded to a total of approximately 24,500
square feet during the fourth quarter of 1997. The Company also leases a
15,600 square foot operations warehouse in Orange, California and 5,500 square
feet of office space in Wexford, Pennsylvania, as well as space for its other
regional offices.
LEGAL PROCEEDINGS
The Company from time to time is involved in routine litigation incidental
to the conduct of its business. The Company believes that no litigation
pending against it will have a material adverse effect on its consolidated
financial position or results of operations.
48
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth information concerning the individuals who
will be the executive officers and directors of the Company upon consummation
of the Transactions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Richard N. Zehner................ 44 Chairman, President,
Chief Executive Officer and
Director
Vincent S. Pino.................. 49 Executive Vice President,
Chief Operating Officer and
Director
Jeff D. Bergman.................. 42 Senior Vice President and Director
Daniel Dickman................... 50 Senior Vice President and Director
Terrence M. White................ 43 Senior Vice President,
Chief Financial Officer and
Secretary
Robert H. Falk................... 58 Director
Michael S. Gross................. 35 Director
Joshua J. Harris................. 32 Director
Michael D. Weiner................ 44 Director
</TABLE>
Richard N. Zehner has been the Chairman, President and Chief Executive
Officer of Alliance since November 1988. Mr. Zehner was a founder and has been
the President of Alliance and its predecessors since 1983. From 1987 until
November 1988 he served as a director and President and Chief Operating
Officer of Alliance.
Vincent S. Pino has been the Executive Vice President and Chief Operating
Officer of Alliance since December 1991 and August 1993, respectively, and a
director since June 1991. From November 1988 to August 1993, he was the Chief
Financial Officer of Alliance.
Jeff D. Bergman has been Chief Executive Officer, Chairman of the Board and
President of SMT since its formation in 1991 and held the same positions with
SMT's predecessor since 1987. In 1983, Mr. Bergman joined Mobile Diagnostech,
Inc. ("MDI"), a provider of mobile CT scanners and MRI equipment and a
developer and manager of fixed-site oncology centers. Mr. Bergman is also an
official in the National Football League. Mr. Bergman officiated Super Bowl
XXXI in New Orleans, LA in January 1997.
Daniel Dickman has been Executive Vice President and Chief Operating Officer
of SMT since 1991 and held the same positions with SMT's predecessors, Shared
Medical Technologies, Inc. since 1987 and Shared MRI-4, Inc. since its
inception in 1990. In 1987, Mr. Dickman joined SMT to manage SMT's equipment
routes and fixed-site modalities. He has over 12 years of experience in
healthcare management consulting and systems design, and was formerly employed
by Blue Cross of Western Pennsylvania as Manager of Hospital Consulting.
Terrence M. White joined Alliance in July 1993 as Senior Vice President,
Chief Financial Officer and Secretary. From 1975 through May 1993, he was
employed by Ernst & Young LLP and its predecessor, and was a partner in such
firms since 1987.
Robert H. Falk has been an officer of certain affiliates of Apollo since
1992. Prior to 1992, Mr. Falk was a partner in the law firm of Skadden, Arps,
Slate, Meagher & Flom LLP. Mr. Falk is also a director of Converse Inc.,
Culligan Water Technologies, Inc., Florsheim Group Inc. and Samsonite
Corporation.
Michael S. Gross is a founding principal of Apollo and has served as an
officer of certain affiliates of Apollo since 1990. Mr. Gross is also a
director of Allied Waste Industries, Inc., Breuners Home Furnishings
Corporation, Converse Inc., Florsheim Group Inc., Furniture Brands
International, Inc., Proffitt's, Inc. and Urohealth, Inc.
49
<PAGE>
Joshua J. Harris has served as an officer of certain affiliates of Apollo
since 1990. Mr. Harris is a director of Converse Inc., Breuners Home
Furnishings Corporation, Florsheim Group Inc. and NRT Incorporated.
Michael D. Weiner has been an officer of certain affiliates of Apollo since
1992. Prior to 1992, Mr. Weiner was a partner in the law firm of Morgan, Lewis
& Bockius LLP. Mr. Weiner is also a director of Converse Inc., Capital
Apartment Properties, Inc., Continental Graphics Holdings, Inc., Florsheim
Group Inc., NRT Incorporated and WMC Finance Co.
EXECUTIVE COMPENSATION
The following sets forth historical executive compensation information of
the Company's Chief Executive Officer and the other four most highly
compensated executive officers whose total cash compensation exceeded $100,000
during the fiscal year ended December 31, 1996 (collectively, the "Named
Executive Officers") and who will serve as executive officers of the Company
upon consummation of the Transactions. The compensation information of Messrs.
Zehner, Pino and White, as well as that for Messrs. Bergman and Dickman,
reflect their historical positions as executive officers of Alliance and SMT,
respectively. Alliance and SMT historical executive compensation plans differ
in form, targets, timing and methods and, except for the Summary Compensation
Table, are set forth separately in the following sections.
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years indicated the annual and
long-term compensation of the Named Executive Officers who will serve as
executive officers of the Company upon consummation of the Transactions.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------- -------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK ALL OTHER
POSITION YEAR(1) SALARY BONUS COMPENSATION(2) OPTIONS/SARS COMPENSATION
------------------ ------- -------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard N. Zehner....... 1996 $296,000 $419,025 -- 155,000(3) $15,596(4)
Chairman, President,
Chief
Executive Officer and 1995 278,750 191,544 -- -- (3) 15,495(4)
Director 1994 260,000 280,462 -- 205,000(3) 15,490(4)
Vincent S. Pino......... 1996 208,000 192,140 -- 125,025(3) 3,596(4)
Executive Vice
President, Chief
Operating Officer and 1995 195,500 113,666 -- -- (3) 3,486(4)
Director 1994 182,000 230,393 -- 125,000(3) 2,125(4)
Terrence M. White....... 1996 150,000 108,150 -- 90,025(3) 3,488(4)
Senior Vice President,
Chief
Financial Officer and 1995 131,250 70,605 -- -- (3) 3,351(4)
Secretary 1994 120,000 209,083 -- 45,000(3) 1,402(4)
Jeff D. Bergman......... 1996 209,000 134,000(5) -- 14,500(6) 9,534(7)
Senior Vice President 1995 180,000 73,700(5) -- 224,000(6) 4,500(7)
and Director 1994 161,000 19,000(5) -- 50,000(6) 45,000(7)
Daniel Dickman.......... 1996 209,000 134,000(5) -- 14,500(6) 12,633(7)
Senior Vice President 1995 180,000 73,700(5) -- 224,000(6) 6,500(7)
and Director 1994 161,000 19,000(5) -- 50,000(6) 6,500(7)
</TABLE>
- --------
(1) Rows specified "1996," "1995" and "1994" represent fiscal years ended
December 31, 1996, 1995 and 1994, respectively.
(2) With respect to each Named Executive Officer for each fiscal year,
excludes perquisites, which did not exceed the lesser of $50,000 or 10% of
the Named Executive Officer's salary and bonus for the fiscal year.
50
<PAGE>
(3) All stock options granted to these Named Executive Officers were granted
under the Alliance's 1991 Stock Option Plan. Option grant figures for 1994
include replacement options for previously granted options, in addition to
new issuances.
(4) Includes 401(k) matching contributions (for 1996, 1995 and 1994,
respectively: Mr. Zehner--$3,164, $3,077 and $3,077; Mr. Pino--$3,164,
$3,077 and $1,749; Mr. White--$3,164, $3,077 and $1,154); the balance for
each of these Named Executive Officer represents life insurance premiums
paid by Alliance.
(5) Amounts shown are for payments made pursuant to SMT's Profit Sharing Plan.
Employment agreements between Messrs. Bergman and Dickman, respectively, and
SMT, required SMT to maintain a profit sharing plan.
(6) All stock options granted to SMT's Named Executive Officers were granted
under SMT's 1991 and 1996 Employee Stock Option Plans. Such grants have not
been adjusted herein for the January 1997 7% stock dividend by SMT.
(7) Amounts shown for fiscal 1996 include disability insurance premiums
totaling $7,814 and $10,443 and split-dollar life insurance premiums
totaling $720 and $1,190 for Messrs. Bergman and Dickman, respectively.
Amounts shown for fiscal 1996 also include, for each of SMT's Named
Executive Officers, SMT's 401(k) contribution of $1,000.
ALLIANCE EXECUTIVE COMPENSATION PLAN
Alliance compensates its executive officers using a plan that includes a
predetermined target level of annual cash compensation for each officer. The
plan is set by the Compensation Committee of Alliance's Board of Directors
(the "Compensation Committee") at the beginning of the fiscal year. The actual
total level of compensation for the fiscal year is determined after the end of
the fiscal year based on the level of achievement of various criteria. The
compensation plan establishes a minimum annual remuneration (i.e., base
salary), a maximum compensation level and a target compensation amount.
The annual minimum, target and maximum compensation levels established for
Alliance's Named Executive Officers for 1996 is presented in the following
table, together with the total actual cash compensation earned.
<TABLE>
<CAPTION>
1996
1996 1996 1996 AMOUNT
NAME MINIMUM MAXIMUM TARGET EARNED
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Richard N. Zehner........................... $296,000 $740,000 $518,000 $715,025
Vincent S. Pino............................. 208,000 416,000 312,000 400,140
Terrence M. White........................... 150,000 270,000 210,000 258,150
</TABLE>
The actual amounts of cash compensation to Mr. Zehner, Mr. Pino and Mr.
White, Alliance's Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer, respectively, were determined by the Compensation Committee
based on its evaluation of the extent to which Alliance's 1996 earnings per
share and cash flow budgets and individual objectives applicable to each
executive were achieved. These amounts were generally more than the target
amounts because Alliance significantly exceeded its earnings per share, cash
flow and operating budgets. A predetermined percentage of the possible
compensation award above the minimum amount is determined with respect to each
of the criteria mentioned above for the respective officers.
NEW OPTION PLAN
After the consummation of the Recapitalization, the Company will adopt an
employee option plan pursuant to which options with respect to a total of
527,272 shares of Alliance common stock will be available for grant, and Mr.
Zehner and Mr. Pino will be granted options to purchase 175,000 and 154,545
shares of Alliance common stock, respectively. Fifty percent of the option
shares will vest in equal increments over four years. Fifty percent of the
option shares will vest after seven and one half years (subject to
acceleration if certain per share equity targets are achieved). Vesting of the
options occurs only during an employee's term of employment. The exercise
price for the options is $11.00 per share and the options will expire ten
years from the date of grant.
51
<PAGE>
ALLIANCE OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during 1996 to
Alliance's Named Executive Officers pursuant to Alliance's 1991 Stock Option
Plan. No stock appreciation rights have ever been granted to Alliance's Named
Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATE OF STOCK
NUMBER OF OPTIONS/SARS EXERCISE OR PRICE APPRECIATION FOR
SHARES GRANTED TO BASE RICE OPTION TERM(3)
UNDERLYING EMPLOYEES IN PER SHARE EXPIRATION ------------------------------
NAME OPTIONS/SARS(1) FISCAL YEAR ($/SH)(2) DATE 0% 5% 10%
---- --------------- ------------- ----------- ---------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard N. Zehner....... 155,000 31.7% $3.5625 3/1/06 $ 0 $ 347,268 $ 880,045
Vincent S. Pino......... 125,025 25.6% 3.5625 3/1/06 0 280,111 709,855
Terrence M. White....... 90,025 18.4% 3.5625 3/1/06 0 201,695 511,136
</TABLE>
- --------
(1) All options granted in 1996 vest on March 1, 2003; however, vesting of the
1996 option shares will be accelerated based on achievement of the
following per share stock prices for 15 consecutive trading days, as
reported by Nasdaq: $4.75--25%; $5.50--50%; $6.25--75%; $7.00--100%;
subject to a maximum vesting of one-third per year from February 29, 1996
regardless of stock price (no limits after year three). As of March 15,
1997, Alliance's stock price had achieved the first three accelerated
vesting hurdles, and the 1996 options were two-thirds vested at such date.
(2) All options were granted at market value (based on the closing price as
reported on the Nasdaq SmallCap Market on the business day prior to the
grant date) at the date of grant.
(3) Valuations based upon the assumed rates of stock price appreciation are
based upon appreciation over a ten-year period from the $3.5625 exercise
price of the options. The 5% and 10% assumed annual rates of appreciation
would result in the price of the Alliance's common stock increasing to
$5.80 and $9.24 per share, respectively.
ALLIANCE AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUE
The following table presents information with respect to options exercised
by each of Alliance's Named Executive Officers in 1996, as well as the
unexercised options to purchase the Alliance common stock granted under
Alliance's 1991 Stock Option Plan to Alliance's Named Executive Officers and
held by them as of December 31, 1996. The value of unexercised in-the-money
options as of the end of the fiscal year is based on the last reported sales
price of the Alliance common stock on the Nasdaq SmallCap Market on December
31, 1996 of $5.75 per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE MONEY OPTIONS/
ACQUIRED AT YEAR-END SARS AT FISCAL YEAR-END
NAME AND PRINCIPAL ON VALUE --------------------------- -------------------------
POSITION EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------- -------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Zehner....... -- -- 243,750 116,250 $1,401,563 $668,438
Vincent S. Pino......... -- -- 31,256 93,769 179,722 539,172
Terrence M. White....... 45,000 $230,625 22,506 67,519 129,375 388,234
</TABLE>
ALLIANCE LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
In addition to the annual plan described above under "--Alliance Executive
Compensation Plan," Alliance instituted a long-term executive incentive plan
("LTIP") in 1995 to provide future awards in cash or equivalent amounts of
Alliance common stock to key executives. The objective of the plan is to
advance the long-term interests of Alliance and its stockholders by providing
substantial incentives to meet or exceed certain cash flow goals necessary to
ensure that Alliance would be able to service its long-term obligations on a
continuing basis, and that it would be able to pay certain preferred stock
dividends in cash, thereby avoiding the substantial dilution to existing
common stockholders if such dividends were paid in common stock equivalents.
As of January 2, 1997, Alliance had retired all of its Series A 6% Redeemable
Preferred Stock (the "Series A Preferred Stock"), thereby fully satisfying the
second objective of the LTIP.
52
<PAGE>
The following awards under the plan were earned by Alliance's Named
Executive Officers in 1996:
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAY-OUTS
UNDER NON-STOCK PRICE-BASED
NUMBER SHARES, PERFORMANCE OR PLAN(1)
UNITS OR OTHER PERIOD UNTIL ---------------------------
NAME OTHER RIGHTS MATURATION OR PAY-OUT THRESHOLD TARGET MAXIMUM
- ---- -------------- -------------------------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Richard N. Zehner....... $356,250 Four-Year Period Ending 12/31/98 $ 0 $356,250 $356,250
Vincent S. Pino......... 285,000 Four-Year Period Ending 12/31/98 0 285,000 285,000
Terrence M. White....... 213,750 Four-Year Period Ending 12/31/98 0 213,750 213,750
</TABLE>
- --------
(1) Under the LTIP, amounts may be accrued with respect to each of the fiscal
years from 1995 to 1998 based upon two factors: (a) the extent to which
Alliance's actual earnings before depreciation, amortization, interest,
taxes and equipment charges (as more precisely defined in the LTIP,
"EBDIT") exceeds targeted EBDIT for such year and (b) the extent to which
Alliance pays dividends on its Series A Preferred Stock in cash for such
year (thereby avoiding the potential dilution to holders of common stock
from the payment of dividends in common stock equivalents). As noted
above, Alliance retired all of the Series A Preferred Stock as of January
2, 1997, thereby satisfying the Series A Preferred Stock dividend criteria
of the LTIP. Therefore, the cumulative amount of the dividend component of
the award was deemed earned and was accrued in fiscal 1996. Amounts
accrued under the LTIP are allocated to specified senior officers. Amounts
in the table reflect the potential pool amounts accrued in 1996 allocable
to each of Alliance's Named Executive Officers based upon the two criteria
summarized above as applied to fiscal 1996.
Pursuant to the terms of the LTIP, at the effective time of the
Recapitalization, Messrs. Zehner, Pino and White will be paid $543,750,
$435,000 and $326,250, respectively (before federal and state income taxes)
earned by them pursuant to the LTIP through the date of the Recapitalization.
53
<PAGE>
SMT OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the stock options and
warrants granted to each of SMT's Named Executive Officers for services
rendered in 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR ($/SHARE) DATE
- ---- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Jeff D. Bergman...................... 7,000 18% $ 4.50 4/11/06
7,500 3% 6.875 10/1/06
Daniel Dickman....................... 7,000 18% 4.50 4/11/06
7,500 3% 6.875 10/1/06
</TABLE>
- --------
(1) Not adjusted for the January 1997 7% stock dividend by SMT. All such
options were exercisable in full on the date of grant.
SMT OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of SMT's
Named Executive Officers concerning the exercise of options during 1996 and
unexercised options held as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS
ACQUIRED ON VALUE AT FISCAL AT FISCAL
NAME EXERCISE(1) REALIZED YEAR END(1) YEAR END
- ---- ----------- ---------- ---------------- ----------------
(# EXERCISABLE/ ($ EXERCISABLE/
(#) ($) # UNEXERCISABLE) $ UNEXERCISABLE)
<S> <C> <C> <C> <C>
Jeff D. Bergman....... 136,500 $ 996,000 186,000/-- 391,000/--
Daniel Dickman........ 136,500 1,021,000 186,000/-- 391,000/--
</TABLE>
- --------
(1)Not adjusted for the January 1997 7% stock dividend by SMT.
Three Rivers Rollover and Options. In connection with the acquisition of SMT
by Three Rivers, Three Rivers has agreed to roll over options to acquire
shares of common stock of SMT held by officers and employees of SMT into
options to acquire shares of Three Rivers common stock at the same price as
that paid by Apollo for shares of Three Rivers common stock. The aggregate
value of the SMT common stock to be rolled over is $1.4 million. In addition,
Three Rivers has agreed that within 15 days after the effectiveness of the
merger of Three Rivers Acquisition into SMT, Three Rivers will adopt an option
plan (the "Three Rivers Option Plan"), pursuant to which Three Rivers will
grant to certain officers and employees of SMT options to purchase in the
aggregate up to 10% of the outstanding shares of Three Rivers common stock
(without giving effect to any options) at any time within ten years following
the effectiveness of the merger of Three Rivers Acquisition into SMT. Subject
to certain exceptions, one half of such options will vest over four years
based solely on continued employment with SMT and the other half of such
options will vest after seven and one-half years (subject to acceleration if
certain per share equity targets are achieved) based on continued employment
with the Company. Three Rivers has agreed to grant to Messrs. Bergman and
Dickman, pursuant to the Three Rivers Option Plan, options representing the
right to acquire approximately 4.6% of the outstanding shares of Three Rivers
common stock. The exercise price for each share issuable upon exercise of
options issued pursuant to the Three Rivers Option Plan will be $100, the per
share equity value of Three Rivers. It is expected that following the
consummation of the Transactions, all options to acquire shares of Three
Rivers common stock will be converted into options to purchase, in the
aggregate, 522,274 shares of Alliance common stock.
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EMPLOYMENT AND RELATED AGREEMENTS
Payments Under Existing Employment Agreements. Each of Messrs. Zehner, Pino
and White has an employment agreement with Alliance. The Recapitalization will
constitute a "change of control" for the purposes of such employment
agreements.
The existing employment agreements for Messrs. Zehner, Pino and White were
amended on May 15, 1997 to provide that upon the occurrence of a change in
control, such executives are entitled to receive (i) a cash amount equal to
2.5 times (two times in the case of Mr. White) the sum of the executive's
salary at the time of the change of control and the executive's target bonus
for the year in which the change of control occurs, and (ii) continuation of
benefits (including car allowance, health insurance and 401(k) plan benefits)
for a period of 30 months (24 months in the case of Mr. White) following the
change of control. Prior to the May 15, 1997 amendments, such payments would
have been made, and such benefits would have been provided, only if (i)
Alliance were to take actions which constitute constructive discharge (as
defined in such agreements) or to terminate such executive without just cause
(as defined in such agreements) within one year before or one year after the
change of control, or (ii) the executive were to quit for any reason within
one year following a change of control.
Each of the employment agreements discussed above prohibit the provision of
payments and benefits to the extent such payments or benefits would cause
Alliance to be unable to deduct amounts pursuant to the provisions of Section
280G of the Internal Revenue Code of 1986, which imposes a limit on certain
payments made by a corporation that are contingent upon a change of control.
As a result of such limits, it is estimated that the amount of payments that
Alliance will make to Messrs. Zehner, Pino and White as a result of the
Recapitalization pursuant to the existing employment agreements (prior to
federal and state income taxes) will be reduced to approximately $850,000,
$500,000 and $420,000, respectively.
New Employment Agreements for Messrs. Zehner and Pino. Alliance has entered
into employment agreements dated as of July 23, 1997 with Richard N. Zehner to
act as Chief Executive Officer and with Vincent S. Pino to act as Chief
Operating Officer (the "New Employment Agreements"). Base compensation under
the New Employment Agreements is $315,000 per year for Mr. Zehner and $275,000
per year for Mr. Pino, subject in each case to increase by the Board of
Directors. In addition, Mr. Zehner and Mr. Pino are entitled to receive an
annual cash bonus based upon Alliance's achievement of certain operating
and/or financial goals, with an annual target bonus amount equal to a
specified percentage of their then current annual base salary (75% in the case
of Mr. Zehner and 60% in the case of Mr. Pino). In connection with the New
Employment Agreements, Mr. Zehner and Mr. Pino are entitled to receive 175,000
and 154,545 options, respectively, under the New Stock Option Plan.
The term of each New Employment Agreement is initially three years. After
the first year, the New Employment Agreements will have a term of two years,
with automatic extensions for additional three month periods if neither party
gives notice that the term will not be so extended. Alliance may terminate Mr.
Zehner's or Mr. Pino's employment at any time and for any reason and Mr.
Zehner and Mr. Pino may resign at any time and for any reason.
Agreements Not to Compete. Mr. Zehner and Mr. Pino have also entered into an
agreement not to compete with Alliance. Pursuant to such agreement, Mr. Zehner
and Mr. Pino have each agreed that they will not, prior to the later of five
years following the Recapitalization and two years after the date of their
termination, (i) engage in any Competitive Business in the United States or
(ii) compete or participate as an agent, consultant, advisor, representative,
owner, investor or otherwise in any enterprise engaged in a Competitive
Business in the United States. Ownership of less than 5% of a publicly-traded
entity engaged in a Competitive Business would not be a violation of the
covenant to compete. For these purposes, "Competitive Business" means any
imaging business or other business that becomes material to Alliance during
the term of Mr. Zehner's or Mr. Pino's employment.
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In addition, prior to 24 months after the later of the date of his
termination or the date of ceasing to receive payments under the agreement not
to compete, Mr. Zehner and Mr. Pino, as the case may be, have each agreed not
to make any contact with any customer of Alliance with respect to the
provision of any service that is the same or substantially similar to any
service provided to such customer by Alliance. Furthermore, prior to 12 months
after the later of the date of their respective terminations of employment or
the date of ceasing to receive payments under the agreements not to compete,
Mr. Zehner and Mr. Pino, as the case may be, have each agreed not to solicit
or make any contact with any employee of Alliance with respect to any
employment, service or other business relationship. In consideration of the
non-competition and non-solicitation agreements of Mr. Zehner and Mr. Pino,
Alliance has agreed to make certain payments to Mr. Zehner and Mr. Pino
following the termination of their employment. However, in the event of a
termination with cause or a resignation without good reason (as defined in the
New Employment Agreements), Alliance will be under no obligation to make such
payments.
SMT Employment Arrangements. In connection with the acquisition of SMT by
Three Rivers, SMT and each of Messrs. Bergman and Dickman entered into new
employment agreements, dated as of June 24, 1997, (the "SMT Employment
Agreements") pursuant to which each of Messrs. Bergman and Dickman will
continue to serve in their current positions with SMT. Each of the SMT
Employment Agreements provides for a three-year term, with an additional
quarter to be added at the end of the fifth quarter of the term and each
quarter thereafter.
Under the SMT Employment Agreements, Mr. Bergman and Mr. Dickman will each
receive a base salary of $240,000 per annum. Each of the SMT Employment
Agreements contains customary terms (including confidentiality and non-
competition arrangements) and other benefits and provisions which are
generally comparable to the benefits and provisions provided to such persons
in their prior employment agreements with SMT.
In addition, pursuant to the SMT Employment Agreements, SMT has agreed to
make available a fixed annual bonus pool equal to 15% of SMT's pre-tax income
(excluding the effect of such bonus pool and adjusted for any non-recurring
gains or losses) for the 12 months ended June 30, 1997, but in no event
greater than $1,240,000. Payments of such bonuses are conditioned on SMT
achieving reasonable performance objectives established by SMT's compensation
committee. Each of Mr. Bergman and Dickman will be eligible to receive up to
one quarter of the annual bonus pool.
The SMT Employment Agreements provide that if the employee is terminated
other than for "cause" or if such employee terminates for "good reason," the
employee will be entitled to a continuation of full salary and bonus
compensation and benefits for a period equal to the remainder of the term. If
the employee is terminated for "cause" or if the employee terminates "without
good reason," the employee will only be entitled to accrued salary and other
accrued benefits prior to the date of termination. Each of the SMT Employment
Agreements provide that the employee must refrain from competing with SMT,
interfering with its customer relationships or recruiting its employees is
extended until the second anniversary of the date when the severance benefits
end.
Under the SMT Employment Agreements, each of Mr. Bergman and Mr. Dickman has
the right to terminate his employment, as does SMT, upon at least 90 days'
notice, effective as of the first anniversary of the closing of the
acquisition of SMT by Three Rivers with such person agreeing to provide
consulting services to SMT for a period of two years following such
termination and to continue to receive payment of his base salary during such
two-year period. The consulting arrangement would require Mr. Bergman or Mr.
Dickman, as the case may be, to be available no more than one day per week,
via telephone, at the request of management while taking into account such
person's prior commitments and scheduling constraints.
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PRINCIPAL STOCKHOLDERS
Immediately after the Transactions, Apollo will own approximately 84.0% of
the outstanding shares of common stock of the Company (the "Company Common
Stock") (approximately 70.0% on a fully diluted basis) and the BT Investor
will own approximately 5.9% of the outstanding shares of Company Common Stock
(approximately 5.0% on a fully diluted basis). In addition, immediately
following consummation of the Transactions, through a combination of (i) the
rollover of existing options to purchase shares of Company Common Stock into
new options to purchase shares of Company Common Stock and (ii) the issuance
of options pursuant to the Company's New Option Plan, management of Alliance
and SMT together will own in excess of 16% of the shares of Company Common
Stock on a fully diluted basis.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the effective time of the Recapitalization, Alliance will pay to Apollo
Management L.P. a fee of $2.5 million in connection with arranging the
transactions contemplated by the Recapitalization (including the financings
thereof). Thereafter, the Company will pay Apollo Management, L.P. an annual
management fee of $500,000 and will continue to receive financial advisory
services from Apollo Management L.P. on an ongoing basis, with compensation to
be determined. At the effective time of the acquisition of SMT by Apollo, SMT
paid a transaction fee of $1.0 million to Apollo Management L.P. as
consideration for structuring such acquisition.
Pursuant to an engagement letter, Alliance will pay Salomon Brothers Inc
("Salomon") the following fees: (A) $100,000, which was earned upon Alliance's
execution of the Recapitalization Merger Agreement; plus (b) an additional fee
of $400,000, which was earned upon the initial submission of Salomon's
fairness opinion to the Board of Directors on July 22, 1997; plus (c) an
additional fee of $2.4 million, which is contingent upon the consummation of
the Recapitalization and payable at the closing thereof. In addition, Salomon
will be a lender under the Credit Agreement.
Smith Barney Inc. acted as an advisor to SMT with respect to Apollo's
purchase of SMT, for which SMT paid to Smith Barney Inc. a fee of
approximately $1.2 million. Smith Barney Inc. also acted as an advisor to an
affiliate of Apollo with respect to the Recapitalization of Alliance, for
which Smith Barney will receive a fee of $1.75 million.
The BT Investor, an affiliate of BT Alex. Brown Incorporated, will invest
approximately $4.8 million in the Company concurrently with the consummation
of the Transactions. Bankers Trust Company, also an affiliate of BT Alex.
Brown Incorporated, will be an agent and lender under the Credit Agreement and
is an agent and lender under SMT's credit agreement.
For a description of certain management arrangements in connection with the
Transactions, see "Management--Employment and Related Agreements."
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DESCRIPTION OF THE CREDIT AGREEMENT
CREDIT AGREEMENT
General. Pursuant to a commitment letter dated as of July 22, 1997 from
Bankers Trust Company (the "Agent") to Apollo (the "Commitment Letter") and
subject to the negotiation, execution and delivery of definitive
documentation, the Agent has committed to lend to the Company (the "Loans"),
$50 million in the form of the Term Loan Facility and up to $150 million in
the form of the Revolving Loan Facility for an aggregate principal amount of
up to $200 million (the "Commitment").
Pursuant to the Commitment Letter, the Agent reserves the right to syndicate
all or a portion of the Commitment to one or more financial institutions
(including the Agent, each, a "Lender"), such institutions being subject to
the Company's approval. Upon the acceptance of the commitment of any Lender to
provide a portion of the Commitment, the Agent will be released from that
portion of the Commitment. In addition, the Agent agrees to serve as
administrative and syndication agent in connection with the Loans, as well as
fronting bank in connection with the letters of credit issued under the
Revolving Loan Facility.
The following terms and descriptions of the Loans are based upon the terms
set forth in the Commitment Letter and are subject to the final negotiation
and execution of the Credit Agreement and related documents. As a result, the
final terms of the Loans may vary from those set forth below.
Use of Proceeds; Maturity. The Loans are expected to be made available to
the Company to finance in part the Recapitalization, the SMT Acquisition and
certain related costs and expenses, and to refinance certain existing
indebtedness of Alliance and SMT. The full amount to be borrowed under the
Term Loan Facility must be drawn in a single drawing on the date the Term Loan
Facility is closed, which is expected to be the date on which the Transactions
close (the "Closing Date"). The Revolving Loan Facility is expected to be
available at the Closing Date and thereafter to finance (including through the
making of revolving loans and the issuance of letters of credit) working
capital requirements and general corporate purposes of the Company. The Term
Loan Facility matures on the sixth anniversary of the Closing Date. The
Revolving Loan Facility will mature on the fifth anniversary of the Closing
Date. The Credit Agreement will require the Company to reduce the commitments
under the Revolving Loan Facility to $75 million on the fourth anniversary of
the Closing Date and to make annual amortization payments with respect to the
Term Loan Facility of $0.5 million per year in the first five years and $47.5
million in the sixth year.
Prepayments. Loans are required to be prepaid with (a) 100% of the net
proceeds of all non-ordinary-course asset sales or other dispositions of the
property by the Company and its subsidiaries, subject to limited exceptions,
(b) 100% of the net proceeds of issuances of debt obligations and certain
preferred stock by the Company and its subsidiaries, subject to limited
exceptions, (c) 50% of the net proceeds from common equity and certain
preferred stock issuances by the Company and its subsidiaries, subject to
limited exceptions, (d) 75% of annual excess cash flow and (e) 100% of certain
insurance proceeds, subject to limited exceptions. Such mandatory prepayments
will be allocated as follows: first, to the Term Loan Facility and second, to
the Revolving Loan Facility.
Voluntary prepayments will be permitted in whole or in part, at the option
of the Company, in minimum principal amounts to be agreed upon, without
premium or penalty, subject to reimbursement of the Lender's re-deployment
costs in the case of prepayment of Reserve Adjusted Eurodollar Loans (as
defined in the Commitment Letter) other than on the last day of the relevant
interest period.
Interest and Fees. The interest rates under the Loans will be as follows:
(a) Term Loan Facility: At the option of the Company, (i) 1.50% in excess of
the higher of (A) 1/2 of 1% in excess of the Federal Reserve reported
certificate of deposit rate and (B) the rate that the Agent announces from
time to time as its prime lending rate, as in effect from time to time, and
(ii) 2.50% in excess of the Reserve Adjusted Eurodollar Rate, in each case,
subject to decreases based upon the Company's leverage ratio.
(b) Revolving Loan Facility: At the option of the Company, (i) 1.25% in
excess of the higher of (A) 1/2 of 1% in excess of the Federal Reserve
reported certificate of deposit rate and (B) the rate that the Agent announces
from time to time as its prime lending rate, as in effect from time to time,
and (ii) 2.25% in excess of the Reserve Adjusted Eurodollar Rate, in each
case, subject to decreases based upon the Company's leverage ratio.
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The Company may elect interest periods of 1, 2, 3 or 6 months for Reserve
Adjusted Eurodollar Loans. With respect to Reserve Adjusted Eurodollar Loans,
interest will be payable at the end of each interest period and, in any event,
at least every 3 months. With respect to Base Rate Loans (as defined in the
Commitment Letter), interest will be payable quarterly on the last business
day of each fiscal quarter. In each case, calculation of interest will be on
the basis of actual number of days elapsed in a year of 360 days.
The Commitment Letter provides for payment by the Company in respect of
outstanding letters of credit of (i) a per annum fee equal to the spread over
the Reserve Adjusted Eurodollar Rate for the Revolving Loan Facility from time
to time in effect, (ii) a fronting fee equal to 1/4 of 1% on the aggregate
outstanding stated amounts of such letters of credit, plus (iii) customary
administrative charges. The Company will also pay a commitment fee equal to
1/2 of 1% per annum on the undrawn portion of the available Commitment,
subject to decreases based on the Company's leverage ratio.
Collateral and Guarantees. The Loans will be guaranteed by all of the
Company's existing and future direct and indirect wholly owned domestic
subsidiaries. The Loans will be secured by a first priority lien in
substantially all of the properties and assets of the Company and its direct
and indirect wholly owned domestic subsidiaries, now owned or acquired later,
including a pledge of all capital stock and notes owned by the Company and its
subsidiaries; provided that, in certain cases, no more than 65% of the stock
of foreign subsidiaries of the Company shall be required to be pledged.
Representations and Warranties and Covenants. The Commitment Letter provides
that the Credit Agreement documentation will contain certain customary
representations and warranties by the Company. In addition, the Credit
Agreement is expected to contain customary covenants restricting the ability
of the Company to, among others (i) declare dividends or redeem or repurchase
capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and
engage in sale-leaseback transactions; (iv) make loans and investments; (v)
incur additional indebtedness; (vi) amend or otherwise alter debt and other
material agreements; (vii) make capital expenditures; (viii) engage in
mergers, acquisitions and asset sales; (ix) transact with affiliates; and (x)
alter the business it conducts. It is also expected that the Company will be
required to indemnify the Agent and comply with specified financial covenants
and make certain customary affirmative covenants.
Events of Default. Events of default under the Credit Agreement are expected
to include (i) the Company's failure to pay principal or interest when due;
(ii) the Company's material breach of any representation or warranty contained
in the loan documents; (iii) covenant defaults; (iv) events of bankruptcy; and
(v) a change of control of the Company.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture"), to be dated
as of , 1997 by and among Alliance Imaging, Inc., the Guarantors and
, as Trustee (the "Trustee"). The following summary of certain provisions
of the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "TIA"), and to all of the provisions of the Indenture (a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part), including the definitions of certain terms therein and
those terms made a part of the Indenture by reference to the TIA as in effect
on the date of the Indenture. The definitions of certain capitalized terms
used in the following summary are set forth below under "--Certain
Definitions." For purposes of this section, references to the "Company"
include only Alliance Imaging, Inc. and not its Subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Debt of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes (the "Holders"). The Company will pay principal (and premium, if
any) on the Notes at the Trustee's corporate office in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $270.0 million, of
which $170.0 million will be issued in the Offering, and will mature on ,
2005. Interest on the Notes will accrue at the rate of % per annum and will
be payable semiannually in cash on each and commencing on ,
1998, to the persons who are registered Holders at the close of business on
the and immediately preceding the applicable interest payment date.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after , 2001,
upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any,
to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004........................................................... 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to , 2000, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up
to 40% in aggregate principal amount of the Notes at a redemption price equal
to % of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date
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of redemption; provided, however, that after any such redemption the aggregate
principal amount of the Notes outstanding must equal at least 60% of the
aggregate amount of the Notes issued in the Offering plus any additional Notes
issued after the Issue Date pursuant to the Indenture. In order to effect the
foregoing redemption with the net cash proceeds of any Equity Offering, the
Company shall make such redemption not more than 120 days after the
consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock (other than public offerings with
respect to the Company's Common Stock on Form S-8) of the Company for
aggregate net cash proceeds to the Company of at least $25.0 million.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the net cash proceeds of an Equity Offering, selection of the Notes or
portions thereof for redemption shall be made by the Trustee only on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition of any of the Notes for cash
or property or otherwise. If any default occurs and is continuing in the
payment when due, whether at maturity, upon any redemption, by declaration or
otherwise, of any principal of, interest on, unpaid drawings for letters of
credit issued in respect of, or regularly accruing fees with respect to, any
Senior Debt, no payment of any kind or character shall be made by or on behalf
of the Company or any other Person on its or their behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property
or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default
have been cured or waived or have ceased to exist or the Trustee receives
notice from the Representative for the respective issue of Designated
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Senior Debt terminating the Blockage Period (as defined below), during the 180
days after the delivery of such Default Notice (the "Blockage Period"),
neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on the Notes
or (y) acquire any of the Notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 180 days from the date the payment on the Notes was due
and only one such Blockage Period may be commenced within any 360 consecutive
days. No event of default which existed or was continuing on the date of the
commencement of any Blockage Period with respect to the Designated Senior Debt
shall be, or be made, the basis for commencement of a second Blockage Period
by the Representative of such Designated Senior Debt whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed
or was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Debt.
After giving effect to the Transactions, on a pro forma basis, at June 30,
1997, the Company would have had approximately $100.2 million of Senior Debt
outstanding.
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of and interest on the Notes. The
Guarantees will be subordinated to Guarantor Senior Debt on the same basis as
the Notes are subordinated to Senior Debt. The obligations of each Guarantor
are limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of
the Company without limitation, or with other Persons upon the terms and
conditions set forth in the Indenture. See "Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Guarantor is sold by the Company and the sale complies with the provisions set
forth in "Certain Covenants--Limitation on Asset Sales," the Guarantor's
Guarantee will be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described
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below (the "Change of Control Offer"), at a purchase price equal to 101% of
the principal amount thereof plus accrued interest to the date of purchase.
The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement
and all other such Senior Debt and to repay the Indebtedness owed to each
lender which has accepted such offer or (ii) obtain the requisite consents
under the Credit Agreement and all other Senior Debt to permit the repurchase
of the Notes as provided below. The Company shall first comply with the
covenant in the immediately preceding sentence before it shall be required to
repurchase Notes pursuant to the provisions described below. The Company's
failure to comply with the covenant described in the immediately preceding
sentence shall constitute an Event of Default described in clause (iii) and
not in clause (ii) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a Note purchased pursuant to
a Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not
have available funds to meet its purchase obligations. However, there can be
no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
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 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 there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Restricted Subsidiaries by
the management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of 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.
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CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any of the Guarantors may
incur Indebtedness (including, without limitation, Acquired Indebtedness) and
Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in
each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of the Company is greater than 1.75 to 1.0 if such incurrence is on or prior
to December 31, 1999 and 2.0 to 1.0 if such incurrence is thereafter.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire
or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is subordinate or junior in right of payment to the Notes or (d) make any
Investment (other than Permitted Investments) (each of the foregoing actions
set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after
giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company earned subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period); plus (x) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company; plus (y) without duplication of any amounts included in clause
(iii)(x) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock; plus (z) without duplication, the sum of (1) the aggregate amount
returned in cash on or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other distributions or payments,
(2) the net cash proceeds received by the Company or any Restricted Subsidiary
of the Company from the disposition of all or any portion of such Investments
(other than to a Subsidiary of the Company) and (3) upon redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of
such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3)
above shall not exceed the aggregate amount of all such Investments made
subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of net
proceeds of
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a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior
in right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the
Company or (B) Refinancing Indebtedness; (4) so long as no Default or Event of
Default shall have occurred and be continuing, repurchases by the Company of
Common Stock of the Company from employees of the Company or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not to
exceed $5.0 million in any calendar year (with unused amounts in any calendar
year being carried over to succeeding years subject to a maximum of $7.5
million in any calendar year); (5) the declaration and payment of dividends to
holders of any class or series of Preferred Stock (other than Disqualified
Capital Stock) issued after the Issue Date, provided that for the most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of issuance of such
Preferred Stock, after giving effect to such issuance on a pro forma basis,
the Company would have had a Consolidated Fixed Charge Coverage Ratio of at
least 1.75 to 1.00; (6) the payment of dividends on the Company's Common
Stock, following the first public offering of the Company's Common Stock after
the Issue Date, of up to 6% per annum of the net proceeds received by the
Company in such public offering, other than public offerings with respect to
the Company's Common Stock registered on Form S-8; (7) the repurchase,
retirement or other acquisition or retirement for value of equity interests of
the Company in existence on the Issue Date and from the persons holding such
equity interests on the Issue Date and which are not held by Apollo or any of
its Affiliates or members of management of the Company and its Subsidiaries on
the Issue Date (including any equity interests issued in respect of such
equity interests as a result of a stock split, recapitalization, merger,
combination, consolidation or similar transaction), provided, however, that
the Company shall be permitted to make Restricted Payments under this clause
only if after giving effect thereto, the Company would be permitted to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the "Limitation on Incurrence of Additional Indebtedness" covenant
and (8) other Restricted Payments in an aggregate amount not to exceed $5.0
million. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the
immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2), (4), (5), (6), (7) and (8) shall be included in such calculation.
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 complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; provided that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets, and (b) any notes or other
obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted
Subsidiary into cash within 180 days after such Asset Sale (to the extent of
the cash received) shall be deemed to be cash for the purposes of this
provision; and (iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 360 days of receipt thereof either (A) to
prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior
Debt or Guarantor Senior Debt under any revolving credit facility, effect a
permanent reduction in the availability under such revolving credit facility,
(B) to make an Investment
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in properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in properties and assets that will be used in
the business of the Company and its Restricted Subsidiaries as existing on the
Issue Date or in businesses the same, similar or reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 361st day
after an Asset Sale or such earlier date, if any, as the Board of Directors of
the Company or of such Restricted Subsidiary determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have
not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company
or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date,
from all Holders on a pro rata basis, that amount of Notes equal to the Net
Proceeds Offer Amount at a price equal to 100% of the principal amount of the
Notes to be purchased, plus accrued and unpaid interest thereon, if any, to
the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant. The
Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $5.0 million
resulting from one or more Asset Sales (at which time, the entire unutilized
Net Proceeds Offer Amount, and not just the amount in excess of $5.0 million,
shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold
the properties and assets of the Company and its Restricted Subsidiaries not
so transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale. In addition, the fair market value of such properties and assets
of the Company or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" 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 "Asset Sale" provisions of the Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other
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Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) the
Indenture; (3) the Credit Agreement; (4) customary non-assignment provisions
of any contract or any lease governing a leasehold interest of any Restricted
Subsidiary of the Company; (5) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the properties or
assets of the Person so acquired; (6) agreements existing on the Issue Date to
the extent and in the manner such agreements are in effect on the Issue Date;
(7) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature discussed in clause (c) above
on the property so acquired; (8) contracts for the sale of assets, including,
without limitation, customary restrictions with respect to a Restricted
Subsidiary of the Company pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
or assets of such Restricted Subsidiary; (9) secured Indebtedness otherwise
permitted to be incurred pursuant to the covenants described under "Limitation
on Incurrence of Additional Indebtedness" and "Limitation on Liens" that limit
the right of the debtor to dispose of the assets securing such Indebtedness;
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business; (11) an agreement
governing Indebtedness incurred to Refinance the Indebtedness issued, assumed
or incurred pursuant to an agreement referred to in clauses (1) through (10)
above; provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in agreements referred
to in such clauses; or (12) an agreement governing Indebtedness permitted to
be incurred pursuant to the "Limitation on Incurrence on Additional
Indebtedness" covenant; provided that the provisions relating to such
encumbrance or restriction contained in such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions contained in the Credit Agreement as in effect on the Issue Date.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or any
proceeds therefrom, or assign or otherwise convey any right to receive income
or profits therefrom unless (i) in the case of Liens securing Indebtedness
that is expressly subordinate or junior in right of payment to the Notes, the
Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Notes are
equally and ratably secured, except for (A) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on the Issue
Date; (B) Liens securing Senior Debt and Liens securing Guarantor Senior Debt;
(C) Liens securing the Notes and the Guarantees; (D) Liens of the Company or a
Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness which
is incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with
the provisions of the Indenture; provided, however, that such Liens (A) are no
less favorable to the Holders and are not more favorable to the lienholders
with respect to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (B) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company and the
Guarantors will not incur or suffer to exist Indebtedness that is senior in
right of payment to the Notes or the Guarantees, as the case may be, and
subordinate in right of payment by its terms to any other Indebtedness of the
Company or such Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the
Company and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an
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entirety to any Person unless (i) either (1) the Company shall be the
surviving or continuing corporation or (2) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
the Person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and of the
Company's Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
(y) shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due
and punctual payment of the principal of, and premium, if any, and interest on
all of the Notes and the performance of every covenant of the Notes and the
Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction on a pro forma basis and
the assumption contemplated by clause (i)(2)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred and any Lien granted in connection with
or in respect of the transaction), no Default or Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity, as
the case may be, shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
Notwithstanding the foregoing, the merger of the Company with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction shall be permitted.
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 of the Company 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.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the Notes with
the same effect as if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or
any other Guarantor unless (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) such entity assumes by supplemental
indenture all of the obligations of the Guarantor on the Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on
a pro forma basis, the Company could satisfy the provisions of clause (ii) of
the first paragraph of this covenant. Any merger or consolidation of a
Guarantor with and into the Company (with the Company being the surviving
entity) or
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another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (iv) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than (x) Affiliate Transactions permitted under paragraph (b) below and (y)
Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained in a comparable transaction at such time
on an arm's-length basis from a Person that is not an Affiliate of the Company
or such Restricted Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of $1.0 million shall be approved by the Board of Directors of the
Company or such Restricted Subsidiary, as the case may be, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If
the Company or any Restricted Subsidiary of the Company enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related
to a common plan) that involves an aggregate fair market value of more than
$10.0 million, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company
or the relevant Restricted Subsidiary, as the case may be, from a financial
point of view, from an Independent Financial Advisor and file the same with
the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board
of Directors; (ii) transactions exclusively between or among the Company and
any of its Wholly Owned Restricted Subsidiaries or exclusively between or
among such Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the Indenture; (iii) any agreement as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) Restricted
Payments permitted by the Indenture; (v) transactions in which the Company or
any of its Restricted Subsidiaries, as the case may be, delivers to the
Trustee a letter from an Independent Financial Advisor stating that such
transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view or meets the requirements of the first sentence of
paragraph (a) above; (vi) the existence of, or the performance by the Company
or any of its Restricted Subsidiaries of its obligations under the terms of,
any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by the Company or any of
its Restricted Subsidiaries of obligations under, any future amendment to any
such existing agreement or under any similar agreement entered into after that
Issue Date shall only be permitted by this clause to the extent that the terms
of any such, amendment or new agreement are not otherwise disadvantageous to
the holders of the Notes in any material respect; (vii) loans to employees of
the Company and its Subsidiaries which are approved by the Board of Directors
of the Company in good faith; (viii) the payment of all fees and expenses
related to the Transactions; and (ix) transactions with customers, clients,
suppliers, or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of the
Indenture, which are fair to the Company or its Restricted Subsidiaries, in
the reasonable determination of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any domestic Restricted
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Subsidiary that is not a Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another domestic
Restricted Subsidiary having total equity value in excess of $1.0 million,
then such transferee or acquired or other Restricted Subsidiary shall (i)
execute and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Notes and
the Indenture on the terms set forth in the Indenture and (ii) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture.
Reports to Holders. The Indenture will provide that the Company will deliver
to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA (S) 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes;
(iv) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final stated maturity or which has
been accelerated, aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
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If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Notes may declare the principal of and accrued interest on all the Notes to be
due and payable by notice in writing to the Company and the Trustee specifying
the respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit
Agreement, shall become immediately due and payable upon the first to occur of
an acceleration under the Credit Agreement or 5 business days after receipt by
the Company and the Representative under the Credit Agreement of such
Acceleration Notice. If an Event of Default specified in clause (vi) above
with respect to the Company occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of
the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Notes may
rescind and cancel such declaration and its consequences (i) if the rescission
would not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent
the payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the
description above of Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes 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 power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee 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. 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.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights
of Holders to receive payments in respect of the principal of, premium, if
any, and interest on the Notes when such payments are due, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders 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; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders 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; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under the Indenture or any
other material 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 is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Debt,
including, without limitation, those arising under the Indenture and (B)
assuming no intervening bankruptcy of the Company between the date of deposit
and the 91st day following the date of the deposit and that no Holder is an
insider of the Company, after the 91st day following the date of the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (ix) certain other customary conditions precedent are
satisfied. Notwithstanding the foregoing, the opinion of counsel required by
clause (ii) above need not be delivered if all Notes not theretofore delivered
to the Trustee for cancellation (x) have become due and payable, (y) will
become due and
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payable on the maturity date within one year or (z) 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.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long as
such change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion
of counsel. Other modifications and amendments of the Indenture may be made
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may (i) reduce the amount of
Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or
change the date on which any Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (iv) make any Notes
payable in money other than that stated in the Notes; (v) make any change in
provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of Notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control which has occurred or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto after a Change of
Control has occurred or the subject Asset Sale has been consummated; (vii)
modify or change any provision of the Indenture or the related definitions
affecting the subordination or ranking of the Notes or any Guarantee in a
manner which adversely affects the Holders; or (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise
than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
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THE TRUSTEE
The Indenture will provide 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. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the 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.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time it merges or consolidates with the Company or
any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other
than a Restricted Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million, (ii) 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 and its Restricted Subsidiaries and (iii) the sale,
lease, conveyance, disposition or other transfer of all or substantially all
of the assets of the Company as permitted under "Merger, Consolidation and
Sale of Assets."
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture)
other than to the Permitted Holders; (ii) the approval by the holders of
Capital Stock of the Company of any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) any Person or Group (other than the
Permitted Holders) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the
Board of Directors of the Company over a two-year period from the directors
who constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by the Permitted
Holders or a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a member of
such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all
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income taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in
accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the two full
fiscal quarters (the "Two Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Two Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than
the incurrence or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to working capital facilities, occurring
during the Two Quarter Period or at any time subsequent to the last day of the
Two Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Two Quarter Period and
(ii) any Asset Sales or Asset Acquisitions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA (including any pro forma expense and
cost reductions and other operating improvements as determined in good faith
by a responsible financial or accounting officer of the Company) attributable
to the assets which are the subject of the Asset Acquisition or Asset Sale
during the Two Quarter Period) occurring during the Two Quarter Period or at
any time subsequent to the last day of the Two Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition (including
the incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Two Quarter Period. If such Person or any of
its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of
a third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of
such Person had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(excluding amortization or write-off of deferred financing costs), plus (ii)
the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period
times (y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal, state and
local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-
off of deferred financing costs (including the amortization of costs relating
to interest rate caps or other similar agreements), (b) the net costs under
Interest Swap Obligations, (c)
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all capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP, minus interest income for such period.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales (without regard to the $1.0 million limitation set
forth in the definition thereof) or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains or
losses, (c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person or
any Restricted Subsidiary of the referent Person, (d) the net income (but not
loss) of any Restricted Subsidiary of the referent Person to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person, (f) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (g) in the case of a successor to the
referent Person by consolidation or merger or as a transferee of the referent
Person's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement to be dated as of the Issue
Date, between the Company, the lenders party thereto in their capacities as
lenders thereunder and Bankers Trust Company, as administrative agent,
together with the related documents thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder (provided
that such increase in borrowings is permitted by the "Limitation on Incurrence
of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries
of the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event,
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matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof on or
prior to the final maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means (i) each of SMT Acquisition Corp., Royal Medical Health
Services, Inc. and Alliance Imaging of Central Georgia, Inc. and (ii) each of
the Company's Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees to be bound
by the terms of the Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Guarantor. Without limiting the generality of
the foregoing, "Guarantor Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on, and all other amounts owing by any Guarantor
in respect of, (x) all monetary obligations of every nature of a Guarantor
under, or with respect to, the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities, (y) all
Interest Swap Obligations (including guarantees thereof) and (z) all
obligations under Currency Agreements (including guarantees thereof), in each
case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i)
any Indebtedness of such Guarantor to a Restricted Subsidiary of such
Guarantor, (ii) Indebtedness to, or guaranteed on behalf of, any director,
officer or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or
other taxes owed or owing by such Guarantor, (vi) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative and
the Trustee shall have received an officers' certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture), (vii) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the
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Company or any Guarantor and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Guarantor.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below, (vii) all Obligations of any other Person of
the type referred to in clauses (i) through (vi) which are secured by any lien
on any property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the Obligation so secured, (viii) all Obligations under currency
agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be
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 Capital
Stock, such fair market value shall be determined reasonably and in good faith
by the Board of Directors of the issuer of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary of the Company and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary of the Company at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company and (ii) the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by the Company or
any of its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment, reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions
or receipt of any such other amounts shall reduce the amount of any Investment
if such payment of
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dividends or distributions or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Holders" means Apollo Management, L.P. and its affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes and the Guarantees issued in the
Offering;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $200.0
million less the amount of all repayments and permanent commitment
reductions under the Credit Agreement with Net Cash Proceeds of Asset Sales
applied thereto as required by the "Limitation on Asset Sales" covenant;
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Swap Obligations covering Indebtedness of the Company or
any of its Restricted Subsidiaries; provided, however, that such Interest
Swap Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not, at the time of the
incurrence thereof, exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
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(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company; provided that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company and is subject to no Lien; provided
that (a) any Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(viii) 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;
(ix) 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;
(x) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $25.0 million at
any one time outstanding; provided that all or a portion of the $25.0
million permitted to be incurred under this clause (x) may, at the option
of the Company, be incurred under the Credit Agreement instead of pursuant
to Capitalized Lease Obligations or Purchase Money Indebtedness;
(xi) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that (a) such Indebtedness
is not reflected on the balance sheet of the Company or any Restricted
Subsidiary of the Company (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (a)) and (b) the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time it is received and without giving effect to any
subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(xiii) Refinancing Indebtedness; and
(xiv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25.0 million
at any one time outstanding (which amount may, but need not, be incurred in
whole or in part under the Credit Agreement).
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"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, provided that such Wholly Owned
Restricted Subsidiary of the Company is not restricted from making dividends
or similar distributions by contract, operation of law or otherwise; (ii)
Investments in the Company by any Restricted Subsidiary of the Company;
provided that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (iii) Investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not to exceed $1.0 million at any one time outstanding;
(v) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses
and otherwise in compliance with the Indenture; (vi) additional Investments
(including joint ventures) not to exceed $20.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers; (viii)
Investments made by the Company or its Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance
with the "Limitation on Asset Sales" covenant; and (ix) Investments of a
Person or any of its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary of the Company or at the time such Person merges or
consolidates with the Company or any of its Restricted Subsidiaries, in either
case in compliance with the Indenture; provided that such Investments were not
made by such Person in connection with, or in anticipation or contemplation
of, such Person becoming a Restricted Subsidiary of the Company or such merger
or consolidation.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or asset
which is not leased property subject to such Capitalized Lease Obligation;
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(vii) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (x) of the definition of
"Permitted Indebtedness"; provided, however, that in the case of Purchase
Money Indebtedness (A) the Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of
the Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired or constructed and (B) the Lien securing
such Indebtedness shall be created within 180 days of such acquisition or
construction or, in the case of a refinancing of any Purchase Money
Indebtedness, within 180 days of such refinancing;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens in the ordinary course of business not exceeding $5.0 million
at any one time outstanding that (a) are not incurred in connection with
borrowing of money and (b) do not materially detract from the value of the
property or materially impair its use;
(xiii) Liens by reason of judgment or decree not otherwise resulting in
an Event of Default;
(xiv) Liens securing Indebtedness permitted to be incurred pursuant to
clause (xiv) of the definition of "Permitted Indebtedness";
(xv) Liens securing Indebtedness under Currency Agreements permitted
under the Indenture; and
(xvi) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
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"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred or existing in
accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii),
(ix), (x), (xi), (xii) or (xiv) of the definition of Permitted Indebtedness),
in each case that does not (1) result in an increase in the aggregate
principal amount of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y)
if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least
to the same extent and in the same manner as the Indebtedness being
Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"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 the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary 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.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal
of, premium, if any, interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on, and all other amounts owing by the Company in
respect of, (x) all monetary obligations of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations under Currency Agreements
(including guarantees thereof), in each case whether outstanding on the Issue
Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt"
shall not include (i) any Indebtedness of the Company to a Subsidiary of the
Company, (ii) Indebtedness to, or guaranteed on behalf of, any director,
officer or employee of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or
85
<PAGE>
other taxes owed or owing by the Company, (vi) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative and
the Trustee shall have received an officers' certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture), (vii) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company and (viii)
any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation, the Company is able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant and (y) immediately before and immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than in the case of a foreign Restricted Subsidiary, directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person or any
Wholly Owned Restricted Subsidiary of such Person.
86
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") among Alliance, the Guarantors and BT Alex.
Brown Incorporated, Smith Barney Inc. and Salomon Brothers Inc (collectively,
the "Underwriters"), the Underwriters have severally agreed to purchase from
Alliance, and Alliance has agreed to sell to the Underwriters severally, the
entire principal amount of the Notes offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Notes is subject to the approval of
certain legal matters by counsel and to various other conditions. The nature
of each Underwriter's obligation is such that each is committed to purchase
the aggregate principal amount of Notes set forth opposite its name if any
Notes are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
BT Alex. Brown Incorporated................................. $
Smith Barney Inc............................................
Salomon Brothers Inc .......................................
------------
Total..................................................... $170,000,000
============
</TABLE>
The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page hereof, and to certain
dealers at such price less a concession not in excess of % of the principal
amount of the Notes offered hereby. After the public offering of the Notes
offered hereby, the public offering price and other selling terms may be
changed.
Alliance does not intend to apply for listing of the Notes on a national
securities exchange. Alliance has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Notes, and any such market making may be discontinued at any
time in the sole discretion of the Underwriters. There can be no assurance
that an active public market for the Notes will develop.
Alliance and the Guarantors have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act,
or to contribute to payments that the Underwriters may be required to make in
respect thereof.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, will be
an agent and lender under the Credit Agreement and is an agent and lender
under SMT's credit agreement. See "Description of the Credit Agreement." The
BT Investor, also an affiliate of BT Alex. Brown Incorporated, will invest
approximately $4.8 million in the Company concurrently with the consummation
of the Transactions. Smith Barney Inc. has acted as financial advisor to SMT
in connection with the purchase of SMT by Apollo for which it has received
certain fees and has been reimbursed for certain of its expenses. Smith Barney
also acted as an advisor to an affiliate of Apollo with respect to the
Recapitalization of Alliance, for which Smith Barney will receive a fee of
$1.75 million. Salomon Brothers Inc has acted as financial advisor to Alliance
in connection with the Recapitalization for which it will receive certain fees
and be reimbursed for certain of its expenses. In addition, Salomon Brothers
Inc will be a lender under the Credit Agreement. See "Certain Relationships
and Related Transactions."
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the Notes. Specifically, the Underwriters may bid for and
purchase Notes in the open market to stabilize the price of the Notes. The
Underwriters may also overallot the Offering, creating a syndicate short
position, and may bid for and purchase Notes in the open market to cover the
syndicate short position. In addition, the Underwriters may bid for and
purchase the Notes in market making transactions and impose penalty bids.
These activities may stabilize or maintain the market price of the Notes above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may end these activities at any time.
87
<PAGE>
LEGAL MATTERS
The validity of the Notes offered hereby are being passed upon for the
Company by O'Sullivan Graev & Karabell, LLP, New York, New York. Certain legal
matters relating to the Notes are being passed upon for the Underwriters by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York. Cahill Gordon & Reindel has represented in the past and
continues to represent Apollo and its affiliates with respect to various
matters.
EXPERTS
The consolidated financial statements of Alliance at December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of SMT at December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
88
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALLIANCE IMAGING, INC.
Report of Independent Auditors--Ernst & Young LLP....................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and at June
30, 1997 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995
and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995
and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-5
Consolidated Statements of Preferred Stock, Common Stock, Additional
Paid-In Capital
and Accumulated Deficit for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1997 (unaudited)............ F-7
Notes to Consolidated Financial Statements.............................. F-8
Quarterly Financial Data (unaudited).................................... F-20
SMT HEALTH SERVICES INC.
Report of Independent Auditors--KPMG Peat Marwick LLP................... F-22
Consolidated Balance Sheets at December 31, 1995 and 1996 and at June
30, 1997 (unaudited)................................................... F-23
Consolidated Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-24
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-25
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996 and for the six months ended
June 30, 1997 (unaudited).............................................. F-27
Notes to Consolidated Financial Statements.............................. F-28
Quarterly Financial Data (unaudited).................................... F-45
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Imaging, Inc.
We have audited the accompanying consolidated balance sheets of Alliance
Imaging, Inc. as of December 31, 1995 and 1996 and the related consolidated
statements of operations, cash flows and preferred stock, common stock,
additional paid-in capital and accumulated deficit for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of Alliance'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 consolidated financial position
of Alliance Imaging, Inc. at December 31, 1995 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young llp
Orange County, California
February 21, 1997, except for Note 4, as to
which the date is March 26, 1997, and Note 9,
as to which the date is July 23, 1997
F-2
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- ------------
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments.... $ 11,128,000 $ 10,867,000 $ 13,817,000
Accounts receivable, net of allow-
ance for doubtful account of
$367,000 in 1995 and $513,000 in
1996 (Note 4)..................... 5,583,000 8,889,000 9,207,000
Prepaid expenses................... 369,000 710,000 1,014,000
Other receivables.................. 109,000 345,000 39,000
------------ ------------ ------------
Total current assets............. 17,189,000 20,811,000 24,077,000
Equipment, at cost (Note 4).......... 112,014,000 121,354,000 138,729,000
Less accumulated depreciation........ (52,368,000) (43,735,000) (48,953,000)
------------ ------------ ------------
59,646,000 77,619,000 89,776,000
Goodwill, net of accumulated amorti-
zation of $5,690,000 in 1995 and
$7,568,000 in 1996.................. 23,971,000 27,990,000 27,256,000
Deposits and other assets............ 2,521,000 2,090,000 2,161,000
------------ ------------ ------------
Total assets..................... $103,327,000 $128,510,000 $143,270,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 692,000 $ 1,765,000 $ 2,773,000
Accrued compensation and related
expenses.......................... 2,310,000 3,465,000 2,855,000
Other accrued liabilities.......... 5,025,000 6,341,000 8,688,000
Current portion of long-term debt
(Note 4).......................... 9,948,000 16,323,000 19,618,000
------------ ------------ ------------
Total current liabilities........ 17,975,000 27,894,000 33,934,000
Long-term debt, net of current por-
tion (Note 4)....................... 65,932,000 72,702,000 60,930,000
Other liabilities.................... 596,000 2,029,000 2,207,000
Deferred income taxes (Note 3)....... 790,000 4,831,000 4,831,000
------------ ------------ ------------
Total liabilities................ 85,293,000 107,456,000 101,902,000
Commitments (Note 6)
Redeemable preferred stock, Series A,
$.01 par value;
155,000 shares authorized; shares
issued and outstanding
(at liquidation and redemption
value)--155,000 in 1995
and 44,286 in 1996.................. 16,430,000 4,694,000 --
Convertible preferred stock, $.01 par
value; 22,000 shares authorized;
3,876 shares issued and outstanding
in 1996 (Note 5).................... -- 388,000 18,388,000
Common stock, $.01 par value;
25,000,000 shares authorized; shares
issued and outstanding--10,836,171
in 1995 and 10,913,388 in 1996 (Note
5).................................. 108,000 109,000 109,000
Additional paid-in capital........... 31,908,000 34,404,000 36,171,000
Accumulated deficit.................. (30,412,000) (18,541,000) (13,300,000)
------------ ------------ ------------
Total liabilities and
stockholders' equity............. $103,327,000 $128,510,000 $143,270,000
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------
1994 1995 1996 1996 1997
------------ ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 57,875,000 $58,065,000 $68,482,000 $ 31,302,000 $ 39,911,000
Costs and expenses:
Operating expenses,
excluding
depreciation......... 31,093,000 28,342,000 32,344,000 15,019,000 17,815,000
Depreciation expense.. 13,424,000 12,202,000 12,737,000 6,048,000 7,144,000
Selling, general and
administrative
expenses............. 6,284,000 6,294,000 8,130,000 3,160,000 3,990,000
Amortization expense,
primarily goodwill... 943,000 1,345,000 1,952,000 745,000 1,165,000
Interest expense, net
of interest income of
$253,000 in 1994,
$437,000 in 1995 and
$502,000 in 1996..... 10,758,000 5,053,000 5,758,000 2,683,000 3,557,000
Asset impairment and
other special
charges.............. 13,339,000 -- -- -- --
------------ ----------- ----------- ------------ ------------
Total costs and
expenses........... 75,841,000 53,236,000 60,921,000 27,655,000 33,671,000
Income (loss) before
income taxes and
extraordinary gains.... (17,966,000) 4,829,000 7,561,000 3,647,000 6,240,000
Provision for income
taxes (Note 3)......... 1,100,000 727,000 1,060,000 545,000 2,125,000
------------ ----------- ----------- ------------ ------------
Income (loss) before
extraordinary gains.... (19,066,000) 4,102,000 6,501,000 3,102,000 4,115,000
Extraordinary gains, net
of taxes............... -- -- 6,300,000 -- 1,332,000
------------ ----------- ----------- ------------ ------------
Net income (loss)....... (19,066,000) 4,102,000 12,801,000 3,102,000 5,447,000
Less: Preferred stock
dividends.............. -- 930,000 943,000 468,000 --
Add: Excess of carrying
amount of preferred
stock repurchased over
consideration paid..... -- -- 1,764,000 -- 1,906,000
------------ ----------- ----------- ------------ ------------
Income (loss) applicable
to common stock........ $(19,066,000) $ 3,172,000 $13,622,000 $ 2,634,000 $ 7,353,000
============ =========== =========== ============ ============
Weighted average common
and common equivalent
shares outstanding..... 7,124,000 11,158,000 11,494,000 11,416,000 13,456,000
============ =========== =========== ============ ============
Earnings per share:
Income before items
below................ $ (2.68) $ 0.28 $ 0.48 $ 0.23 $ 0.31
Excess of carrying
amount of preferred
stock repurchased
over consideration
paid................. -- -- 0.15 -- 0.14
------------ ----------- ----------- ------------ ------------
Income (loss) before
extraordinary gains.. (2.68) 0.28 0.63 0.23 0.45
Extraordinary gains,
net of taxes......... -- -- 0.55 -- 0.10
------------ ----------- ----------- ------------ ------------
Income (loss) applicable
to common stock........ $ (2.68) $ 0.28 $ 1.18 $ 0.23 $ 0.55
============ =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $(19,066,000) $ 4,102,000 $12,801,000 $ 3,102,000 $ 5,447,000
Adjustments to reconcile
net income (loss) to
net cash
provided by operating
activities:
Extraordinary gains.... -- -- (6,300,000) -- (1,332,000)
Depreciation and amor-
tization.............. 14,367,000 13,547,000 14,689,000 6,793,000 8,309,000
Amortization of de-
ferred financing
charges............... 406,000 85,000 411,000 207,000 28,000
Distributions in excess
of (undistributed) in-
come of investee...... 69,000 (262,000) (91,000) 2,000 91,000
Special charges........ 13,339,000 -- -- -- --
Increase (decrease) in
deferred income taxes. 665,000 (173,000) 1,041,000 -- --
Gain on disposal of
equipment............. -- (335,000) -- -- --
Gain on sale of invest-
ment.................. -- -- (750,000) -- --
Changes in operating as-
sets and liabilities:
Accounts receivable,
net................... (527,000) 1,261,000 (2,474,000) (1,216,000) (240,000)
Prepaid expenses....... 167,000 (78,000) (306,000) (348,000) (304,000)
Other receivables...... 151,000 (18,000) (49,000) (55,000) 306,000
Other assets........... (71,000) (96,000) (72,000) (7,000) (451,000)
Accounts payable, ac-
crued compensation and
other accrued liabili-
ties.................. 3,344,000 (520,000) 2,115,000 2,107,000 1,661,000
Other liabilities...... (60,000) 530,000 716,000 281,000 178,000
------------ ----------- ----------- ----------- -----------
Net cash provided by op-
erating activities..... 12,784,000 18,043,000 21,731,000 10,866,000 13,693,000
INVESTING ACTIVITIES
Equipment purchases..... (20,093,000) (10,243,000) (26,510,000) (14,360,000) (19,036,000)
Decrease in deposits on
equipment.............. 232,000 448,000 264,000 2,212,000 247,000
Purchase of contracts
and related assets of
Mobile M.R. Venture,
Ltd.................... -- -- (455,000) (455,000) --
Purchase of common stock
of Royal Medical Health
Services, Inc. and re-
lated assets, net of
cash acquired.......... -- -- (1,844,000) (1,844,000) --
Purchase of common stock
of Sun MRI Services,
Inc.,
net of cash acquired... -- -- (269,000) -- --
Purchase of contracts
and related assets of
West Coast
Mobile Imaging......... -- -- (90,000) -- --
Purchase of contracts
and related assets of
Advanced Healthcare Di-
agnostic Service, Inc.. -- (412,000) -- -- --
Purchase of MRI con-
tracts and related as-
sets of Pacific
Medical Imaging, Inc... -- -- -- -- (756,000)
Proceeds from sale of
investment............. -- -- 968,000 -- --
Proceeds from sale of
equipment.............. -- 2,418,000 -- -- --
------------ ----------- ----------- ----------- -----------
Net cash used in invest-
ing activities......... (19,861,000) (7,789,000) (27,936,000) (14,447,000) (19,545,000)
</TABLE>
(continued)
F-5
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Payment of preferred
stock dividends........ $ -- $ -- $ (1,594,000) $ (930,000) $ (471,000)
Purchase of senior sub-
ordinated debentures... -- -- (5,714,000) -- (2,286,000)
Partial prepayment of
senior notes........... -- -- (3,537,000) -- --
Repurchase of Series A
preferred stock........ -- -- (6,307,000) -- (2,523,000)
Principal payments on
long-term debt......... (11,141,000) (12,763,000) (13,630,000) (5,608,000) (9,190,000)
Proceeds from long-term
debt................... 12,276,000 11,116,000 23,889,000 10,227,000 18,123,000
Proceeds from senior
bridge loan............ -- -- 12,872,000 -- 5,128,000
Increase in deferred fi-
nancing charges........ -- (54,000) (76,000) (76,000) --
Proceeds from exercise
of employee stock op-
tions.................. -- 97,000 41,000 20,000 21,000
------------ ------------ ------------ ----------- -----------
Net cash provided by fi-
nancing activities..... 1,135,000 (1,604,000) 5,944,000 3,633,000 8,802,000
------------ ------------ ------------ ----------- -----------
Net increase (decrease)
in cash and short-term
investments............ (5,942,000) 8,650,000 (261,000) 52,000 2,950,000
Cash and short-term in-
vestments at beginning
of year................ 8,420,000 2,478,000 11,128,000 11,128,000 10,867,000
------------ ------------ ------------ ----------- -----------
Cash and short-term in-
vestments at end of
year................... $ 2,478,000 $ 11,128,000 $ 10,867,000 $11,180,000 $13,817,000
============ ============ ============ =========== ===========
<CAPTION>
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMA-
TION
<S> <C> <C> <C> <C> <C>
Cash paid during year
for:
Interest................ $ 8,690,000 $ 5,483,000 $ 5,562,000 $ 2,724,000 $ 3,727,000
Income Taxes............ 104,000 629,000 378,000 202,000 283,000
<CAPTION>
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net book value of assets
exchanged.............. 2,291,000 1,104,000 3,521,000 1,871,000 1,295,000
Issuance of common and
Series A preferred
stock in connection
with debt restructur-
ing.................... 18,125,000 -- -- -- --
Preferred Stock dividend
accrued................ -- 930,000 266,000 468,000 --
Excess of carrying
amount of preferred
stock repurchased over
consideration paid..... -- -- 1,764,000 -- 1,906,000
Conversion of senior
bridge loan into Series
D 4% convertible pre-
ferred stock........... -- -- -- -- 18,000,000
</TABLE>
During the 1996 second quarter, Alliance purchased all of the common stock
of Royal Medical Health Services, Inc. and related assets for cash
consideration of approximately $1,914,000. In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired.............................. $ 8,601,000
Cash paid for common stock................................. (1,914,000)
-----------
Liabilities assumed...................................... $ 6,687,000
===========
</TABLE>
As additional consideration for the above purchase, Alliance issued
convertible stock in the amount of $388,000 and common stock warrants valued
at $212,000. As a result of this transaction, Alliance recorded goodwill of
approximately $3,945,000.
During the 1996 third quarter, Alliance purchased all of the common stock of
Sun MRI Services, Inc. for cash consideration of approximately $391,000. In
connection with the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired............................... $1,602,000
Cash paid for common stock.................................. (391,000)
----------
Liabilities assumed....................................... $1,211,000
==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF PREFERRED STOCK,
COMMON STOCK, ADDITIONAL PAID-IN-CAPITAL
AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SERIES C
SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------ ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
-------- ------------ ------ ----------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- $ -- -- $ -- 7,114,371 $ 71,000 $29,356,000 $(14,518,000)
Issuance of common and
Series A preferred
stock in connection
with debt restructuring
(Note 5)............... 155,000 15,500,000 -- -- 3,500,000 35,000 2,457,000 --
Net loss for year ended
December 31, 1994...... -- -- -- -- -- -- -- (19,066,000)
-------- ------------ ------ ----------- ---------- -------- ----------- ------------
Balance at December 31,
1994................... 155,000 15,500,000 -- -- 10,614,371 106,000 31,813,000 (33,584,000)
Exercise of common stock
options................ -- -- -- -- 221,800 2,000 95,000 --
Preferred stock divi-
dends.................. -- 930,000 -- -- -- -- -- (930,000)
Net income for year
ended December 31,
1995................... -- -- -- -- -- -- -- 4,102,000
-------- ------------ ------ ----------- ---------- -------- ----------- ------------
Balance at December 31,
1995................... 155,000 16,430,000 -- -- 10,836,171 108,000 31,908,000 (30,412,000)
Payment of 1995 pre-
ferred stock dividends. -- (930,000) -- -- -- -- -- --
Exercise of common stock
options................ -- -- -- -- 77,217 1,000 39,000 --
Issuance of common stock
warrants in connection
with senior and subor-
dinated debt amendment. -- -- -- -- -- -- 259,000 --
Issuance of common stock
warrants in connection
with transfer and
amendment of senior
notes.................. -- -- -- -- -- -- 222,000 --
Issuance of Series C
preferred stock in
connection with
acquisition of Royal
Medical Health
Services, Inc.......... -- -- 3,876 388,000 -- -- -- --
Issuance of common stock
warrants in connection
with acquisition of
Royal Medical Health
Services, Inc.......... -- -- -- -- -- -- 212,000 --
Preferred stock divi-
dends.................. -- 930,000 -- -- -- -- -- (930,000)
Payment of 1996 pre-
ferred stock dividends. -- (664,000) -- -- -- -- -- --
Repurchase of Series A
preferred stock........ (110,714) (11,072,000) -- -- -- -- 1,764,000 --
Net income for year
ended December 31,
1996................... -- -- -- -- -- -- -- 12,801,000
-------- ------------ ------ ----------- ---------- -------- ----------- ------------
Balance at December 31,
1996................... 44,286 4,694,000 3,876 388,000 10,913,388 109,000 34,404,000 (18,541,000)
Exercise of common stock
options (unaudited).... -- -- -- -- 27,750 -- 21,000 --
Repurchase of Series A
redeemable preferred
stock (unaudited)...... (44,286) (4,694,000) -- -- -- -- 1,906,000 --
Transaction costs asso-
ciated with conversion
of senior bridge loan
into Series D preferred
stock (unaudited)...... -- -- -- -- -- -- (160,000) --
Conversion of senior
bridge loan into Series
D preferred stock (un-
audited)............... -- -- 18,000 18,000,000 -- -- -- --
Series C preferred stock
dividend (unaudited)... -- -- -- -- -- -- -- (14,000)
Series D preferred stock
dividend (unaudited)... -- -- -- -- -- -- -- (192,000)
Net income for the six
months ended June 30,
1997 (unaudited)....... -- -- -- -- -- -- -- 5,447,000
-------- ------------ ------ ----------- ---------- -------- ----------- ------------
Balance at June 30, 1997
(unaudited)............ -- $ -- 21,876 $18,388,000 10,941,138 $109,000 $36,171,000 $(13,300,000)
======== ============ ====== =========== ========== ======== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. DESCRIPTION OF ALLIANCE AND BASIS OF FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF ALLIANCE--Alliance Imaging, Inc. (Alliance) provides
outsourced radiology services and high technology diagnostic imaging systems
and related technical support services, as well as management and information
services, to hospitals and other healthcare providers. Diagnostic imaging
services are provided on both a mobile, shared-user basis as well as on a
full-time basis to single customers. Alliance operates entirely within the
United States and is one of the largest providers of magnetic resonance
imaging (MRI) and computed tomography (CT) services in the country. The
equipment used by Alliance is sophisticated and subject to accelerated
obsolescence in the event of significant technological change.
BASIS OF FINANCIAL STATEMENT PRESENTATION--The accompanying consolidated
financial statements include the accounts of Alliance Imaging, Inc. and its
consolidated subsidiaries. The accompanying unaudited consolidated financial
statements have been prepared by Alliance Imaging, Inc. in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of Alliance, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six month
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
DEBT RESTRUCTURING--Effective December 31, 1994, Alliance completed a
comprehensive debt restructuring with the holders of its senior notes and
senior subordinated debentures. The restructuring included a reduction in
interest rates, an exchange of a portion of the debentures for issuance of
redeemable preferred and common stock and the extension of the repayment terms
on all of the remaining debt. These transactions were accounted for as a
troubled debt restructuring. Supplemental loss per common share for the year
ended December 31, 1994, based on historical loss per share adjusted to give
effect to the issuance of common shares in exchange for debt in the debt
restructuring and a reduction of related interest expense assuming the
exchange had occurred on January 1, 1994, is ($1.77) based on 10,614,000
weighted average common shares outstanding.
SPECIAL CHARGES--During the fourth quarter of 1994, Alliance recorded
special charges totaling $13,339,000 related to an equipment exchange
transaction, the impairment of certain equipment, debt restructuring and
employee severances. Alliance entered into an agreement with one of its major
equipment vendors to exchange several older MRI scanners for more
technologically advanced scanners which had been refurbished. The fair value
of the assets received, net of related debt incurred, was less than the net
book value of the assets exchanged, resulting in a non-cash pre-tax charge of
$2,156,000. Alliance also evaluated the carrying values of all of its
remaining older mid-field mobile MRI scanners. An impairment analysis of these
scanners resulted in an $8,670,000 non-cash pre-tax charge to reduce the net
book values to their estimated current market value. Alliance then identified
assets to be held for sale or other disposition and recorded a non-cash pre-
tax charge of $1,831,000 to write these assets down to their estimated net
realizable value on disposition. In addition, Alliance recorded pre-tax
special charges of $440,000 related to debt restructuring and $242,000 for
employee severances.
F-8
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS--Alliance considers short-term investments
with original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE--Alliance provides shared and single-user diagnostic
imaging equipment and technical support services to the healthcare industry
and directly to patients on an outpatient basis. Substantially all of
Alliance's accounts receivable are due from hospitals, other healthcare
providers and health insurance providers located throughout the United States.
Services are generally provided pursuant to long-term contracts and directly
to patients, and generally collateral is not required. Receivables generally
are collected within industry norms for third-party payers. Credit losses are
provided for in the consolidated financial statements.
EQUIPMENT--Equipment is stated at cost and is generally depreciated using
the straight-line method over an initial estimated life of three to eight
years to an estimated residual value, generally approximating between five and
20 percent of original cost. If Alliance continues to operate the equipment
beyond its initial estimated life, the residual value is then depreciated to a
nominal salvage value over three years.
Routine maintenance and repairs are charged to expense as incurred. Major
repairs and purchased software and hardware upgrades, which extend the life or
add value to the equipment, are capitalized and depreciated over the remaining
useful life.
With the exception of a small amount of office furniture and equipment,
substantially all of the property owned by Alliance relates to diagnostic
imaging equipment, tractors and trailers used in the business.
GOODWILL--Alliance amortizes goodwill over a period of one to 25 years. For
acquired entities, the amortization period selected is primarily based upon
the estimated life of the customer contracts, including expected renewals, and
related other assets acquired, not to exceed 20 years. The Financial
Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", in March 1995. Statement 121 requires long-lived assets and certain
intangibles held and used by Alliance to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The recoverability test is to be performed at
the lowest level at which undiscounted net cash flows can be directly
attributable to long-lived assets. Alliance adopted Statement 121 in the first
quarter of 1996 with no material effect on Alliance's financial statements.
REVENUE RECOGNITION--The majority of Alliance's revenues are derived
directly from healthcare providers. To a lesser extent, revenues are generated
from direct billings to patients or their medical payers which are recorded
net of contractual discounts and other arrangements for providing services at
less than established patient billing rates. Net revenues from direct patient
billing amounted to approximately 13%, 10% and 8% of revenues in the years
ended December 31, 1994, 1995 and 1996, respectively. No single customer
accounted for 3% or more of consolidated revenues in each of the three years
in the period ended December 31, 1996. All revenues are recognized at the time
the service is performed.
INCOME TAXES--Alliance calculates deferred taxes and related income tax
expense using the liability method. This method determines deferred taxes by
applying the current tax rate to the cumulative temporary differences between
recorded carrying amounts and the corresponding tax basis of assets and
liabilities. A
F-9
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
valuation allowance is established for deferred tax assets unless their
realization is considered more likely than not. Alliance's provision for
income taxes is the sum of the change in the balance of deferred taxes between
the beginning and the end of the period plus income taxes currently payable.
INVESTMENT TAX CREDITS--Alliance accounts for investment tax credits under
the flow through method.
FAIR VALUES OF FINANCIAL INSTRUMENTS--FASB Statement No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimated cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of Alliance.
The following methods and assumptions were used by Alliance in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments--The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-term debt--The fair values of Alliance's long-term debt are estimated
using discounted cash flow analyses, based on Alliance's current incremental
rates for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of Alliance's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and short-term invest-
ments........................ $11,128,000 $11,128,000 $10,867,000 $10,867,000
Long-term debt................ 75,880,000 61,500,000 89,025,000 84,150,000
Redeemable preferred stock.... 16,430,000 (See Below) 4,694,000 2,788,000
</TABLE>
As more fully discussed in Note 4, Alliance has repurchased all of its
redeemable preferred stock. Alliance paid approximately $2,788,000 to retire
the December 31, 1996 balance and consequently believes $2,788,000 reasonably
approximates the fair value of its redeemable preferred stock balance at
December 31, 1996. The original fair value of Alliance's redeemable preferred
stock of $15,500,000 was determined by independent valuation consultants as of
December 31, 1994. Although it was not practicable to reevaluate the estimated
fair value of the preferred stock as of December 31, 1995 because of the lack
of a quoted market price and the inability to estimate fair value without
incurring excessive costs, Alliance believes the $16,430,000 carrying amount
at December 31, 1995, which represents the original fair value of the
preferred stock increased for the 1995 cumulative dividend, reasonably
approximates its fair value at that date.
F-10
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
EARNINGS PER COMMON SHARE--Earnings per common share have been computed
based on the weighted average number of shares outstanding during each year
and the assumed exercise of dilutive stock options and warrants less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of Alliance's common stock. The earnings per common share
for the six month periods ended June 30, 1997 and 1996 are based upon weighted
average common and common equivalent shares outstanding during the period. For
the six month period ended June 30, 1996 common equivalent shares include
vested stock options with exercise prices lower than current market value, as
well as the assumed conversion of the Series D convertible preferred stock
into common shares. Supplemental earnings per share for the six months ended
June 30, 1997 based on historical earnings per share adjusted assuming the
conversion of the senior bridge loan into Series D convertible preferred stock
had occurred on January 1, 1997 is $0.30 per share. This calculation ignores
amounts reported in the 1997 historical results as gain arising from the
repurchase of the senior subordinated debentures and as the earnings per share
benefit arising from the excess of carrying value of the preferred stock
repurchased over the consideration paid. Therefore, this supplemental earnings
per share calculation is the most comparable to the $0.31 per share "income
before items below" reported in Alliance's six months ended June 30, 1997
historical results of operations. In February 1997, the FASB issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, Alliance will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating basic earnings per share, the dilutive effect
of stock options, warrants and the Series D convertible preferred stock will
be excluded. The impact is expected to result in an increase to basic earnings
per share for the six months ended June 30, 1996 and 1997 of $0.01 and $0.05
per share, respectively.
3. INCOME TAXES
The provision for income taxes shown in the consolidated statements of
operations consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal................................. $ -- $ 960,000 $ 2,958,000
State................................... 120,000 970,000 735,000
---------- ----------- -----------
120,000 1,930,000 3,693,000
Utilization of net operating loss carryo-
vers..................................... -- (1,029,000) (2,649,000)
---------- ----------- -----------
120,000 901,000 1,044,000
Deferred:
Federal................................. 181,000 (181,000) --
State................................... 799,000 7,000 731,000
---------- ----------- -----------
980,000 (174,000) 731,000
---------- ----------- -----------
$1,100,000 $ 727,000 $ 1,775,000
========== =========== ===========
</TABLE>
F-11
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The provision for income taxes applicable to income before extraordinary
gains and attributed to the extraordinary gains is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- -------- ----------
<S> <C> <C> <C>
Provision for taxes on income before extraordi-
nary gains:
Current...................................... $ 120,000 $901,000 $ 329,000
Deferred..................................... 980,000 (174,000) 731,000
---------- -------- ----------
Total provision for taxes on income before ex-
traordinary gains............................. 1,100,000 727,000 1,060,000
Provision for taxes on extraordinary gains
(current)..................................... -- -- 715,000
---------- -------- ----------
$1,100,000 $727,000 $1,775,000
========== ======== ==========
</TABLE>
Significant components of Alliance's deferred tax assets and (liabilities)
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred Tax Liabilities:
Equipment basis differences......................... $(10,738,000) $(12,981,000)
Cancellation of indebtedness........................ -- (2,258,000)
------------ ------------
Total deferred tax liabilities.................... (10,738,000) (15,239,000)
Deferred Tax Assets:
Net operating losses................................ 12,549,000 9,900,000
Cancellation of indebtedness........................ 3,265,000 --
Accounts receivable................................. 266,000 266,000
Basis differences associated with other assets...... 1,015,000 2,105,000
Other............................................... 1,174,000 330,000
------------ ------------
Total deferred tax assets......................... 18,269,000 12,601,000
Valuation allowance................................. (8,631,000) (2,193,000)
------------ ------------
Net deferred tax assets........................... 9,638,000 10,408,000
------------ ------------
Net deferred taxes.................................. (1,100,000) (4,831,000)
Current deferred tax liability...................... 310,000 --
------------ ------------
Noncurrent deferred tax liability................... $ (790,000) $ (4,831,000)
============ ============
</TABLE>
The net change in Alliance's valuation allowance on deferred tax assets
during the year ended December 31, 1996 totaled $4,664,000 and $1,774,000 for
federal and state purposes, respectively.
At December 31, 1996, for federal regular income tax purposes, Alliance had
approximately $26,400,000 of operating loss carryovers expiring through 2006.
Due to a change in ownership in November 1991, utilization of $19,700,000 of
these net operating losses is subject to an annual limitation of approximately
$2,200,000. Any unutilized annual limitation may be carried forward to future
years. The annual limitation may be increased if built-in gains which existed
on the date of the change in ownership are recognized by sale or other
disposal of equipment. As a result of these limitations, Alliance has
approximately $6,700,000 of operating loss carryovers available in 1997 for
federal regular income tax purposes. Future changes in the ownership of
Alliance could result in additional limitations on the utilization of its
operating loss carryovers.
F-12
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
A reconciliation of the expected total provision for income taxes, computed
using the federal statutory rate on income before extraordinary gains, is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected provision
(benefit).......................... $(6,288,000) $ 1,690,000 $ 2,646,000
State income taxes, net of federal
benefit............................ 919,000 313,000 572,000
Amortization of goodwill............ 310,000 458,000 487,000
Alternative minimum tax............. 181,000 34,000 182,000
Increase (decrease) in valuation
allowance on federal deferred
tax assets......................... 5,936,000 (1,710,000) (2,798,000)
Other............................... 42,000 (58,000) (29,000)
----------- ----------- -----------
$ 1,100,000 $ 727,000 $ 1,060,000
=========== =========== ===========
4. INDEBTEDNESS
Long-term debt consisted of the following at December 31:
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Obligations to lending institutions, secured by
equipment, due in monthly installments through
December 2001 with weighted average interest
rates of 9.62% and 9.77% at December 31, 1995
and 1996, respectively......................... $32,547,000 $51,695,000
Senior notes, secured by equipment (see below).. 26,700,000 19,866,000
Senior bridge loan, due March 31, 1997 if not
converted into preferred stock (see below),
interest at 10% payable at maturity............ -- 12,872,000
Senior subordinated debentures, unsecured, due
in quarterly installments through 2005 with an
effective interest rate of 0% (7.5% stated
interest rate)................................. 16,633,000 4,592,000
----------- -----------
75,880,000 89,025,000
Less current portion............................ 9,948,000 16,323,000
----------- -----------
$65,932,000 $72,702,000
=========== ===========
</TABLE>
Installment obligations to lending institutions and the senior notes are
collateralized by equipment with a net book value of $77,339,000 at December
31, 1996.
On December 31, 1996, Alliance entered into a Bridge Loan Agreement
(enabling Alliance to borrow up to $18,000,000) and borrowed $12,872,000 under
a senior bridge loan; an additional $5,128,000 was borrowed on January 2,
1997. The senior bridge loan is convertible into 18,000 shares of a new Series
D convertible preferred stock (see Note 5). On December 31, 1996, Alliance
used the proceeds of the senior bridge loan to repurchase $11,345,000 carrying
value of its senior subordinated debentures (debentures) and $11,071,000 of
its Series A redeemable preferred stock at a discount (plus related accrued
interest and dividends). As a result, in the fourth quarter of 1996, Alliance
recorded an extraordinary gain of $4,935,000, net of taxes of $560,000, from
this early extinguishment of debt. In addition, the excess of carrying amount
of preferred stock repurchased over consideration paid and other charges
amounted to $1,764,000, which has been recognized as an increase in additional
paid-in capital. In connection with this transaction, on January 2, 1997,
Alliance used the additional senior bridge loan proceeds to repurchase the
remaining balance of its debentures and Series A redeemable preferred stock at
a discount (plus related accrued interest and dividends). Accordingly, in
January 1997, Alliance
F-13
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
recorded an extraordinary gain of $1,332,000, net of taxes of $920,000, from
this early extinguishment of debt. The excess of carrying amount of preferred
stock repurchased over consideration paid in January 1997 amounted to
$1,906,000.
On March 26, 1997, the holder of the senior bridge loan exercised its option
to convert the senior bridge loan into 18,000 shares of Series D convertible
preferred stock. At that time, senior notes not to exceed $9,000,000 held by
the same lender become convertible into a new Series E preferred stock on or
after January 1, 1998 (see Note 5). Supplemental earnings per share for the
year ended December 31, 1996, based on historical earnings per share adjusted
to give effect to (1) the issuance of the Series D preferred stock, and (2)
the use of the $18 million proceeds therefrom on a pro rata basis to
repurchase the debentures and Series A redeemable preferred stock repurchased
in December 1996 and January 1997, and assuming the transactions had occurred
on January 1, 1996, is $0.45 per share. This calculation ignores amounts
reported in the historical results for 1996 as gains arising from the
repurchase of the senior notes and debentures and as the earnings per share
benefit arising from the excess of the carrying value of the preferred stock
repurchased over the consideration paid. Therefore, this supplemental earnings
per share calculation is most comparable to the $0.48 per share "income before
items below" reported in Alliance's 1996 historical results of operations.
In November 1996, Alliance arranged for the sale of all of its senior notes
by the original holders to new owners. In connection with the sale, Alliance
prepaid $5,300,000 of the senior notes at a discount and recorded an
extraordinary gain of $1,365,000, net of taxes of $155,000, from this early
extinguishment of debt. In addition, the new holders and Alliance agreed to
remove or modify various restrictive covenants contained in the note purchase
agreement governing the senior notes. The amended senior notes bear interest
at a stated annual rate of 7.5%, with interest payable monthly, and require
minimum mandatory quarterly principal payments of $150,000 in 1997 increasing
to $1,800,000 in 2003. Alternatively, Alliance may make voluntary monthly
principal and interest payments of $335,000 through October 2002 to fully
retire the notes. Alliance may also prepay the notes at any month end at
specified discounts from their face amount. The senior notes agreement
contains limitations on equipment additions, incurrence of debt and other
similar items.
The carrying amount of long-term debt as of December 31, 1996 is due as
follows (assuming voluntary prepayments of Alliance's senior notes, and
excluding the senior bridge loan, which was converted to preferred stock in
March 1997, and the debentures refinanced thereby):
<TABLE>
<S> <C>
Year ending December 31:
1997...................................................... $16,323,000
1998...................................................... 17,263,000
1999...................................................... 14,914,000
2000...................................................... 11,403,000
2001...................................................... 8,097,000
2002...................................................... 3,561,000
-----------
$71,561,000
===========
</TABLE>
Of Alliance's total indebtedness at December 31, 1996, $83,552,000 is an
obligation of Alliance and $5,473,000 is an obligation of Alliance's
consolidated subsidiaries.
F-14
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Alliance has a $3 million revolving line of credit with a bank. The line
bears interest at the bank's prime rate (8.5% at December 31, 1995 and 8.25%
at December 31, 1996) plus two percent, with a commitment fee of 0.375% per
year on the unused balance, and is secured by substantially all of Alliance's
accounts receivable. The line of credit had not been utilized through December
31, 1996.
5. PREFERRED AND COMMON STOCK
PREFERRED STOCK--Alliance is authorized to issue 1,000,000 shares of
preferred stock, undesignated as to series. The Board of Directors has the
authority to establish the voting powers, designations, preferences and other
special rights for each series of preferred stock issued.
In connection with Alliance's debt refinancing effective December 31, 1996
(see Note 4), Alliance authorized 18,000 shares of a new Series D convertible
preferred stock and 9,000 shares of a new Series E convertible preferred
stock. The holders of the Series D and E convertible preferred stock, when
issued, are entitled to receive cumulative dividends at the rate of 4% per
annum of the stated liquidation value (subject to increase, to a maximum of
8%, under certain circumstances). Unpaid dividends accumulate and are payable
quarterly by Alliance in cash. Shares of Series D convertible preferred stock
are convertible at the option of the holder at any time on or before December
31, 2006 into shares of common stock at a conversion price of $6.00 per common
share, subject to adjustment. Shares of Series E convertible preferred stock
are convertible at the option of the holder at any time on or before December
31, 2006 into shares of common stock at a conversion price of the greater of
$6.00 per share of common stock or the market price (as defined) per common
share at date of issuance of the Series E convertible preferred stock. Shares
of Series D and E convertible preferred stock are subject to redemption at the
option of Alliance after December 31, 2006.
In connection with the Royal acquisition (Note 8), Alliance issued 3,876
shares of a new Series C convertible preferred stock. The Series C convertible
preferred stock bears a dividend of 5% of its original liquidation value
($388,000) payable annually in cash and is redeemable at Alliance's option.
Holders of Series C convertible preferred stock may convert their stock into
common stock at a price of $5.00 per common share.
In the event of liquidation, dissolution or winding up of Alliance, the
holders of Series C, D and E convertible preferred stock shall be entitled to
receive an amount equal to the stated liquidation value per share (plus
accumulated but unpaid dividends) prior to any distributions to common
stockholders. No sinking fund has been or will be established for the
retirement or redemption of shares of Series C, D or E convertible preferred
stock.
The holders of shares of preferred stock are not entitled to any voting
rights with respect to any matters voted upon by the common stockholders.
However, a majority of preferred stockholders (with each series voting as a
single class) must approve certain corporate transactions including the
authorization of additional classes or series of stock ranking prior to their
stock, any increase in the number of authorized shares of their preferred
stock series, any amendment to the terms of such preferred stock series and
similar actions.
STOCK OPTIONS AND AWARDS--Alliance has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of Alliance's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-15
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Alliance's 1991 Stock Option Plan provides that up to 2,000,000 shares may
be granted to management and key employees. Options are granted at their fair
market value at the date of grant. All options granted have 10 year terms and
vest and become fully exercisable at the end of three to four years of
continued employment. The weighted-average remaining contractual life of
options outstanding as of December 31, 1996 is 9.6 years. The following table
summarizes the activity under this plan.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding at December 31, 1993................ 509,000 $3.5423
Granted....................................... 738,400 0.4375
Canceled...................................... (505,000) 3.5535
-------- -------
Outstanding at December 31, 1994................ 742,400 0.4375
Granted....................................... 32,000 2.1172
Exercised..................................... (221,800) 0.4375
Canceled...................................... (11,600) 0.4375
-------- -------
Outstanding at December 31, 1995................ 541,000 0.5369
Granted....................................... 489,200 3.5625
Exercised..................................... (77,217) 0.5151
Canceled...................................... (2,000) 1.6875
-------- -------
Outstanding at December 31, 1996................ 950,983 $2.0926
======== =======
</TABLE>
At December 31, 1996, 430,700 of these options were exercisable at $0.4375,
121,050 were exercisable at $3.5625, and 12,667 were exercisable at prices
between $1.6875 and $2.375.
In 1991, options for 30,000 shares not covered by the 1991 Stock Option Plan
were granted to three non-employee directors at an exercise price of $8.25 per
share. In 1993, options for 40,000 shares were granted at exercise prices
ranging from $1.125 to $2.50 per share. In 1995, options for an additional
10,000 shares were granted at an exercise price of $1.6875 per share. These
options vest over a four year period. At December 31, 1996, options for 40,000
shares had been canceled and options for 30,000 shares were exercisable.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if Alliance has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated as of the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996: risk-free interest rate of 5.72%; no dividend yield;
volatility factor of the expected market price of Alliance's common stock of
.43; and a weighted-average expected life of the option of seven years. The
weighted-average fair value of options granted during 1996 is $1.93.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Alliance's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-16
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' maximum vesting period.
Alliance's pro forma information for the year ended December 31, 1996 follows:
<TABLE>
<S> <C>
Pro forma net income........................................ $12,577,000
Pro forma earnings per share................................ $1.17
</TABLE>
At December 31, 1996 Alliance had 328,900 warrants outstanding to purchase
common stock with exercise prices ranging from $2.50 to $5.00 per share over
terms of three to ten years. The weighted-average grant-date fair value of the
warrants was $2.13.
6. COMMITMENTS
Alliance has contracts with its equipment vendors for comprehensive
maintenance and cryogen coverage for its MRI and CT systems. The contracts are
between one and five years and extend through December 2001, but may be
canceled by Alliance under certain circumstances. Contract payments are
approximately $9,200,000 per year. At December 31, 1996, Alliance had binding
equipment purchase commitments totaling approximately $29,200,000.
Alliance leases office and warehouse space and certain equipment under non-
cancelable operating leases. The office and warehouse leases generally call
for minimum monthly payments plus maintenance and inflationary increases. The
future minimum payments under such leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997....................................................... $1,478,000
1998....................................................... 960,000
1999....................................................... 668,000
2000....................................................... 141,000
2001....................................................... 34,000
----------
$3,281,000
==========
</TABLE>
Alliance's total rental expense, which includes short-term equipment
rentals, for the years ended December 31, 1994, 1995 and 1996 was $2,781,000,
$1,923,000 and $3,380,000, respectively.
7. 401(K) SAVINGS PLAN
Alliance established a 401(k) Savings Plan in January 1990. All employees of
Alliance are eligible to participate after a six month waiting period.
Employees may contribute between 1% and 15% of their annual compensation.
Alliance matches 33.3 cents for every dollar of employee contributions up to
7% of their compensation, subject to the limitations imposed by the Internal
Revenue Code. Alliance may also make discretionary contributions depending on
profitability. Alliance incurred and charged to expense $119,000, $140,000 and
$157,000 during 1994, 1995 and 1996, respectively, related to the plan.
8. ACQUISITION
On April 26, 1996, Alliance acquired all of the outstanding shares of Royal
Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania. Like
Alliance, Royal is a provider of comprehensive MRI services. Alliance issued
3,876 shares of Series C convertible preferred stock valued at $388,000,
common stock warrants valued
F-17
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
at $212,000, and paid $1,914,000 in cash as consideration for the acquisition
of Royal and certain related assets. The acquisition has been accounted for as
a purchase and, accordingly, the results of operations of Royal have been
included in Alliance's consolidated financial statements from the date of
acquisition.
The unaudited pro forma information below presents combined results of
operations as if the Royal acquisition had occurred at the beginning of the
respective periods presented. The unaudited pro forma information is not
necessarily indicative of the results of operations of the combined company
had the acquisition actually occurred at the beginning of the periods
presented, nor is it necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues.......................................... $63,621,000 $70,518,000
Income before extraordinary gains................. 4,492,000 6,487,000
Net income........................................ 4,492,000 12,787,000
Earnings per share:
Income before extraordinary gains................ $ 0.32 $ 0.48
Income applicable to common stock................ 0.32 1.18
</TABLE>
9. SUBSEQUENT EVENT
On July 23, 1997, Alliance entered into an Agreement and Plan of Merger (the
"Recapitalization Merger Agreement"). Under the terms of the Recapitalization
Merger Agreement, an entity formed by affiliates of Apollo Management, L.P.
(collectively, "Apollo") will merge with and into Alliance (the
"Recapitalization"). Each share of Alliance common stock, par value $.01 per
share, issued and outstanding immediately prior to the effective time of the
Recapitalization, other than dissenting shares, either (1) will be converted
into the right to receive $11.00 in cash or (2) will be retained by such
stockholder. The Recapitalization Merger Agreement requires that 727,273
shares in the aggregate of common stock be retained by Alliance's existing
shareholders; therefore, the right to receive either $11.00 in cash for each
share or to retain that share of Alliance common stock is subject to
proration. Additionally, in connection with the Recapitalization and subject
to certain conditions, Alliance will acquire all the shares of common stock of
a new holding company formed by Apollo to acquire (the "SMT Acquisition") SMT
Health Services Inc. ("SMT").
The proposed Recapitalization is subject to stockholder approval. However,
pursuant to a Stockholder Agreement, stockholders representing beneficial
ownership of not less than 54.4% of Alliance common stock (the "Stockholders")
have agreed to vote all shares beneficially owned by them in favor of the
approval of the Recapitalization Merger Agreement and the Recapitalization and
to convert or exercise all securities they hold that are convertible into or
exercisable for shares of Alliance common stock prior to the time of the
special meeting of shareholders called in connection with the
Recapitalization. In addition, each Stockholder has granted to Apollo an
option to acquire their shares of common stock, and a proxy to vote such
shares in favor of the Recapitalization and the SMT Acquisition. At the
closing of the Recapitalization and the SMT Acquisition, significant new
sources of financing will be provided to Alliance for the purchase of shares
of common stock in the Recapitalization, repayment of indebtedness, and for
working capital purposes, among other uses.
SMT, like Alliance, is a provider of comprehensive MRI services. Upon
consummation of the SMT Acquisition, SMT will become an indirect wholly owned
subsidiary of Alliance, with Apollo to receive 3,181,818 shares of Alliance
common stock valued at approximately $33.6 million in connection with the SMT
F-18
<PAGE>
ALLIANCE IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Acquisition. In addition, Alliance will assume and refinance approximately $55
million of SMT's debt. The acquisition will be accounted for as a purchase
and, accordingly, results of operations of SMT will be included in the
Company's consolidated financial statements from the date of acquisition. The
excess of the purchase price over the fair value of the net tangible assets
acquired, substantially all of which is expected to be accounted for as
goodwill, is estimated to total approximately $53 million and will be
amortized over a 20 year life.
After the consummation of the Recapitalization, the Company will adopt a new
employee stock option plan pursuant to which options (the "New Options") with
respect to a total of 527,272 shares of Alliance common stock (the "New Option
Shares") will be available for grant. The New Option Shares will be allocated
in amounts agreed upon between Apollo and the Company. Of the New Option
Shares, 50% will vest in equal increments over four years ending on the fourth
anniversary of the last day of the consummation of the Recapitalization. The
remaining 50% will vest upon attainment by the Company of certain per-share
equity targets. Vesting of New Options occurs only during an employee's term
of employment. The exercise price for the New Options is expected to be at the
fair market value at a grant date (i.e., $11.00 per share at the consummation
of the Recapitalization)."
As a part of the new financing to be provided, Alliance plans to sell $170
million of Senior Subordinated Notes (the "Notes") in an underwritten public
offering. The Notes are to be unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, by all significant direct and
indirect consolidated subsidiaries of Alliance, which consist of Royal Medical
Health Services, Inc., Alliance Imaging of Central Georgia, Inc. and SMT
Acquisition Corp., a newly formed corporation established by Apollo to effect
its acquisition of SMT, which is expected to be acquired by Alliance in
exchange for 3,181,818 shares of Alliance common stock prior to the issuance
of the Notes. The consolidated financial statements of SMT as of December 31,
1995 and 1996 and June 30, 1997 (unaudited) and for each of the three years in
the period ended December 31, 1996 and the six month periods ended June 30,
1996 and 1997 (unaudited) are presented elsewhere herein. Combined summarized
financial information for Royal Medical Health Services, Inc. and Alliance
Imaging of Central Georgia, Inc. is set forth below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Current assets........................................... $ -- $ 131 $ 127
Noncurrent assets........................................ 1,450 8,163 8,269
------ ------ ------
Total assets........................................... $1,450 $8,294 $8,396
====== ====== ======
Current liabilities...................................... $ -- $1,621 $1,648
Noncurrent liabilities................................... 641 4,238 3,535
Equity................................................... 809 2,435 3,213
------ ------ ------
Total liabilities and equity........................... $1,450 $8,294 $8,396
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------- -----------
1994 1995 1996 1996 1997
---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $408 $558 $7,142 $569 $3,702
Costs and expenses................................ 183 225 5,676 400 3,025
---- ---- ------ ---- ------
Operating margin.................................. 225 333 1,466 169 677
Provision for income taxes........................ 14 50 205 28 231
---- ---- ------ ---- ------
Net income........................................ $211 $283 $1,261 $141 $ 446
==== ==== ====== ==== ======
</TABLE>
The Company's non-guarantor subsidiaries are inconsequential.
F-19
<PAGE>
ALLIANCE IMAGING, INC.
QUARTERLY FINANCIAL DATA
Summarized quarterly unaudited financial data for the years ended December
31, 1995 and 1996, and the six month period ended June 30, 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
JUNE 30,
MARCH 31, 1995 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues................ $14,481,000 $14,766,000 $15,058,000 $13,760,000
Operating expenses,
excluding depreciation. 7,169,000 7,148,000 7,121,000 6,904,000
Depreciation expense.... 2,992,000 3,024,000 3,074,000 3,112,000
Selling, general and
administrative
expenses............... 1,542,000 1,597,000 1,549,000 1,606,000
Amortization expense,
primarily goodwill..... 331,000 332,000 340,000 342,000
Interest expense, net... 1,254,000 1,349,000 1,273,000 1,177,000
Income before income
taxes.................. 1,193,000 1,316,000 1,701,000 619,000
Net income.............. 1,021,000 1,112,000 1,447,000 522,000
Earnings per common
share:.................
Net income per common
share................ $ 0.07 $ 0.08 $ 0.11 $ 0.02
=========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding..... 10,881,000 11,202,000 11,267,000 11,283,000
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
JUNE 30,
MARCH 31, 1996 1996 SEPTEMBER 30, 1996 DECEMBER 31, 1996
-------------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues................ $14,686,000 $16,616,000 $17,795,000 $19,385,000
Operating expenses,
excluding depreciation. 7,181,000 7,838,000 8,530,000 8,795,000
Depreciation expense.... 2,866,000 3,182,000 3,122,000 3,567,000
Selling, general and
administrative
expenses............... 1,507,000 1,653,000 1,719,000 3,251,000
Amortization expense,
primarily goodwill..... 344,000 401,000 564,000 643,000
Interest expense, net... 1,185,000 1,498,000 1,501,000 1,574,000
Income before income
taxes and extraordinary
gains.................. 1,603,000 2,044,000 2,359,000 1,555,000
Extraordinary gains, net
of taxes............... -- -- -- 6,300,000
Net income.............. 1,364,000 1,738,000 1,949,000 7,750,000
Earnings per common
share:
Income before items
below................ $ 0.10 $ 0.13 $ 0.15 $ 0.10
Excess of carrying
amount of preferred
stock repurchased
over consideration
paid................. -- -- -- 0.15
----------- ----------- ----------- -----------
Income before
extraordinary gains.. 0.10 0.13 0.15 0.25
Extraordinary gains,
net.................. -- -- -- 0.55
----------- ----------- ----------- -----------
Income applicable to
common stock......... $ 0.10 $ 0.13 $ 0.15 $ 0.80
=========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding..... 11,309,000 11,522,000 11,558,000 11,560,000
=========== =========== =========== ===========
</TABLE>
F-20
<PAGE>
ALLIANCE IMAGING, INC.
QUARTERLY FINANCIAL DATA--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30,
MARCH 31, 1997 1997
-------------- -----------
<S> <C> <C>
Revenues............................................ $19,106,000 $20,805,000
Operating expenses, excluding depreciation.......... 8,681,000 9,134,000
Depreciation expense................................ 3,485,000 3,659,000
Selling, general and administrative expenses........ 1,897,000 2,093,000
Amortization expense, primarily goodwill............ 571,000 594,000
Interest expense, net............................... 1,933,000 1,624,000
Income before income taxes and extraordinary gain... 2,539,000 3,701,000
Extraordinary gain, net of taxes.................... 1,332,000 --
Net income.......................................... 3,036,000 2,411,000
Earnings per common share:
Income before items below......................... $ 0.14 $ 0.16
Excess of carrying amount of preferred stock
repurchased over consideration paid.............. 0.16 --
----------- -----------
Income before extraordinary gain.................. 0.30 0.16
Extraordinary gain, net........................... 0.11 --
----------- -----------
Income applicable to common stock................. $ 0.41 $ 0.16
=========== ===========
Weighted average common and common equivalent shares
outstanding........................................ 11,985,000 14,934,000
=========== ===========
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SMT Health Services Inc.:
We have audited the accompanying consolidated balance sheets of SMT Health
Services Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1996. These consolidated financial statements are the responsibility of
SMT's management. Our responsibility is to express an opinion on these
consolidated 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 SMT Health
Services Inc. and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick llp
Pittsburgh, Pennsylvania
January 31, 1997, except as to
Note 18 which is as of March 4,
1997
F-22
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents--
unrestricted.......................... $ 2,341,519 $ 4,643,158 $13,513,262
Cash and cash equivalents--restricted
(Note 10)............................. 1,600,000 400,000 400,000
Accounts receivable--no allowance for
doubtful accounts..................... 1,059,567 1,726,442 2,127,781
Notes receivable--current portion...... 47,760 52,240 26,706
Receivable from the sale of leases
secured by equipment--current portion
(Note 3).............................. 342,789 387,999 284,640
Other current assets................... 249,961 615,257 367,244
----------- ----------- -----------
Total current assets................. 5,641,596 7,825,096 16,719,633
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Equipment.............................. 174,556 200,709 203,779
Furniture and fixtures................. 59,712 43,055 53,217
Vehicles............................... 125,103 162,915 223,611
Leasehold improvements................. 27,915 28,495 32,995
Mobile MRI equipment................... 22,167,551 35,932,207 41,773,266
----------- ----------- -----------
Total property and equipment......... 22,554,837 36,367,381 42,286,868
Less accumulated depreciation and
amortization.......................... (6,613,759) (6,734,353) (9,798,183)
----------- ----------- -----------
Property and equipment, net.......... 15,941,078 29,633,028 32,488,685
----------- ----------- -----------
OTHER ASSETS:
Notes receivable--noncurrent........... 52,240 -- --
Receivable from the sale of leases
secured by equipment--noncurrent
(Note 3).............................. 878,590 490,591 385,403
Contract and license acquisition
costs, net of accumulated
amortization of $788,000, $889,000
and $129,000, respectively............ 109,260 631,933 590,353
Deposits and other assets.............. 506,041 594,915 552,241
Deferred income taxes, net of
valuation allowance of $103,000 at
December 31, 1995 (Note 4)............ 219,000 322,000 --
----------- ----------- -----------
Total other assets................... 1,765,131 2,039,439 1,527,997
----------- ----------- -----------
TOTAL ASSETS............................ $23,347,805 $39,497,563 $50,736,315
=========== =========== ===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 270,277 $ 363,682 $ 887,543
Accrued wages and related taxes......... 57,823 111,664 117,498
Current portion of long-term debt and
capital lease obligations.............. 4,380,930 6,349,962 5,927,827
Other current liabilities............... 527,217 412,748 1,103,576
----------- ----------- -----------
Total current liabilities............. 5,236,247 7,238,056 8,036,444
----------- ----------- -----------
Deferred tax liability................... -- -- 173,000
Long-term debt and capital lease
obligations--less current portion....... 12,709,905 20,859,964 17,152,347
----------- ----------- -----------
Total liabilities..................... 17,946,152 28,098,020 25,361,791
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
authorized 10,000,000 shares; issued
and outstanding 2,654,400, 3,695,030
and 5,746,300, respectively............ 26,544 36,950 57,463
Cumulative convertible preferred stock;
$0.01 par value; authorized 994,600
shares; no shares issued and
outstanding............................ -- -- --
Additional paid-in capital (Note 5)..... 6,636,070 12,081,614 24,576,612
Retained earnings (accumulated
deficit)............................... (1,260,961) (719,021) 740,449
----------- ----------- -----------
Total stockholders' equity............ 5,401,653 11,399,543 25,374,524
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $23,347,805 $39,497,563 $50,736,315
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenue........ $13,235,019 $15,020,428 $19,021,954 $8,724,606 $13,014,262
Interest income........ 47,166 137,417 190,399 84,270 274,603
----------- ----------- ----------- ---------- -----------
Total revenues....... 13,282,185 15,157,845 19,212,353 8,808,876 13,288,865
----------- ----------- ----------- ---------- -----------
COSTS AND EXPENSES:
Operating expenses-
third parties......... 5,054,997 5,216,121 6,279,915 2,890,727 4,152,758
Operating expenses-
lease expenses-re-
lated parties......... 837,000 180,000 -- -- --
Depreciation and amor-
tization.............. 3,163,606 3,679,246 4,724,909 2,108,997 3,193,672
Selling, general and
administrative........ 1,894,037 2,472,023 2,877,421 1,373,233 1,907,332
Professional fees re-
lated to acquisition
(Note 20)............. -- -- -- -- 220,000
Interest-third par-
ties.................. 239,193 1,671,013 2,005,429 946,443 1,012,762
Interest-related par-
ties.................. 1,398,363 86,538 35,818 -- 66,871
Other (Note 17)........ -- -- (300,000) -- --
----------- ----------- ----------- ---------- -----------
Total costs and ex-
penses.............. 12,587,196 13,304,941 15,623,492 7,319,400 10,553,395
----------- ----------- ----------- ---------- -----------
Income from continuing
operations before in-
come taxes, minority
interests, gain on sale
and extraordinary item. 694,989 1,852,904 3,588,861 1,489,476 2,735,470
Minority interests in
earnings of subsidiar-
ies (Note 14).......... 59,231 49,906 -- -- --
----------- ----------- ----------- ---------- -----------
Income from continuing
operations before in-
come taxes, gain on
sale and extraordinary
item................... 635,758 1,802,998 3,588,861 1,489,476 2,735,470
Gain on sale of partner-
ship interests......... -- 48,219 -- -- --
----------- ----------- ----------- ---------- -----------
Income from continuing
operations before in-
come taxes and extraor-
dinary item............ 635,758 1,851,217 3,588,861 1,489,476 2,735,470
Income taxes (Note 4)... 93,500 478,000 1,178,000 469,000 1,095,000
----------- ----------- ----------- ---------- -----------
Income from continuing
operations before
extraordinary item..... 542,258 1,373,217 2,410,861 1,020,476 1,640,470
----------- ----------- ----------- ---------- -----------
Discontinued operations:
Loss on disposal of
discontinued opera-
tions, net of tax
benefit of $102,000
and $68,000 in 1995
and 1994, respective-
ly.................... (132,000) (198,000) -- -- --
Extraordinary item,
debt forgiveness, net
of income tax expense
of $102,000........... -- 198,000 -- -- --
----------- ----------- ----------- ---------- -----------
(132,000) -- -- -- --
----------- ----------- ----------- ---------- -----------
Income before extraordi-
nary item.............. 410,258 1,373,217 2,410,861 1,020,476 1,640,470
Extraordinary loss on
early extinguishment of
debt
(net of income tax ben-
efit of $115,000) (Note
19).................... -- -- -- -- 181,000
----------- ----------- ----------- ---------- -----------
Net income.............. $ 410,258 $ 1,373,217 $ 2,410,861 $1,020,476 $ 1,459,470
=========== =========== =========== ========== ===========
Earnings (Loss) per com-
mon share (Note 2):
Primary:
Continuing operations
before extraordinary
item.................. $ .20 $ .46 $ .61 $ .27 $ .30
Discontinued opera-
tions before extraor-
dinary item........... (.05) -- -- -- --
Extraordinary loss per
share (Note 19)....... -- -- -- -- (.03)
----------- ----------- ----------- ---------- -----------
Earnings per common
share.................. $ .15 $ .46 .61 $ .27 $ .27
=========== =========== =========== ========== ===========
Fully diluted:
Continuing operations
before extraordinary
item.................. $ .20 $ .46 $ .59 $ .27 $ .30
Discontinued opera-
tions before extraor-
dinary item........... (.05) -- -- -- --
Extraordinary loss per
share (Note 19)....... -- -- -- -- (.03)
----------- ----------- ----------- ---------- -----------
Earnings per common
share.................. $ .15 $ .46 $ .59 $ .27 $ .27
=========== =========== =========== ========== ===========
Weighted average shares
outstanding (Note 2)... 2,705,400 2,770,230 3,232,505 2,919,000 5,081,000
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ---------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income from
continuing
operations............ $ 542,258 $1,373,217 $2,410,861 $1,020,476 $1,459,470
Adjustments to
reconcile net income
from continuing
operations to net
cash provided by
continuing operating
activities:
Extraordinary loss on
early extinguishment
of debt............. -- -- -- -- 296,000
Depreciation and
amortization........ 3,163,606 3,679,246 4,724,909 2,108,997 3,193,672
Negative amortization
on capital lease
obligations......... 51,017 5,521 -- -- --
Minority interests in
subsidiaries........ 59,231 49,906 -- -- --
Deferred income tax
expense............. 48,500 288,000 1,288,000 359,000 740,000
Gain on sale of
partnership
interests........... -- (48,219) -- -- --
Other................ 110,658 10,467 -- -- --
Changes in assets and
liabilities of
continuing
operations:
Accounts and notes
receivable.......... 143,231 17,705 (544,660) (244,708) (375,805)
Other current assets. (72,347) 12,182 (470,751) (179,106) 248,013
Accounts payable and
other............... (14,348) 143,049 (21,064) (53,075) 1,214,689
Accrued wages and
related taxes....... 8,073 10,134 53,841 12,866 5,834
---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY
CONTINUING OPERATING
ACTIVITIES............. 4,039,879 5,541,208 7,441,136 3,024,450 6,781,873
---------- ---------- ---------- ---------- ----------
NET CASH USED IN
DISCONTINUED OPERATING
ACTIVITIES............. (410,108) (64,264) -- -- --
---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES... 3,629,771 5,476,944 7,441,136 3,024,450 6,781,873
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:..
Purchase of
equipment........... (234,833) (269,354) (2,977,334) (1,389,258) (2,983,426)
Construction of
leasehold
improvements........ -- -- -- (1,330) (4,500)
Payment for purchase
of acquired
entities, net of
cash acquired....... (44,000) (642,840) (642,840) --
Net change in cash
restricted for
equipment financing
purposes............ (270,000) (1,131,500) 1,200,000 330,000 --
Net cash received for
sale of partnership
interests........... -- 122,854 -- -- --
Net cash received for
sale of discontinued
entities............ 380,183 110,000 -- -- --
Other................ (92,496) (212,409) (146,472) 66,450 12,036
---------- ---------- ---------- ---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES... (261,146) (1,380,409) (2,566,646) (1,636,978) (2,975,890)
---------- ---------- ---------- ---------- ----------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments
under long-term debt
and capital leases:
Continuing
operations:
Third parties...... (633,485) (3,241,524) (4,735,551) (2,113,318) (2,569,987)
Related parties.... (2,593,808) (329,627) (64,329) -- (124,153)
Discontinued
operations:
Third parties...... (254,612) -- -- -- --
Related parties.... (182,918) (27,807) -- -- --
Principal pay-off of
capital leases........ -- -- -- -- (4,236,435)
Extraordinary loss on
early extinguishment
of debt............... -- -- -- -- (296,000)
Issuance of common
stock from exercise
of stock options
and warrants.......... -- -- 2,227,029 944,822 12,270,511
Other.................. 116,505 (4,562) -- -- 20,185
---------- ---------- ---------- ---------- -----------
NET CASH (USED IN)
PROVIDED BY FINANCING
ACTIVITIES............. (3,548,318) (3,603,520) (2,572,851) (1,168,496) 5,064,121
---------- ---------- ---------- ---------- -----------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS--
(UNRESTRICTED)-- ...... (179,693) 493,015 2,301,639 218,976 8,870,104
CASH AND CASH
EQUIVALENTS--
(UNRESTRICTED)--
BEGINNING OF YEAR...... 2,028,197 1,848,504 2,341,519 2,341,519 4,643,158
---------- ---------- ---------- ---------- -----------
CASH AND CASH
EQUIVALENTS--
(UNRESTRICTED)--
END OF YEAR............ $1,848,504 $2,341,519 $4,643,158 $2,560,495 $13,513,262
========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND THE SIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
PREFERRED RETAINED
COMMON STOCK STOCK ADDITIONAL EARNINGS TOTAL
----------------- ------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
--------- ------- ------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES--December 31,
1993................... 2,408,000 $24,080 -- $-- $ 5,940,858 $(2,721,884) $ 3,243,054
Net Income............. -- -- -- -- -- 410,258 410,258
--------- ------- ---- ---- ----------- ----------- -----------
BALANCES--December 31,
1994................... 2,408,000 24,080 -- -- 5,940,858 (2,311,626) 3,653,312
Stock Dividend (Note
12)................... 120,400 1,204 -- -- 321,348 (322,552) --
Issuance of common
stock
(Note 9).............. 120,000 1,200 -- -- 358,800 -- 360,000
Exercise of Stock
Options............... 6,000 60 -- -- 15,064 -- 15,124
Net Income............. -- -- -- -- -- 1,373,217 1,373,217
--------- ------- ---- ---- ----------- ----------- -----------
BALANCES--December 31,
1995................... 2,654,400 26,544 -- -- 6,636,070 (1,260,961) 5,401,653
Exercise of Stock
Options and Warrants
(Notes 5 and 7)....... 793,500 7,935 -- -- 2,219,094 -- 2,227,029
Tax Adjustment
Regarding Stock Option
and Warrant Exercises
(Notes 4, 5 and 7).... -- -- -- -- 1,360,000 -- 1,360,000
Stock Dividend (Note
12)................... 247,130 2,471 -- -- 1,866,450 (1,868,921) --
Net Income............. -- -- -- -- -- 2,410,861 2,410,861
--------- ------- ---- ---- ----------- ----------- -----------
BALANCES--December 31,
1996................... 3,695,030 36,950 -- -- 12,081,614 (719,021) 11,399,543
Exercise of Stock
Options and Warrants
(unaudited) (Note 18). 2,051,270 20,513 -- -- 12,249,998 -- 12,270,511
Tax Adjustment
Regarding Stock Option
and Warrant Exercises
(unaudited)........... -- -- -- -- 245,000 -- 245,000
Net Income (unaudited). -- -- -- -- -- 1,459,470 1,459,470
--------- ------- ---- ---- ----------- ----------- -----------
BALANCES--June 30, 1997
(unaudited)............ 5,746,300 $57,463 -- $-- $24,576,612 $ 740,449 $25,374,524
========= ======= ==== ==== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION
SMT Health Services Inc. and its wholly-owned subsidiaries ("SMT") are
engaged primarily in providing medical diagnostic imaging services to
hospitals, physicians and patients. SMT, through its subsidiaries, operates 18
(20 at June 30, 1997) mobile magnetic resonance imaging (MRI) systems ("MRI
systems") in Pennsylvania, West Virginia, North Carolina, Virginia, South
Carolina, Kentucky and Ohio. SMT began operation of seven new MRI systems
during 1996, including four MRI systems which began operations during the last
four months of the year.
SMT's common stock and warrants (Note 18) trade on the National Association
of Securities Dealers, Inc. Automated Quotations Systems (Nasdaq) National
Market System under the symbols "SHED" and "SHEDW", respectively (Note 20).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy--The consolidated financial statements include the
accounts of SMT Health Services Inc. and its wholly owned subsidiaries. The
unaudited consolidated financial statements as of and for the six month
periods ended June 30, 1996 and 1997 include the accounts of SMT and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The unaudited consolidated financial statements included herein have been
prepared by management in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures which are normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted in accordance with SEC informational requirements.
The financial statements reflect normal recurring accounting adjustments
which, in the opinion of SMT's management, are necessary for a fair
presentation of the financial position and results of operations for the
interim periods. The results of operations for the six month period ended June
30, 1997 are not necessarily indicative of the results for the entire current
fiscal year ending December 31, 1997.
Certain amounts in the June 30, 1996 Consolidated Statements of Earnings and
Cash Flows have been reclassified to conform with the June 30, 1997
presentation.
Revenue Recognition--Revenue from diagnostic imaging services is recognized
as patient services are performed.
Service Agreements--SMT provides services directly to hospitals under Mobile
MRI Service Agreements which expire at various times between 1997 and 2002
and, accordingly, bills and collects the fees for such services directly from
the hospitals. Approximately 29% of SMT's billings and collections under these
service contracts are processed through Hospital Shared Services (HSS), a
representative of certain hospitals. As a fee for these services, HSS retains
approximately 2.5% of gross billings to these hospitals and, accordingly, SMT
records related revenues on a net basis. Such fees totaled approximately
$120,000, $146,000 and $150,000 for 1994, 1995 and 1996, respectively.
Cash and Cash Equivalents--Cash equivalents include highly-liquid
investments with original maturities of ninety days or less.
F-28
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
Property and Equipment--Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the related assets, which is generally five years. Leased medical equipment is
being amortized to its estimated residual value using the straight-line method
over the lease or finance term of generally five years.
Contract and License Acquisition Costs--Contract acquisition costs primarily
represent the value of mobile service contracts acquired relating to the
purchase of VA-MRI in November 1994 (Note 9) and are being amortized over an
approximate four-year period which approximates the lives of the contracts.
License acquisition costs represent the value of Certificate of Need
licenses acquired in March 1996 (Note 16) and are being amortized over a ten
year period.
Income Taxes--SMT files a consolidated federal income tax return. 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 and
operating loss and tax credit carryforwards. 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.
Net Earnings Per Common and Common Share Equivalent--The net earnings per
common and common share equivalent are calculated using the weighted average
common and common share equivalents outstanding during the year, except where
anti-dilutive. Common share equivalents include shares issuable upon the
exercise of stock options, rights and warrants less the number of shares
assumed purchased with the proceeds available from the assumed exercise of the
options, rights and warrants.
The Treasury Stock Method of reflecting the use of proceeds from options and
warrants may not adequately reflect potential dilution if options and warrants
to acquire a substantial number of common shares (greater than 20% of the
number of common shares outstanding for the period for which the computation
is being made) are outstanding. In such instances, the Modified Treasury Stock
Method must be utilized.
SMT's options and warrants to acquire common shares exceeded 20% of the
number of common shares outstanding for 1995, 1996 and for the six month
periods ended June 30, 1996 and 1997 and accordingly, the Treasury Stock
Method has been modified in determining the dilutive effect of the options and
warrants on earnings per share data for those periods.
Earnings per share for the year ended December 31, 1994 were not subject to
the Modified Treasury Stock Method as this method was anti-dilutive.
Accordingly, weighted average shares outstanding were 2,705,400 for 1994. The
weighted average shares outstanding for 1994 reflect a retroactive adjustment
increasing the weighted average shares outstanding by 297,400 shares to
reflect the July 1995 5% and January 1997 7% stock dividends as if such
dividends had occurred at the beginning of the respective period (Note 12).
The Modified Treasury Stock Method resulted in adjusted net income for the
year ended 1995 of approximately $2,699,000 and adjusted shares outstanding of
approximately 5,884,000, resulting in earnings per common share of $.46 for
the year ended December 31, 1995. Actual net income for the year ended
December 31, 1995 of $1,373,217 divided by the actual weighted average shares
outstanding for the year of 2,770,230 resulted in earnings per common share of
$.50 for the year ended December 31, 1995. The 1995 earnings per share
calculations have reflected a retroactive adjustment to reflect the January
1997 7% stock dividend (Note 12).
F-29
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
For purposes of the earnings per share calculation, the Modified Treasury
Stock Method resulted in adjusted net income for the year ended 1996 of
approximately $3,435,000 and adjusted shares outstanding of 5,668,000,
resulting in earnings per common share of $.61 for the year ended December 31,
1996 after giving effect to a seven percent (7%) common stock dividend paid to
shareholders in January 1997 (Note 12). Actual net income for the year ended
December 31, 1996 of $2,410,861 divided by the actual weighted average shares
outstanding for the year of 3,232,505 resulted in earnings per common share of
$.75 for the year ended December 31, 1996.
The Modified Treasury Stock Method resulted in adjusted net income for the
six months ended June 30, 1996 of $1,517,000 and adjusted shares outstanding
of 5,562,000, resulting in earnings per common share of $.27 for the six
months ended June 30, 1996. Actual net income for the six months ended June
30, 1996 of $1,020,000 divided by the actual weighted average shares
outstanding for the six month period of 2,919,000 resulted in earnings per
common share of $.35 for the six months ended June 30, 1996. The June 30, 1996
earnings per share calculations have reflected a retroactive adjustment to
reflect the January 1997 7% stock dividend (Note 12).
In addition, the Modified Treasury Stock Method utilized actual net income
for the six months ended June 30, 1997 of $1,459,000 and adjusted shares
outstanding of 5,426,000, resulting in earnings per common share of $.27 for
the six months ended June 30, 1997. Actual net income for the six month period
ended June 30, 1997 of $1,459,000 divided by the actual weighted average
shares outstanding for the six month period of 5,081,000 resulted in earnings
per common share of $.29 for the six months ended June 30, 1997.
Fully diluted earnings per common share were anti-dilutive in 1994 and 1995
and for the six month periods ended June 30, 1996 and 1997. Fully diluted
earnings per common share for 1996 were $.59 reflecting the higher year-end
stock price.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
Statement is effective for financial statements issued for periods ending
after December 15, 1997 including "interim" periods and earlier application is
not permitted. In summary, the Statement simplifies the standards for
computing earnings per share primarily found in APB Opinion No. 15, Earnings
Per Share and makes them comparable to international standards. The standard
replaces the presentation of Primary Earnings Per Share with a presentation of
Basic Earnings Per Share. It also requires dual presentation of basic and
diluted earnings per share on the income statement of all entities with
complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to Opinion 15.
F-30
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
Had SMT been permitted to adopt the Statement as of January 1, 1997, the six
month periods ended June 30, 1996 and 1997 pro forma Basic and Diluted EPS
would have been:
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Basic:
Earnings before extraordinary item.................... $ .35 $ .32
Extraordinary loss per share.......................... -- (.03)
--------- ---------
Net Basic Earnings per share........................ $ .35 $ .29
========= =========
Diluted:
Earnings before extraordinary item.................... $ .27 $ .30
Extraordinary loss per share.......................... -- (.03)
--------- ---------
Net Diluted Earnings per share........................ $ .27 $ .27
========= =========
Weighted Average Shares Outstanding................... 2,919,000 5,081,000
========= =========
</TABLE>
Geographic Concentration--SMT is engaged primarily in providing mobile MRI
services to small-to-medium-sized hospitals in Pennsylvania, West Virginia,
North Carolina, Virginia, South Carolina, Kentucky and Ohio.
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. Actual results could differ from those estimates.
Certain Significant Estimates--SMT operates mobile MRI systems which are
capital intensive and subject to changes in technology. SMT primarily finances
such equipment over a 48 to 60 month period and depreciates the equipment over
the respective finance period to an estimated residual value which typically
approximates 20% of the original cost of the equipment. The useful lives and
residual values estimated by management are considered significant estimates.
During 1995 and 1996, SMT upgraded its fleet of mobile MRI systems to newer
state-of-the-art technology. Management does not currently anticipate
significant technological advances which could materially affect its
estimates.
SMT is not dependent on any one customer or geographic region as a source of
its revenues. However, SMT utilizes the services of HSS to process
approximately 29% of its billings and collections (Note 2--Service
Agreements).
Long-Lived Assets--Effective January 1, 1996, SMT adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In
accordance with SFAS 121, management evaluates long-lived assets and related
intangible assets for impairment whenever events or circumstances indicate the
carrying amount may not be recoverable. No evidence existed which indicated
any long-lived assets and related intangible assets were impaired and,
therefore no write-down of recorded assets was necessary.
Financial Instruments--Management believes that the carrying values of its
financial instruments approximates their fair values and any differences which
may exist between the carrying values and fair values are not material.
F-31
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
Stock-Based Compensation--During 1996, SMT adopted SFAS 123, "Accounting for
Stock-Based Compensation". As permitted for under SFAS 123, SMT has elected to
continue to follow the guidance of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for its stock-based
employee compensation arrangements. Because SMT elected the disclosure-only
method available under SFAS 123, the adoption of SFAS 123 did not have any
impact on the Consolidated Financial Statements (Note 7).
Common Stock Dividend--On January 14, 1997, a 7% common stock dividend was
paid to shareholders of record at the close of business on January 10, 1997.
All stock related data in the Consolidated Financial Statements reflect the
stock dividend for all periods presented (Note 12).
3. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Capital lease and loan obligations............... $17,090,835 $27,209,926
Less current portion............................. 4,380,930 6,349,962
----------- -----------
$12,709,905 $20,859,964
=========== ===========
</TABLE>
Future minimum lease payments under capital leases and maturities of long-
term debt as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LONG-TERM LEASE
YEAR ENDING DECEMBER 31, DEBT OBLIGATIONS
------------------------ ----------- -----------
<S> <C> <C>
1997......................................... $ 2,037,232 $ 5,792,078
1998......................................... 2,223,518 5,537,301
1999......................................... 2,291,825 4,686,822
2000......................................... 2,476,641 3,098,604
2001......................................... 1,107,289 1,440,719
----------- -----------
20,555,524
Less amounts representing interest.............. (3,482,103)
-----------
$10,136,505 $17,073,421
=========== ===========
</TABLE>
As of December 31, 1996, the cost and accumulated amortization of property
securing capital lease and loan obligations were $35,932,000 and $6,508,000,
respectively. Interest rates under the long-term debt and capital leases
ranged from approximately 8.0% to 13.5%.
On July 31, 1996, SMT refinanced two MRI systems which had previously been
refinanced in March 1995 to more favorable lease terms. The new leases totaled
approximately $2.3 million (net of a $150,000 down payment) in the aggregate
and are being financed over a thirty-six month period at an interest rate of
9.25%. The refinancing resulted in annual cashflow savings to SMT of
approximately $200,000 (Note 10).
SMT upgraded one of its .5 Tesla Signa systems to a 1.0 Tesla Horizon
system. The new system was financed at a net total cost of approximately $2.0
million and was delivered in late February 1996. SMT financed the purchase of
this new system with a 60 month dollar-out (bargain purchase option of one
dollar) lease requiring monthly payments of approximately $44,000.
F-32
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
SMT contracted with several new hospital clients and purchased a new Siemens
1.0 Tesla Impact system which began service in mid-February 1996. The cost of
this new system approximated $1.9 million which was financed with a 60 month
loan requiring monthly payments of approximately $41,000.
In April 1996, SMT upgraded one of the systems purchased from another mobile
provider (Note 16) to a Siemens 1.0 Tesla Impact system. The new system was
financed at a net total cost of approximately $1.9 million. SMT financed this
new system with a 60 month loan requiring monthly payments of approximately
$43,000.
In June 1996, SMT upgraded one of its .5 Tesla Signa systems to a Siemens
1.0 Tesla Impact system. The new system was financed at a net total cost of
approximately $2.0 million with a 60 month dollar-out lease requiring monthly
payments of approximately $43,000.
In May 1996, SMT signed an agreement with Siemens Medical Systems to upgrade
the second system purchased from another mobile provider (Note 16) and to
purchase a new system during the fourth quarter of 1996. Delivery of the
upgraded system occurred in July 1996 and the new system was delivered and
began operation on October 1, 1996. The upgrade's net cost approximated $1.9
million and SMT financed approximately $1.7 million with a 60 month finance
agreement requiring monthly payments of approximately $36,000. SMT's new
system cost approximately $1.9 million and SMT financed approximately $1.7
million requiring a monthly payment of approximately $37,000.
During September 1996, SMT upgraded an older system to a new Siemens 1.0
Tesla Impact system. The cost of this new system approximated $1.9 million
which was financed with a 60 month loan requiring monthly payments of
approximately $39,000.
SMT purchased and took delivery of two new GE 1.0 Tesla Horizon systems in
September 1996. These systems were purchased at a cost of approximately $1.8
million each and SMT financed approximately $1.6 million and $1.5 million with
60 month finance agreements requiring monthly payments of approximately
$34,000 and $32,000, respectively.
On November 1, 1996, SMT purchased a mobile MRI system from Palmetto
Community Health Network (the "Network") for approximately $390,000 and signed
new service contracts with six South Carolina hospitals which are members of
the Network. This new system represents SMT's eighteenth mobile system and the
seventh new system acquired during 1996.
SMT completed a previously negotiated upgrade of a .5 Tesla Signa system to
a 1.0 Tesla Horizon system on November 2, 1996. The new system was financed at
a net cost of approximately $1.5 million with a 60 month finance agreement
requiring monthly payments of approximately $32,000.
In December 1996, SMT upgraded the mobile MRI system purchased from the
Network to a new 1.0 Tesla Horizon. The new system was financed at a net cost
of approximately $1.4 million with a 60 month finance agreement requiring
monthly payments of approximately $30,000.
The long-term debt and capital lease obligations balance at December 31,
1996 includes approximately $880,000 of capital lease obligations due to third
parties related to the equipment at the Auburn Regional Center for Cancer Care
and Airport Regional Imaging Center which SMT had treated as discontinued
operations and
F-33
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
sold in October 1994 and in June 1995, respectively. Accordingly, SMT has
recorded an offsetting receivable for the lease receivables due from the
purchaser of the centers. Such lease receivables are secured by the equipment
and accounts receivable of the centers (Note 13).
SMT leases certain tractors for the transportation of mobile MRI systems.
Operating lease expenses related to such tractor rentals totaled $257,000,
$313,000 and $346,000 for 1994, 1995 and 1996, respectively. Prior to July 1,
1995, SMT rented certain tractors from Shared Mobile Enterprises (Note 9).
The future minimum lease payments (excluding variable mileage costs of $.063
per mile) required under these operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997..................................... $ 349,300
1998..................................... 326,700
1999..................................... 326,700
2000..................................... 326,700
2001..................................... 169,600
Thereafter................................ 3,300
----------
Total.................................... $1,502,300
==========
</TABLE>
In addition, see Note 20 regarding the subsequent event.
4. INCOME TAXES
Income tax expense attributable to income from continuing operations for the
years ended December 31, 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------------------- --------------------------- ---------------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
------- -------- --------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $ -- $ 10,000 $ -- $44,000 $254,000 $1,014,000 $44,000 $264,000 $1,014,000
State 45,000 180,000 (110,000) 4,500 34,000 274,000 49,500 214,000 164,000
------- -------- --------- ------- -------- ---------- ------- -------- ----------
$45,000 $190,000 ($110,000) $48,500 $288,000 $1,288,000 $93,500 $478,000 $1,178,000
======= ======== ========= ======= ======== ========== ======= ======== ==========
</TABLE>
In addition to the deferred tax expense disclosed above, approximately
$1,360,000 of deferred tax benefits were allocated to equity in connection
with the tax deductions generated by the exercise of certain stock options and
warrants.
The difference between SMT's effective income tax rate and its statutory
rate is reconciled below:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- ----------
<S> <C> <C> <C>
Income tax expense at statutory rate....... $216,158 $ 629,414 $1,220,213
Increase (reduction) in income taxes
resulting from:
State and local income taxes, net of
Federal income tax benefit.............. 32,670 137,000 110,000
Change in state net operating loss
carryforward rules...................... (90,000) -- (61,000)
Decrease in valuation allowance.......... (72,500) (312,000) (103,000)
Other items.............................. 7,172 23,586 11,787
-------- --------- ----------
$ 93,500 $ 478,000 $1,178,000
======== ========= ==========
</TABLE>
F-34
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
The components of the net deferred tax asset recognized in the December 31,
1995 and 1996 consolidated balance sheets of SMT are presented below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 1,415,794 $ 3,518,800
Non-deductible accrued expenses................. 139,291 75,000
Other........................................... 37,203 19,000
----------- -----------
1,592,288 3,612,800
Deferred tax liabilities:
Diagnostic medical equipment, principally due to
differences in depreciation.................... (1,270,288) (3,290,800)
----------- -----------
322,000 322,000
Less valuation allowance........................ (103,000) --
----------- -----------
Net deferred tax asset.......................... $ 219,000 $ 322,000
=========== ===========
</TABLE>
Deferred income taxes are provided to account for temporary differences
between financial statement accounting and income tax reporting and relate
principally to differences in reporting for diagnostic medical equipment,
depreciation and net operating loss carryforwards. The net change in the total
valuation allowance for the years ended December 31, 1995 and 1996 was a
decrease of $312,000 and a decrease of $103,000, respectively. In assessing
the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate relation of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it
is more likely than not SMT will realize the benefits for these deductible
differences. The amount of the deferred tax asset considered realizable,
however, could be reduced if estimates of future taxable income during the
carryforward period are reduced.
At December 31, 1996, SMT had net operating loss carryforwards for federal
income tax purposes of approximately $8,200,000 which are available to offset
future federal taxable income through 2010. SMT has approximately $10,100,000
of available carryforwards as of December 31, 1996 for state purposes which
are available principally through 1999.
5. STOCKHOLDERS' EQUITY
In accordance with SMT's March 1992 Initial Public Offering, SMT issued
Warrants to purchase shares of common stock of SMT. Pursuant to the Warrant
Agreement, the outstanding Warrants have been recapitalized to reflect the
July 1995 5% and January 1997 7% common stock dividends (Note 12).
Accordingly, the outstanding Warrants' exercise price of $7.00 entitled the
holder to purchase 1.1235 shares of common stock of SMT (Note 18).
As additional compensation in connection with the initial public offering,
SMT granted to SMT's Initial Public Offering underwriter an option to purchase
options which covered 120,000 units, each unit consisted of
F-35
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1.05 shares of common stock and one SMT Warrant to purchase 1.05 shares of
common stock. The Option was exercisable until March 4, 1997 and entitled the
underwriter to purchase each unit at an exercise price equal to $5.94, subject
to adjustment in certain events. The underwriter subsequently transferred the
Options to principles of the underwriter (Transferees), who exercised the
Options during 1996 resulting in net proceeds to SMT of approximately
$719,000. During August 1996, one of the Transferees exercised 24,000 Warrants
to purchase 25,200 shares of common stock of SMT resulting in additional
proceeds to SMT of approximately $168,000. As a result of the 7% common stock
dividend paid in January 1997 (Note 12), the remaining 96,000 underwriter
Warrants were convertible to 107,856 shares of common stock.
On August 9, 1995, SMT adopted the 1995 Director Warrant Plan (the "Plan")
pursuant to which eligible directors received unregistered warrants to
purchase common stock (the "Directors' Warrants"). The Plan allows for
issuance of warrants to purchase up to 700,000 shares of common stock.
On August 9, 1995, warrants to purchase up to 500,000 shares of common stock
at an initial exercise price of $3.875 (the closing price of SMT's stock on
the date of issue) were issued to five directors pursuant to the Plan.
Separately, unregistered warrants to purchase 114,500 shares of common stock
at an initial exercise price of $4.01 were also issued to an outside director,
who was also a consultant to SMT, who was ineligible to participate in the
Plan.
During May 1996, the outside director who was also a consultant to SMT
exercised the 114,500 Warrants and sold 114,500 shares of common stock. SMT
received cash proceeds of approximately $459,000 related to the exercise of
such Warrants.
During January 1997, SMT's three outside directors each exercised 25,000
Director Warrants and sold 26,750 shares of common stock (after adjustment for
the January 1997 7% common stock dividend--Note 12). SMT received cash
proceeds of approximately $291,000 as a result of the exercise of the 75,000
Director Warrants.
Pursuant to the 1995 Director Warrant Plan, the Director Warrants have been
recapitalized to reflect the January 1997 7% common stock dividend (Note 12).
Accordingly, the outstanding Director Warrants' exercise price of $3.875 now
entitles the holder to purchase 1.07 shares of common stock of SMT. As of
January 31, 1997, 425,000 Director Warrants to purchase 454,750 shares of
common stock of SMT were outstanding.
In October 1995, SMT signed an agreement retaining Commonwealth Associates
("Commonwealth") as its investment banking firm. Commonwealth, a New York-
based investment banking firm specializing in serving the financial needs of
emerging growth companies, had been engaged to assist SMT in establishing a
long-term financial strategy and in evaluating possible transactions involving
other mobile diagnostic providers. In addition to a cash retainer, SMT granted
to Commonwealth 100,000 five-year Warrants to purchase SMT's common stock at
$4.47, the closing bid price of the common stock on the day the Agreement was
executed. The agreement with Commonwealth expired in April 1996. During July
and October 1996, Commonwealth or a designated employee of Commonwealth
exercised the 100,000 Warrants in a net transaction and SMT issued to
Commonwealth or the designated employee an aggregate of 36,061 shares of
common stock of SMT.
In November 1995, SMT adopted a Preferred Stock Purchase Rights Plan (the
"Rights Plan") which contains provisions to protect SMT in the event of an
unsolicited offer to acquire control of SMT on terms which SMT's Board of
Directors determines not to be in the best interest of SMT.
The Rights Plan provides for the distribution to shareholders of one right
for each share of common stock outstanding. When exercisable, each right will
entitle shareholders to buy one one-hundredth of a newly issued share of SMT's
Class A Series One Preferred Stock at an exercise price of $22.00. Each right
has terms designed
F-36
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
to make it substantially the economic equivalent of one share of common stock.
Shareholders of record as of the close of business on November 8, 1995 and
thereafter will receive the rights. The rights will expire on November 30,
2005, unless further extended, and will be subject to redemption by the Board
of Directors at $.01 per right at any time prior to the first date upon which
they become exercisable. The rights themselves have no voting power, nor will
they entitle a holder to receive dividends.
In addition, see Note 20 regarding the subsequent event.
6. PREFERRED STOCK
SMT is authorized to issue 994,600 shares of preferred stock ("Preferred
Stock"), issuable in series. SMT had one authorized series of 5,400 Preferred
Shares, par value $.01, designated as Series A Preferred Stock, which was
converted to common stock in July 1993.
7. STOCK OPTION PLANS
SMT's 1991 and 1996 Employee Stock Option Plans (the "Employee Plans")
currently provide for the granting of options to employees to purchase up to
1,110,125 shares of SMT's common stock at the fair market value at the date of
grant. Options granted to employees may either be incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended) or non-qualified
stock options and expire ten years from date of grant.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
NUMBER PRICE PER SHARE
-------- ---------------
<S> <C> <C>
Balance--December 31, 1993......................... 145,514 $3.11
Granted.......................................... 203,179 $1.28-$2.00
Exercised........................................ -- --
Expired.......................................... -- --
--------
Balance--December 31, 1994......................... 348,693 $1.28-$3.11
Granted.......................................... 431,349 $2.30-$3.56
Exercised........................................ -- --
Expired.......................................... -- --
--------
Balance--December 31, 1995......................... 780,042 $1.28-$3.56
Granted.......................................... 309,770 $3.92-$6.43
Exercised........................................ (439,900) $1.28-$3.11
Expired.......................................... (10,480) $3.11
--------
Balance--December 31, 1996......................... 639,432 $1.28-$6.43
========
</TABLE>
All of the above outstanding options are non-qualified options.
At December 31, 1996, options to purchase 639,432 shares were exercisable
and no additional shares were available for future grant in accordance with
the Employee Plans.
The total number of options to purchase shares of common stock and the
exercise prices of any options which were granted pursuant to the Employee
Plan prior to July 1995 have been adjusted to reflect the July 1995 5% common
stock dividend (Note 12).
In January 1997, SMT granted a 7% common stock dividend. The aforementioned
number of options to purchase shares of common stock and the exercise prices
of such options reported above have been adjusted to reflect the January 1997
dividend (Note 12).
F-37
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
SMT's 1991 Director Stock Option Plan for non-employee directors (the
"Directors' Plan") currently provides for the granting of options to non-
employee directors to purchase up to 112,350 shares of SMT's common stock at
the fair market value on the date of grant. Under the Directors' Plan, each
eligible director automatically receives options to purchase 2,247 shares of
SMT's common stock on December 31 of each year. Options granted under the
Directors' Plan may be exercised within ten years of the date of grant and
while the recipient of the option is a director of SMT.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
NUMBER PRICE PER SHARE
------- ---------------
<S> <C> <C>
Balance--December 31, 1993.......................... 21,294 $1.66-$3.00
Granted........................................... 10,647 $2.06
Exercised......................................... -- --
Expired........................................... -- --
-------
Balance--December 31, 1994.......................... 31,941 $1.66-$3.00
Granted........................................... 8,547 $4.09
Exercised......................................... (6,000) $1.66-$3.00
Expired........................................... (300) $1.66-$3.00
-------
Balance--December 31, 1995.......................... 34,188 $1.66-$4.09
Granted........................................... 6,741 $7.94
Exercised......................................... (23,100) $1.66-$4.09
Expired........................................... (2,100) $4.09
-------
Balance--December 31, 1996.......................... 15,729 $1.66-$7.94
=======
</TABLE>
As of December 31, 1996, options to purchase 15,729 shares of common stock
were exercisable under the Directors' Plan and 65,484 shares were available
for future grant in accordance with the Director Plan.
The total number of options to purchase shares of common stock and the
exercise prices of any options which were granted pursuant to the Directors'
Plan prior to July 1995 have been adjusted to reflect the July 1995 5% common
stock dividend (Note 12).
In February 1994, the Board of Directors granted additional vested options
to purchase 42,000 shares of SMT's common stock at an exercise price of $1.78
per share, the fair market value of the common stock at the date of grant, to
two non-management members of the Board of Directors. During June and
September 1996, the two non-management members of the Board of Directors (one
now a former director), exercised the 42,000 options and sold 42,000 shares of
common stock received upon the option exercise. SMT realized net proceeds of
approximately $75,000 from the exercise of the 42,000 options.
In January 1997, SMT granted a 7% common stock dividend. The aforementioned
number of options to purchase shares of common stock and the exercise prices
of such options reported above have been adjusted to reflect the January 1997
dividend (Note 12).
SFAS 123 requires companies who continue to apply APB Opinion No. 25 to
account for their stock-based employee compensation arrangements to provide
pro forma net income and earnings per share as if the fair value based method
had been used to account for compensation cost (Note 2). The per share
weighted average fair value of stock options granted during 1995 and 1996
approximated $672,000 and $393,000 on the date of grant
F-38
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
using the Black Scholes option--pricing model with the following weighted-
average assumptions: 1995--expected dividend yield 0.0%, risk-free interest
rate of 7.05%, expected volatility of the stock 33%, and expected life of
three years; 1996--expected dividend yield 0.0%, risk-free interest rate of
7.05%, expected volatility of the stock of 33%, an expected life of three
years. Accordingly, pro forma net income and earnings per share would have
been $771,000 ($.37 per share) and $2,017,000 ($.54 per share) for the years
ended December 31, 1995 and 1996, respectively, if SMT had accounted for its
stock based employee compensation arrangements using the fair value method.
The 1995 and 1996 effects of applying SFAS 123 for providing pro forma
disclosures are not likely to be representative of the effects on pro forma
net income and earnings per share for future years because the number of
option grants and the fair value assigned to the grants could differ.
8. BENEFIT PLANS
SMT maintains an annual bonus plan for key executives and employees which is
based primarily upon the pre-tax earnings of SMT. SMT expensed approximately
$115,000, $348,000 and $584,000 for the program during 1994, 1995 and 1996,
respectively.
SMT maintains and administers an employee savings plan pursuant to Internal
Revenue Code Section 401(k). The Plan provides for discretionary contributions
as determined by SMT's Board of Directors. SMT contributed approximately
$18,000, $18,000 and $34,000 to the Plan in 1994, 1995 and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
A former shareholder/director of SMT was also a consultant to SMT and SMT
had entered into a five-year consulting agreement with him through November
1996 pursuant to which he was to receive a fee of $75,000 per year. On March
27, 1996, SMT prepaid the remaining $50,000 due under the Consulting Agreement
and terminated the Consultant Agreement. Fees paid to this former
shareholder/director totaled approximately $75,000 for each of the past three
years.
Prior to July 1, 1995, SMT subleased certain truck cabs from Shared Mobile
Enterprises ("SME"), which, in turn, leased such truck cabs from an
independent third party leasing company. Effective July 1, 1995, SME released
SMT from its obligations under ten long-term subleases in exchange for the
issuance to SME of 120,000 unregistered common shares valued at $3 per share,
the weighted average closing price for the stock for the prior thirty trading
days. SMT received an opinion from an independent financial advisor that the
transaction was fair to SMT and its shareholders. At the same time, with the
concurrence of the third party leasing company, SMT assumed SME's obligations
under its original lease and modified that lease by (1) extending the lease
term by one additional year and (2) adding one additional truck cab to the
schedule of leased property with a corresponding increase in base rental
payments. The $360,000 value of the shares represents the present value of the
excess of the sublease payments over the original lease payments. SMT has
capitalized the $360,000 and is amortizing this prepaid rent over a period
which approximates the lease term. SME was one hundred percent beneficially
owned by certain officers/directors and a former director/consultant of SMT
who owned approximately 14% of SMT's outstanding common shares. Total rental
expense paid to SME for the years ended December 31, 1994 and 1995 was
approximately $257,000 and $180,000, respectively (Note 3).
Certain shareholders/officers of SMT, who own approximately 14% of the
outstanding common stock of SMT, also collectively owned 50% of the
outstanding capital stock of Upstate MRI, Inc., a.k.a., Virginia MRI, Inc.
("VA MRI"), which owned and operated a mobile MRI system which provided
service in Virginia and North Carolina. SMT and the shareholders/officers of
SMT guaranteed the lease on such mobile MRI system.
F-39
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
On June 1, 1993, SMT entered into a one-year operating lease with VA MRI
where SMT leased the VA MRI Mobile System ("VA Mobile System") and related
service contracts in return for a monthly rental of $58,000, which lease was
renewed on June 1, 1994. A previously negotiated management agreement between
VA MRI and SMT, pursuant to which SMT received $5,000 per month in
administrative fees, plus reimbursement of all expenses, in return for
managing the operations of VA MRI was terminated.
On November 14, 1994, SMT purchased the VA Mobile System in consideration
for the assumption of all of VA MRI's lease obligations totaling approximately
$400,000 (approximate fair market value of the equipment). In addition, VA MRI
transferred and assigned to SMT its rights in the service contracts related to
the VA Mobile System in consideration for the forgiveness of the remaining
approximately $50,000 owed to SMT pursuant to a note and the payment by SMT of
$44,000. SMT capitalized the approximately $94,000 as contract acquisition
costs which are being amortized over the term of the service contracts which
approximates four years (Note 2).
In addition, on November 14, 1994, upon completion of the VA Mobile System
purchase, SMT traded in the VA Mobile System and upgraded this MRI system to a
General Electric 1.0 Tesla Signa which SMT has financed with a 66 month lease
requiring monthly payments of approximately $41,000. This new lease transfers
the ownership of such mobile MRI system to SMT at the completion of the lease.
The original VA Mobile System lease assumed by SMT has been terminated in
conjunction with this transaction.
A certain director of SMT is a director of, consultant to and shareholder of
DVI Inc., the parent of DVI Financial Services Inc. ("DVI").
During 1992 and 1993, SMT entered into numerous leasing transactions with
DVI pertaining to both continuing and discontinued operations involving total
financing of approximately $15.6 million. During 1994, SMT did not enter into
any new leases with DVI and refinanced with third parties $3.2 million of
leases held by DVI. During the first quarter of 1995, SMT refinanced its
remaining leases with DVI, totaling approximately $6.5 million, with third-
party lease companies. Interest rates under financing agreements with DVI
ranged from 11% to 14%. During 1996, SMT financed the acquisition of a new
mobile MRI system with DVI. SMT and DVI entered into a 60 month capital lease
financing approximately $1.5 million at an interest rate of approximately
9.5%. Total payments to DVI during 1994, 1995 and 1996 with respect to capital
lease obligations were approximately $3.9 million, $440,000 and $100,000,
respectively, including $1.4 million, $87,000, and $36,000, respectively, of
interest expense associated with such capital leases.
In March 1995, DVI sold 368,000 shares of SMT's common stock which it had
received during SMT's initial public offering, pursuant to registration
statements under the Securities Act of 1933, as amended.
10. COMMITMENTS AND CONTINGENCIES
The lease for SMT's principal facility expires in April 1999. Rent expense
for SMT's principal facility was $69,000, $76,000 and $76,000 for 1994, 1995
and 1996, respectively. Future minimum lease payments under this lease are as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER FUTURE MINIMUM
31, LEASE PAYMENTS
-------- --------------
<S> <C>
1997.............................. $ 87,900
1998.............................. 87,900
1999.............................. 29,300
--------
Total............................. $205,100
========
</TABLE>
F-40
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
Pursuant to capital lease obligations (Note 3) and related maintenance
contracts, which begin upon expiration of the manufacturer's warranty period
of generally 12 to 18 months and which contracts expire at various dates
through the year 2001, SMT is currently obligated to pay approximately
$118,000 per month for maintenance of equipment.
In November 1992, SMT issued a letter-of-credit in the amount of $198,500
pursuant to a lease transaction related to its freestanding full-service
diagnostic imaging center (Note 13). In exchange for restructuring the terms
of the debt of this Center, SMT increased the outstanding letter-of-credit to
an aggregate $400,000.
In November 1994, SMT issued a letter-of-credit in the amount of $270,000
related to the purchase and financing of a new mobile MRI system. The lessor
holding this letter-of-credit allowed the letter-of-credit to terminate on
October 31, 1996.
In relation to the refinancing of four mobile MRI systems in February and
March 1995 (Note 3), SMT issued two letters-of-credit in the aggregate amount
of $930,000. In February 1996, the lessor holding one of the letters-of-credit
totaling $330,000 allowed the letter-of-credit to expire.
On July 31, 1996, SMT refinanced two MRI systems which had previously been
refinanced in March 1995 to more favorable lease terms. As a result of this
refinancing, the $600,000 letter-of-credit which had been issued in March 1995
was terminated (Note 3).
SMT must maintain a cash balance of $400,000 on deposit with the bank which
issued the aforementioned letter-of-credit.
11. SUPPLEMENTAL CASH FLOW INFORMATION
SMT entered into various capital leases or financing arrangements (including
new MRI systems and upgrades) aggregating approximately $4,350,000, $4,800,000
and $15,135,000 during 1994, 1995 and 1996, respectively. SMT also entered
into similar arrangements aggregating approximately $5,715,000 and $3,000,000
during the six months ended June 30, 1996 and 1997, respectively. These
amounts were recorded as long-term debt and obligations under capital leases
and as mobile MRI equipment.
SMT refinanced various capital leases during 1994, 1995 and 1996 aggregating
approximately $3,231,000, $7,092,000 and $2,474,000, respectively.
Interest paid during 1994, 1995 and 1996 was approximately $1,474,000,
$1,736,000 and $2,062,000, respectively.
Taxes paid during 1994, 1995 and 1996 approximated $46,000, $71,000 and
$240,000.
12. COMMON STOCK DIVIDENDS
On July 10, 1995, SMT issued 120,400 common shares in conjunction with a 5%
common stock dividend for all shareholders of record on June 30, 1995. As a
result of the stock dividend, approximately $323,000 was charged to
accumulated deficit and, in accordance with Accounting Principles Board
Opinion 15, "Earnings Per Share", (APB 15), SMT reflected the 5% common stock
dividend in calculating earnings per share for 1994.
F-41
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
On January 14, 1997, SMT issued 247,130 common shares in accordance with a
7% common stock dividend for all shareholders of record on January 10, 1997.
The December 31, 1996 financial statements have been adjusted to reflect this
post balance sheet equity activity (Note 2). Further, in accordance with APB
15, SMT has reflected the 7% common stock dividend in calculating earnings per
share for all periods presented (Note 2).
In accordance with SMT's Warrant Agreement, SMT's publicly-traded Warrants
were recapitalized to reflect the common stock dividend. As a result, each
Warrant certificate entitled the holder to purchase 1.1235 shares of stock for
$7.00. In July 1995, SMT issued a similar 5% common stock dividend. Such
publicly traded warrants expired on March 4, 1997 (Note 18).
13. DISCONTINUED OPERATIONS
On December 30, 1993, SMT formally adopted a plan to sell its freestanding
full-service diagnostic imaging center and its radiation oncology center
during 1994 and 1995.
The following table presents net revenues, losses from discontinued
operations, losses on disposal of discontinued operations and selected balance
sheet information relating to the freestanding full-service diagnostic imaging
and radiation oncology businesses as of, and for the years ended, December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Net revenues............................................ $1,660,077 $821,000
Loss from discontinued operations....................... -- --
Loss on disposal of discontinued operations, net of tax
benefit of $68,000 in 1994............................. 132,000 --
Accounts receivable, net................................ 148,189 --
Leased medical equipment, net........................... 1,305,897 --
Leasehold improvements, net............................. 277,176 --
Deferred costs, net..................................... 197,297 --
Other assets, net....................................... 137,291 --
Accounts payable and accrued expenses................... 88,154 --
Long-term debt and capital lease obligations............ 1,305,728 --
Reserve for loss on discontinued operations............. 456,302 --
</TABLE>
SMT sold substantially all of the assets of the Auburn Regional Center for
Cancer Care on October 31, 1994. The sale price of the Center was
approximately $1.3 million comprised of $400,000 in cash and the assumption of
the Center's liabilities. SMT remains obligated on approximately $270,000 of
capital leases as of December 31, 1996. The buyer has agreed to use its best
efforts to have SMT released from these leases and has secured its obligations
to SMT to perform on these leases through a pledge of certain assets in favor
of SMT (Note 3). SMT had previously established a discontinued operations
reserve and accordingly, no gain or loss was recorded as a result of this
sale.
In January 1995, SMT restructured the majority of the long-term debt and
capital lease obligations of the freestanding imaging center resulting in debt
forgiveness of approximately $300,000, a lower interest rate and extension of
the term to 66 months, including interest only payments for the first six
months. The debt forgiveness was considered in determining the adequacy of the
reserve for loss on discontinued operations as of December 31, 1994. In
relation to this debt restructuring, SMT increased the letter-of-credit
outstanding to $400,000 (Note 10).
F-42
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
On June 30, 1995, SMT completed the sale of substantially all of the assets
of its remaining freestanding diagnostic imaging center, Airport Regional
Imaging Center ("Airport Center"), located in Coraopolis, Pennsylvania for a
total sale price of approximately $300,000, including cash and net trade
receivables. Although the buyer assumed all future operating liabilities of
the Airport Center, SMT remains obligated on approximately $600,000 of capital
leases as of December 31, 1996. The buyer has agreed to use its best efforts
to have SMT released from these leases and has secured its obligations to SMT
to perform on these leases through a pledge of stock and certain assets in
favor of SMT (Note 3). SMT had previously established a discontinued
operations reserve and accordingly, no gain or loss was recognized as a result
of this sale.
14. SALE OF PARTNERSHIP INTERESTS
On June 30, 1995, in conjunction with the sale of the Airport Center which
had been treated as a discontinued operation (Note 13), SMT sold its majority
ownership and general partner rights in four cardiac care partnerships for a
total sale price of $300,000 comprised of $200,000 in cash and a $100,000,
thirty-month note. SMT recognized a pre-tax gain on this sale of $48,219. The
partnerships, which constituted approximately seven percent of SMT's revenues,
had total assets of approximately $1.4 million, comprised primarily of
diagnostic equipment and accounts receivable, and total liabilities of
approximately $1.2 million comprised primarily of capital lease obligations
associated with the diagnostic equipment.
15. LITIGATION
SMT had been named as a defendant, along with a hospital which contracts for
SMT's MRI services, in a claim filed by a woman who alleged to have incurred
partial paralysis as a result of being mishandled during an MRI procedure. The
claim had been filed for $6.0 million in damages. The claim was settled by
SMT's insurance company in November 1996 with no admission of liability by SMT
and no financial effect to SMT.
16. ACQUISITION
On March 21, 1996, SMT purchased certain assets of a mobile provider which
operated mobile units in the state of North Carolina (the "Seller"). The
purchase price approximated $600,000 in cash (net of negotiated trade-in value
of approximately $500,000 (which approximated the purchase price of the
systems acquired) for two of the Seller's mobile MRI systems) in exchange for
MRI Programs including Certificate of Need licenses or exemptions and certain
customer service contracts. SMT traded-in and upgraded one of the purchased
systems to newer technology in April 1996 and traded-in and upgraded the
second system during July 1996 (Note 3).
17. SALES TAX REFUND
During September 1996, SMT received formal notification of a state sales tax
refund of approximately $300,000, net of expenses. The refund is the result of
sales tax paid to a certain state over a period of time which SMT determined
(by obtaining a private letter ruling from the state) was actually exempt from
such tax. Payment of the refund was received in January 1997.
18. WARRANT CONVERSION
During January through March 4, 1997 (the Warrants expired at 5:00 p.m. on
March 4, 1997) 1,677,000 Warrants (Note 5) were exercised and SMT issued
1,882,000 shares of common stock of SMT. SMT received net cash proceeds of
approximately $11.7 million as a result of such Warrant exercises. The
Warrants ceased trading on March 5, 1997.
F-43
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AT JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
19. EXTINGUISHMENT OF DEBT (UNAUDITED)
During March 1997, SMT paid-off the remaining principal balance of three
capital lease obligations totaling $4,236,000. The total amount paid to
extinguish the capital leases totaled $4,532,000. The difference between the
amount paid to extinguish the capital leases and the net carrying amount of
the debt totaled $296,000, relating primarily to pre-payment penalties, and
has been recorded as an extraordinary loss, net of income taxes, in accordance
with Accounting Principles Board Opinion No. 26 "Early Extinguishment of Debt"
(APB 26). The interest rates under the capital leases ranged from 10.6% to
13.5%. The monthly cashflow savings approximates $128,000 and the interest
expense savings for 1997 approximates $400,000 before income taxes.
20. SUBSEQUENT EVENTS (UNAUDITED)
On June 23, 1997, SMT signed a definitive agreement with Three Rivers
Acquisition Corp. ("Three Rivers"), an affiliate of Apollo Management, L.P.
("Apollo"), pursuant to which Three Rivers agreed to acquire all of the
outstanding shares of SMT for $11.75 per share through a cash tender offer
which commenced June 30, 1997, to be followed by a merger. The total
transaction is valued at approximately $100 million including outstanding
stock options and warrants and the assumption of debt.
On August 5, 1997, Three Rivers successfully completed its tender offer for
all of the outstanding shares of common stock of SMT. The depository for the
offer informed Three Rivers that 5,280,297 shares (91.9% of the outstanding
shares) were validly tendered and not withdrawn prior to the expiration of the
offer, including 2,841 shares tendered pursuant to notice of guaranteed
delivery procedures. All shares validly tendered and not withdrawn were
accepted for payment of $11.75 per share in cash. The remaining shares of SMT
will be converted into the right to receive $11.75 per share in cash in a
merger between SMT and Three Rivers. The merger is expected to be consummated
in September 1997.
On August 5, 1997, Three Rivers Holding Corp., Three Rivers, SMT and various
lenders entered into an $80 million credit facility that was used to fund a
portion of the cash tender and to refinance approximately $19 million of SMT
indebtedness. The remainder of the credit facility will be used for working
capital requirements and general corporate purposes of SMT. The remainder of
the cash tender offer was funded with approximately $33.6 million from Three
Rivers.
SMT accrued $220,000 as of June 30, 1997 for professional fees related to
the aforementioned merger and tender offer. The fees were primarily related to
legal and accounting services.
On July 23, 1997, Alliance Imaging, Inc. ("Alliance") entered into an
Agreement and Plan of Merger (the "Recapitalization Merger Agreement"). Under
the terms of the Recapitalization Merger Agreement, an entity formed by
Apollo, will merge with and into Alliance (the "Recapitalization"). In
connection with the Recapitalization and subject to certain conditions,
Alliance will acquire all the shares of common stock of Three Rivers.
F-44
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
Summarized quarterly unaudited financial data for the years ended December
31, 1995 and 1996, and the six month period ended June 30, 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues................ $3,644,765 $3,851,784 $3,821,904 $3,701,975
Operating expenses,
excluding depreciation. 1,366,635 1,487,476 1,327,119 1,214,891
Depreciation and
amortization........... 936,510 919,897 869,543 953,296
Selling, general and
administrative
expenses............... 564,559 598,235 652,536 656,693
Interest expense, net... 419,362 423,084 389,525 388,163
Income before income
taxes.................. 330,608 448,496 583,181 488,932
Net income.............. 241,608 329,496 431,181 370,932
Earnings per common
share:
Continuing operations. $ 0.09 $ 0.11 $ 0.13 $ 0.13
Discontinued
operations........... -- -- -- --
---------- ---------- ---------- ----------
Net income per share.. $ 0.09 $ 0.11 $ 0.13 $ 0.13
========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding..... 2,705,000 2,705,000 2,834,000 2,838,000
========== ========== ========== ==========
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, 1996 JUNE 30, 1996 SEPTEMBER 30, 1996 DECEMBER 31, 1996
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues................ $4,128,035 $4,596,571 $4,754,324 $5,543,024
Operating expenses,
excluding depreciation. 1,365,973 1,524,754 1,586,903 1,802,285
Depreciation and
amortization........... 989,174 1,119,823 1,198,155 1,417,757
Selling, general and
administrative
expenses............... 682,266 690,967 629,144 875,044
Interest expense, net... 404,141 458,032 457,392 531,283
Income before income
taxes.................. 686,481 802,995 1,182,730 916,655
Net income.............. 457,481 562,995 915,730 474,655
Earnings per common
share:
Primary:
Net income per share.. $ 0.13 $ 0.14 $ 0.20 $ 0.14
========== ========== ========== ==========
Fully diluted:
Net income per share... $ 0.13 $ 0.14 $ 0.20 $ 0.12
========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding..... 2,840,000 2,998,000 3,402,000 3,689,000
========== ========== ========== ==========
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31, 1997 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Revenues................ $6,239,307 $6,801,955
Operating expenses,
excluding depreciation. 1,985,299 2,167,459
Depreciation and
amortization........... 1,559,792 1,633,880
Selling, general and
administrative
expenses............... 941,871 965,461
Interest expense, net... 500,577 304,453
Income before income
taxes and extraordinary
loss................... 1,251,768 1,483,702
Extraordinary loss, net
of taxes............... 181,000 --
Net income.............. 580,768 878,702
Earnings per common
share:
Earnings before
extraordinary item... $ 0.15 $ 0.15
Extraordinary loss per
share................ (0.03) --
---------- ----------
Net income per share.. $ 0.12 $ 0.15
========== ==========
Weighted average common
and common equivalent
shares outstanding..... 4,443,000 5,718,000
========== ==========
</TABLE>
Note: Weighted average common and common equivalent shares outstanding for all
periods have been adjusted to reflect a 1995 5% common stock dividend and
a January 1997 7% common stock dividend.
F-45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
-----------------
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Available Information...................................................... i
Incorporation of Certain Documents by Reference............................ i
Prospectus Summary......................................................... 1
Risk Factors............................................................... 11
The Transactions........................................................... 16
Use of Proceeds............................................................ 17
Pro Forma Capitalization................................................... 18
Unaudited Pro Forma Combined Consolidated Financial Information............ 19
Selected Historical Consolidated Financial Information of Alliance......... 26
Selected Historical Consolidated Financial Information of SMT.............. 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 28
Industry................................................................... 38
Business................................................................... 40
Management................................................................. 49
Principal Stockholders..................................................... 57
Certain Relationships and Related Transactions............................. 58
Description of the Credit Agreement........................................ 59
Description of the Notes................................................... 61
Underwriting............................................................... 87
Legal Matters.............................................................. 88
Experts.................................................................... 88
Index to Consolidated Financial Statements................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
--------------
PROSPECTUS
--------------
$170,000,000
ALLIANCE IMAGING, INC.
% SENIOR SUBORDINATED NOTES DUE 2005
JOINT BOOK-RUNNING MANAGERS
BT ALEX. BROWN
SMITH BARNEY INC.
-----------------
SALOMON BROTHERS INC
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee and the
National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee......................................... $51,515.00
NASD filing fee.............................................. 17,500.00
Blue sky fees and expenses................................... *
Printing and engraving expenses.............................. *
Legal fees and expenses...................................... *
Accounting fees and expenses................................. *
Trustee fees and expenses.................................... *
Miscellaneous................................................ *
----------
Total...................................................... $ *
==========
</TABLE>
- --------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation, By-Laws and
indemnification agreements with officers and directors provide for
indemnification to the full extent permitted by the laws of the State of
Delaware against and with respect to threatened, pending or completed actions,
suits or proceedings arising from or alleged to arise from, a party's actions
or omissions as a director, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust or other enterprise
which has served in such capacity at the request of the Company if such acts
or omissions occurred or were or are alleged to have occurred, while said
party was a director or officer of the Company; provided, however, the Company
shall not indemnify any director or officer in an action against the Company
unless the Company shall have consented to such action. Generally, under
Delaware law, indemnification will only be available where an officer or
director can establish that he/she acted in good faith and in a manner which
was reasonably believed to be in or not opposed to the best interests of the
Company.
Section 145 of the Delaware Law provides that a corporation may indemnify a
director, officer, employee or agent made a party to an action by reason of
the fact that such person was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually incurred by such person in connection with such action if such person
acted in good faith and in a manner such person reasonably believed to be in,
or not opposed to, the best interest of the corporation with respect to any
criminal action, and had no reasonable cause to believe his conduct was
unlawful. Delaware Law does not permit a corporation to eliminate a director's
duty of care, and the provisions of the Company's Amended and Restated
Certificate of Incorporation have no effect on the availability of equitable
remedies such as injunction or rescission, based upon a director's breach of
the duty of care. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions and agreements, the Company
has been informed that in the opinion of the Staff of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Securities Act and is therefore unenforceable.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1
to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act, in certain instances by the
Underwriters.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. NOTE EXHIBIT DESCRIPTION
- ----------- ---- --------------------------------------------------------------------------
<S> <C> <C>
1 (12) Form of Underwriting Agreement.
2.1 (10) Agreement and Plan of Merger dated as of July 23, 1997 between Alliance
and Newport Investment LLC (the "Recapitalization Merger Agreement").
2.2 (11) Amendment No. 1, dated as of August 13, 1997, to the Recapitalization
Merger Agreement.
2.3 (11) Guaranty Letter dated July 22, 1997, from AJF III to Alliance.
3.1 (11) Form of Amended and Restated Certificate of Incorporation of Alliance.
3.2 (13) By-Laws of Alliance, as amended.
4.1 (12) Form of Indenture for the % Senior Subordinated Notes due 2005
(including the Form of Note as Exhibit A thereto) between the Company and
, as trustee.
5 (13) Opinion of O'Sullivan Graev & Karabell, LLP.
9.1 (1) Amended and Restated Voting Trust Agreement between Donaldson, Lufkin &
Jenrette Capital Corporation and Meridian Trust Company dated December 29,
1988.
10.1 (10) Stockholder Agreement dated as of July 23, 1997 among Newport Investment
LLC and the stockholders of Alliance party thereto.
10.2 (4) Registration Rights Agreement dated as of December 31, 1994 among the
Registrant, the Senior Noteholders and the Senior Subordinated
Debentureholders.
10.3 (7) Amended and Restated 1991 Stock Option Plan of Alliance, including forms
of agreement used thereunder.
10.4 (1) Form of Indemnification Agreement between Alliance and its directors
and/or officers.
10.5 (2) Georgia Magnetic Imaging Center, Ltd. Limited Partnership Agreement dated
as of March 22, 1985.
10.6 (2) Amendment to Georgia Magnetic Imaging Center, Ltd., Limited Partnership
Agreement, dated as of July 1, 1993.
10.7 (3) Employment Agreement dated as of September 9, 1993 between Alliance and
Terry A. Andrues.
10.8 (3) Employment Agreement dated as of September 9, 1993 between Alliance and
Jay A. Mericle.
10.9 (9) Amended and Restated Employment Agreement dated as of May 15, 1997 between
Alliance and Terrence M. White.
10.10 (3) Employment Agreement dated as of June 6, 1994 between Alliance and Neil M.
Cullinan.
10.11 (3) Employment Agreement dated as of June 6, 1994 between Alliance and Cheryl
A. Ford.
10.12 (5) Employment Agreement dated July 7, 1995 between Alliance and Michael W.
Grismer.
10.13 (11) Employment Agreement dated as of July 23, 1997 between Alliance and
Richard N. Zehner.
10.14 (11) Employment Agreement dated as of July 23, 1997 between Alliance and
Vincent S. Pino.
10.15 (11) Agreement Not to Compete dated as of July 23, 1997 among Newport
Investment LLC, Alliance, Richard N. Zehner and Vincent S. Pino.
10.16 (11) Employment Agreement dated as of June 24, 1997 between SMT Health Services
Inc. and Jeff D. Bergman.
10.17 (9) Amended and Restated Long-Term Executive Incentive Plan dated as of July
22, 1997.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
10.18 (6) Agreement and Plan of Merger, dated as of April 16, 1996, among Alliance,
Alliance Imaging of Pennsylvania, Inc. and Royal Medical Health Services
Inc.
10.19 (6) Acquisition Agreement, among Alliance, A&M Trucking Inc. and each of Mark
J. Graham and Albert F. Calfo, II, dated April 16, 1996.
10.20 (8) Stock Purchase Agreement, dated as of March 25, 1997, between Alliance and
General Electric Company.
10.21 (13) Form of Credit Agreement.
10.22 (13) 1997 Three Rivers Holding Corp. Stock Option Plan, including forms of
agreement used thereunder.
10.23 (13) Form of Three Rivers Holding Corp. Rollover Stock Option Plan.
11 (11) Statement of Computation of Per Share Earnings.
12.1 (14) Statement of Computation of Earnings to Fixed Charges of Alliance.
12.2 (14) Statement of Computation of Earnings to Fixed Charges of SMT.
21 (11) List of Subsidiaries.
23.1 (12) Consent of Ernst & Young LLP.
23.2 (12) Consent of KPMG Peat Marwick LLP.
23.3 Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5).
24.1 (14) Power of Attorney.
25 (13) Statement of Eligibility of [Trustee].
27.1 (14) Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference herein to the indicated exhibits filed in
response to Item 16, "Exhibits" of Alliance's Registration Statement on
Form S-1, No. 33-40805, initially filed on May 24, 1991.
(2) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of Alliance's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
(3) Incorporated by reference herein to the indicated exhibit filed in
response to Item 6(a), "Exhibits" of Alliance's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
(4) Incorporated by reference herein to Exhibit 4.5 filed in response to Item
7, "Exhibits" of Alliance's Form 8-K Current Report dated January 25,
1995.
(5) Incorporated by reference herein to Exhibit 10.36 filed in response to
Item 6(a), "Exhibits" of Alliance's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(6) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of Alliance's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
(7) Incorporated by reference herein to Exhibits filed with Alliance's
Registration Statement on Form S-1, No. 33-40805, initially filed on May
24, 1991 and Alliance's definitive Proxy Statement with respect to its
Annual Meeting of Shareholders held May 16, 1996.
(8) Incorporated by reference herein to the indicated Exhibit in response to
Item 14(a)(3), "Exhibits" of Alliance's Annual Report on Form 10-K for
the year ending December 31, 1996.
(9) Incorporated by reference to indicated exhibits filed in response to Item
6, "Exhibits" of Alliance's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
(10) Incorporated by reference herein to the indicated exhibits filed in
response to Item 5, "Exhibits" of Alliance's Form 8-K Current Report
dated August 1, 1997.
(11) Incorporated by reference to the indicated exhibits filed in response to
Item 21, "Exhibits" of Alliance's Registration Statement on Form S-4, No
333-33787, initially filed on August 15, 1997.
(12) Filed herewith.
(13) To be filed by amendment.
(14) Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules
Alliance Imaging, Inc.
Report of Independent Auditors on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
SMT Health Services Inc.
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
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 DGCL, the Certificate of Incorporation and By-laws,
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 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.
The Registrant hereby undertakes that:
(1) 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 the 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.
(2) 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Anaheim, State of California, on the 29th day of September, 1997.
Alliance Imaging, Inc.
By: /s/ Terrence M. White
-------------------------------
Name: Terrence M. White
Title:Senior Vice President, Chief
Financial Officer and
Secretary
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on the 29th day of September, 1997, by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
* Chairman of the Board of
- ------------------------------------ Directors, President and
RICHARD N. ZEHNER Chief Executive Officer
(Principal Executive Officer)
* Executive Vice President,
- ------------------------------------ Chief Operating Officer
VINCENT S. PINO and Director
/s/ Terrence M. White Senior Vice President, Chief
- ------------------------------------ Financial Officer and
TERRENCE M. WHITE Secretary (Principal
Financial Officer)
* Controller (Principal
- ------------------------------------ Accounting Officer)
MICHAEL W. GRISMER
* Director
- ------------------------------------
JAMES E. BUNCHER
* Director
- ------------------------------------
DOUGLAS M. HAYES
Director
- ------------------------------------
ROBERT B. WALEY-COHEN
* Director
- ------------------------------------
JOHN C. WALLACE
/s/ Terrence M. White
- ------------------------------------
*BY: TERRENCE M. WHITE
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Anaheim, State of California, on the 29th day of September, 1997.
SMT Acquisition Corp.
By: /s/ Terrence M. White
----------------------------------
Name: Terrence M. White
Title:Senior Vice President,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on the 29th day of
September, 1997, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Chairman of the
* Board of Directors,
- ------------------------------------- President and Chief
RICHARD N. ZEHNER Executive Officer
(Principal
Executive Officer)
Executive Vice
* President, Chief
- ------------------------------------- Operating Officer
VINCENT S. PINO and Director
/s/ Terrence M. White Senior Vice
- ------------------------------------- President, Chief
TERRENCE M. WHITE Financial Officer,
Secretary and
Director (Principal
Financial Officer)
Controller
* (Principal
- ------------------------------------- Accounting Officer)
MICHAEL W. GRISMER
/s/ Terrence M. White
- -------------------------------------
*BY: TERRENCE M. WHITE
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Anaheim, State of California, on the 29th day of September, 1997.
Royal Medical Health Services, Inc.
By: /s/ Terrence M. White
----------------------------------
Name: Terrence M. White
Title:Senior Vice President,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on the 29th day of
September, 1997, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
Chairman of the
* Board of Directors,
- ------------------------------------- President and Chief
RICHARD N. ZEHNER Executive Officer
(Principal
Executive Officer)
Executive Vice
* President, Chief
- ------------------------------------- Operating Officer
VINCENT S. PINO and Director
Senior Vice
/s/ Terrence M. White President, Chief
- ------------------------------------- Financial Officer,
TERRENCE M. WHITE Secretary and
Director (Principal
Financial Officer)
Controller
* (Principal
- ------------------------------------- Accounting Officer)
MICHAEL W. GRISMER
/s/ Terrence M. White
- ---------------------------------
*By: Terrence M. White
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Anaheim, State of California, on the 29th day of September, 1997.
Alliance Imaging of Central Georgia,
Inc.
By: /s/ Terrence M. White
----------------------------------
Name: Terrence M. White
Title:Senior Vice President, Chief
Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on the 29th day of
September, 1997, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Chairman of the
* Board of Directors,
- ------------------------------------- President and Chief
RICHARD N. ZEHNER Executive Officer
(Principal
Executive Officer)
Executive Vice
* President, Chief
- ------------------------------------- Operating Officer
VINCENT S. PINO and Director
Senior Vice
/s/ Terrence M. White President, Chief
- ------------------------------------- Financial Officer,
TERRENCE M. WHITE Secretary and
Director (Principal
Financial Officer)
Controller
* (Principal
- ------------------------------------- Accounting Officer)
MICHAEL W. GRISMER
/s/ Terrence M. White
- -----------------------------------
*By: Terrence M. White
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
INDEPENDENT AUDITORS REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
Alliance Imaging, Inc.
We have audited the consolidated financial statements of Alliance Imaging,
Inc. as of December 31, 1995 and 1996, and for each of the three years in the
period ended December 31, 1996, and have issued our report thereon dated
February 21, 1997, except for Note 4, as to which the date is March 26, 1997,
and Note 9, as to which the date is July 23, 1997 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Orange County, California
February 21, 1997, except for Note 4, as to
which the date is March 26, 1997, and Note 9,
as to which the date is July 23, 1997
S-1
<PAGE>
ALLIANCE IMAGING, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE DEDUCTIONS BALANCE
AT ADDITIONS (BAD DEBT AT END
BEGINNING CHARGED TO WRITE- OF
OF PERIOD EXPENSE OFFS) PERIOD
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for Doubtful Accounts....... $360,000 $609,000 $(581,000) $388,000
======== ======== ========= ========
Year ended December 31, 1995
Allowance for Doubtful Accounts....... $388,000 $ -- $ (21,000) $367,000
======== ======== ========= ========
Year ended December 31, 1996
Allowance for Doubtful Accounts....... $367,000 $567,000 $(421,000) $513,000
======== ======== ========= ========
</TABLE>
S-2
<PAGE>
INDEPENDENT AUDITORS REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
SMT Health Services Inc.:
Under date of January 31, 1997, except as to Note 18 which is as of March 4,
1997, we reported on the consolidated balance sheets of SMT Health Services
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of SMT's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 31, 1997, except as
for Note 18 which is as of
March 4, 1997
S-3
<PAGE>
SMT HEALTH SERVICES INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS ADDITIONS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
DESCRIPTIONS OF PERIOD COSTS & EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- ---------------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Provision for loss on
disposal of
discontinued
operations............. $1,400,000 $200,000 $ -- $1,144,000 $456,000
========== ======== ===== ========== ========
Valuation allowance
related to deferred tax
assets................. $ 487,500 $ -- $ -- $ 72,500 $415,000
========== ======== ===== ========== ========
Allowance for doubtful
accounts............... $ 13,000 $ -- $ -- $ 13,000 $ --
========== ======== ===== ========== ========
YEAR ENDED DECEMBER 31,
1995
Provision for loss on
disposal of
discontinued
operations............. $ 456,000 $ -- $ -- $ 456,000 $ --
========== ======== ===== ========== ========
Valuation allowance
related to deferred tax
assets................. $ 415,000 $ -- $ -- $ 312,000 $103,000
========== ======== ===== ========== ========
YEAR ENDED DECEMBER 31,
1996
Valuation allowance
related to deferred tax
assets................. $ 103,000 $ -- $ -- $ 103,000 $ --
========== ======== ===== ========== ========
</TABLE>
S-4
<PAGE>
EXHIBIT 1
ALLIANCE IMAGING, INC.
$170,000,000 [ ]% Senior Subordinated Notes due 2005
UNDERWRITING AGREEMENT
----------------------
[ ], 1997
BT Alex. Brown Incorporated
Smith Barney Inc.
Salomon Brothers Inc
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
New York, New York 10005
Ladies and Gentlemen:
Alliance Imaging, Inc., a Delaware corporation ("Alliance"), hereby
--------
confirms its agreement with you (the "Underwriters") as set forth below.
------------
1. The Securities. Subject to the terms and conditions herein
--------------
contained, Alliance proposes to issue and sell to the Underwriters (the
"Offering") $170,000,000 aggregate principal amount of its Senior Subordinated
--------
Notes due 2005 (the "Notes"). The Notes will be issued pursuant to an indenture
-----
(the "Indenture") to be entered into among Alliance, as issuer, the Guarantors
---------
(as defined below) and [ ], as trustee (the "Trustee").
-------
The Notes will be unconditionally guaranteed (the "Guarantees") on a
----------
senior subordinated basis by SMT Acquisition Corp., a Delaware corporation,
Royal Medical Health Services, Inc., a Pennsylvania corporation, and Alliance
Imaging of Central Georgia, Inc., a Georgia corporation (collectively, the
"Guarantors"), each of which is a wholly owned subsidiary of Alliance. The
- -----------
Notes and the Guarantees are collectively referred to as the "Securities".
----------
Alliance and the Guarantors are collectively referred to as the "Issuers".
-------
The Notes are being sold in connection with the recapitalization of
Alliance (the "Recapitalization") which will be effected pursuant to an
----------------
Agreement and Plan of Merger dated as of July 23, 1997, as amended, whereby
Newport Acquisition Company ("Newco"), a Delaware corporation, will be merged
-----
with
<PAGE>
-2-
and into Alliance with Alliance being the surviving corporation. The
Recapitalization will be consummated concurrently with the Offering.
Immediately following the Recapitalization, Alliance will acquire (the
"SMT Acquisition") SMT Health Services Inc., a Delaware corporation ("SMT"), by
--------------- ---
merging SMT Acquisition Corp. into Three Rivers Holding Corp., a Delaware
corporation and the parent corporation of SMT. In connection with the
Recapitalization and the SMT Acquisition, Alliance will execute an agreement
(the "Credit Agreement") with Bankers Trust Company, as agent, and certain
----------------
lenders thereto to provide Alliance a loan commitment of up to $200 million.
The Offering, the Recapitalization, the SMT Acquisition and the
related borrowings under the Credit Agreement are collectively referred to as
the "Transactions". The Securities, the Indenture and this Agreement are
------------
collectively referred to herein as the "Operative Documents".
-------------------
The consummation of the Transactions, and other transactions
contemplated thereby, will be concurrent, and the Offering is conditioned upon
consummation of the other components of the Transactions.
2. Representations and Warranties. The Issuers represent and warrant
------------------------------
to and agree with the Underwriters that:
(a) A registration statement on Form S-2, including a prospectus,
subject to completion, has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
----------
(together with the rules and regulations of the Commission promulgated
thereunder, the "Act"), by Alliance with respect to the Securities (File
---
No. 333- ), and one or more amendments to such registration statement
also have been so filed. If such registration statement has been declared
effective, either (i) an additional registration statement relating to the
Securities may have been filed with the Commission pursuant to Rule 462(b)
("Rule 462(b)") (the "Rule 462(b) Registration Statement") under the Act
----------- ----------------------------------
and, if so filed, has become effective
<PAGE>
-3-
upon filing pursuant to Rule 462(b) and the Securities all have
been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to Rule 462(b) and upon such filing
the Securities will all have been duly registered under the Act pursuant to
the initial registration statement and such additional registration
statement. After the execution of this Agreement, Alliance will file with
the Commission either (x) if such registration statement, as it may have
been amended, has been declared by the Commission to be effective under the
Act, a prospectus in the form most recently included in an amendment to
such registration statement (or, if no such amendment shall have been
filed, in such registration statement) with such changes or insertions as
are required by Rule 430A under the Act or permitted by Rule 424(b) under
the Act and as have been provided to and approved by the Underwriters prior
to the execution of this Agreement, or (y) if such registration statement,
as it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement,
including any 462(b) Registration Statement and including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Underwriters prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration
----------------------
statement, as amended at the time when it was or is declared effective,
including any 462(b) Registration Statement and including all financial
schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Preliminary Prospectus"
----------------------
means each prospectus, subject to completion, filed with such registration
statement or any amendment thereto (including the prospectus, subject to
completion, if any, included in such Registration Statement or any
amendment thereto at the time it was or is declared effective); and the
term "Prospectus" means the prospectus included in the Registration
----------
Statement, in the form in which such prospectus was filed with the
Commission pursuant to Rule 424(b) under the Act or, if no prospectus is
required to be filed pursuant to said Rule 424(b) with respect to any such
Registration Statement, such term means the prospectus included in such
Registration Statement. Any reference herein to any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto shall be
deemed to refer to and include the documents incorporated therein by
reference pursuant to Item 12 of Form S-2 under the Act, as of the date of
such Preliminary Prospectus or the Prospectus (all such incorporated
documents being herein called the "Incorporated Documents").
----------------------
<PAGE>
-4-
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was
filed with the Commission it (x) complied in all material respects with the
requirements of the Act and (y) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any amendment
thereto was or is declared effective, it (1) contained or will contain
all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with, the requirements
of the Act and (2) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b)
(or, if the Prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing the Prospectus or amendment or supplement to the Prospectus was
or is declared effective) and on the Closing Date (as defined in Section
3), the Prospectus, as amended or supplemented at such time, (i) complied
or will comply in all material respects with the requirements of the Act
and (ii) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each document incorporated by reference in any
Preliminary Prospectus or the Prospectus, when filed with the Commission,
(A) complied in all material respects with the requirements of the Act and
the Exchange Act and (B) did not include 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 foregoing provisions of this paragraph (b) do not apply to
statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to Alliance by the Underwriters specifically
for use therein or to the Statement of Eligibility and Qualification (the
"Form T-1") under the Trust Indenture Act of 1939, as amended (the "Trust
-------- -----
Indenture Act"), of the Trustee filed as an exhibit to the Registration
-------------
Statement.
<PAGE>
-5-
(c) At the Closing Date after giving effect to the Transactions,
Alliance will have the authorized, issued and outstanding capitalization
set forth in the Prospectus under the caption "Pro Forma Capitalization";
all of the outstanding shares of capital stock of Alliance are duly
authorized and validly issued, fully paid and nonassessable and not issued
in violation of any preemptive or similar rights. Except as described in
the Prospectus, all of the outstanding shares of capital stock of Alliance
when issued were free and clear of all liens, encumbrances, equities and
claims or restrictions on transferability (other than those imposed by the
Act and the securities or "Blue Sky" laws of certain jurisdictions), or
voting; except as described in the Prospectus, there are no (i) options,
warrants or other rights to purchase, (ii) agreements or other obligations
to issue or (iii) other rights to convert any obligation into, or exchange
any securities for, shares of capital stock of or ownership interests in
Alliance. Except as described in the Registration Statement, Alliance does
not own, directly or indirectly, any shares of capital stock or any other
equity or long-term debt securities or have any equity interest in any
firm, partnership, joint venture or other entity.
(d) Alliance, the subsidiaries of Alliance listed on Exhibit A
attached hereto (each, a "Subsidiary" and collectively, the "Subsidiaries")
---------- ------------
and, to the best knowledge of Alliance, SMT, are duly incorporated, validly
existing and in good standing as corporations under the laws of their
respective jurisdictions of incorporation, with all requisite corporate
power and authority (corporate or otherwise) to own or lease their
properties and conduct their businesses as now conducted. Each of Alliance,
to the best knowledge of Alliance, SMT, and the Subsidiaries is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions where the ownership or leasing of its properties or the
conduct of its businesses requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, condition (financial or other) or results of operations or
prospects of Alliance and the Subsidiaries, taken as a whole (any such
event, a "Material Adverse Effect").
-----------------------
(e) Alliance and each of the Guarantors has all requisite corporate
power and authority to execute, deliver and perform its respective
obligations under this Agreement and the other Operative Documents and to
consummate
<PAGE>
-6-
the transactions contemplated hereby and thereby, including, without
limitation, the power and authority to issue, sell and deliver the
Securities as contemplated by this Agreement.
(f) This Agreement has been duly and validly authorized, executed and
delivered by Alliance and each of the Guarantors.
(g) The Notes have been duly and validly authorized by Alliance for
issuance and conform in all material respects to the description thereof in
the Prospectus. The Notes, when executed by Alliance and authenticated by
the Trustee in accordance with the provisions of the Indenture, and
delivered to and paid for by the Underwriters in accordance with the terms
hereof, will have been duly executed, issued and delivered and will
constitute valid and binding obligations of Alliance, entitled to the
benefits of the Indenture enforceable against Alliance in accordance with
their terms, except that (i) the enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (B) general principles of equity and the discretion of
the court before which any proceeding therefor may be brought (regardless
of whether such enforcement is considered in a proceeding in equity or at
law), (each of clauses (A) and (B), an "Enforceability Limitation") and
-------------------------
(ii) the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws.
(h) The Guarantees have been duly and validly authorized for issuance
and sale to the Underwriters by the Guarantors and, when the Notes are duly
and validly authorized, executed, issued and authenticated in accordance
with the terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof, will be the valid and binding obligations
of each of the Guarantors, enforceable against each of the Guarantors in
accordance with their terms and entitled to the benefits of the Indenture,
except that the enforcement thereof may be subject to the Enforceability
Limitations and the enforceability of any indemnification or contribution
provisions thereof may be limited under applicable securities laws or the
public policies underlying such laws.
<PAGE>
-7-
(i) The Indenture has been duly authorized by Alliance and each of the
Guarantors and, when executed and delivered by Alliance and each of the
Guarantors (assuming the due authorization, execution and delivery thereof
by the Trustee), will constitute a valid and binding agreement of Alliance
and the Guarantors, enforceable against each of them in accordance with its
terms, except that the enforcement thereof may be subject to the
Enforceability Limitations and the enforceability of any indemnification or
contribution provisions thereof may be limited under applicable securities
laws or the public policies underlying such laws. The Indenture has been
qualified under the Trust Indenture Act and complies as to form in all
material respects with the requirements of the Trust Indenture Act.
(j) The Credit Agreement has been duly authorized by Alliance and each
of the Guarantors and, when duly executed and delivered by Alliance, will
be the valid and binding obligation of Alliance and the Guarantors
enforceable against each of them in accordance with its terms, except that
the enforcement thereof may be subject to the Enforceability Limitations
and the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws.
(k) Alliance and each of the Guarantors has the requisite corporate
power and authority to enter into the Transactions (to the extent each is a
party thereto).
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the performance of the Operative Documents or the Transactions
by Alliance and the Guarantors or of any of the transactions contemplated
hereby or thereby, except such as have been obtained or are contemplated to
be obtained by the Prospectus and such as may be required under the Act,
the Trust Indenture Act or state securities or "Blue Sky" laws in
connection with the purchase and distribution of the Securities by the
Underwriters and in connection with the Transactions. Neither Alliance or
any of the Subsidiaries is (i) in violation of its certificate of
incorporation or bylaws, (ii) in violation of any statute, judgment,
decree, order, rule or regulation applicable to any of them or any of their
respective properties or assets which violation would have a Material
Adverse Effect, or (iii) in
<PAGE>
-8-
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan agreement, note, lease, license, franchise agreement,
permit, certificate or other agreement or instrument to which any of them
is subject (collectively, the "Contracts"), which default would have a
---------
Material Adverse Effect.
(m) The execution, delivery and performance by Alliance and the
Guarantors of the Operative Documents and the consummation of the
Transactions (to the extent each such person is a party thereto) and the
transactions contemplated hereby and thereby will not conflict with or
constitute or result in a breach or violation of any of (x) the terms or
provisions of, or constitute a default by any of them under, any of the
Contracts, which conflict, breach, violation or default, individually or in
the aggregate, would have a Material Adverse Effect, (y) the certificate of
incorporation or bylaws of any such person, or (z) any statute, judgment,
decree, order, rule or regulation (excluding state securities and "Blue
Sky" laws) of any court or governmental agency or other body applicable to
any such person, or any of their respective properties, which conflict,
breach, violation or default, individually or in the aggregate, would have
a Material Adverse Effect.
(n) Each of the Transactions conforms in all material respects to the
description thereof in the Prospectus.
(o) The fair value and present fair saleable value of the assets of
Alliance and each of the Guarantors exceeds the sum of its stated
liabilities and identified contingent liabilities; and (y) after giving
effect to the Transactions and the consummation of the transactions
contemplated thereby and by the Prospectus, Alliance and each of the
Guarantors will not be (a) left with unreasonably small capital with which
to carry on its business as it is proposed to be conducted, (b) unable to
pay its debts (contingent or otherwise) as they mature or (c) insolvent.
(p) The audited and unaudited consolidated financial statements of
Alliance and SMT, and the related notes included in the Prospectus present
fairly in all material respects the consolidated financial position,
results of operations and cash flows of Alliance and, to the best knowledge
of Alliance, of SMT at the dates and for the periods to which they relate,
and have been prepared in ac-
<PAGE>
-9-
cordance with generally accepted accounting principles applied on a
consistent basis.
(q) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Prospectus have
been prepared in accordance with applicable requirements of Regulation S-X
promulgated under the Exchange Act and have been properly computed on the
bases described therein. The assumptions used in the preparation of the
pro forma financial statements and other pro forma financial information
included in the Prospectus are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein in all material respects.
(r) Ernst & Young LLP and KPMG Peat Marwick LLP, which have audited
certain of such financial statements and schedules as set forth in their
reports included in the Registration Statement and the Prospectus, are
independent public accounting firms as required by the Act.
(s) Except as described in the Prospectus, there is not pending or, to
the knowledge of Alliance, threatened any action, suit, proceeding, inquiry
or investigation to which Alliance or the Guarantors or, to the best
knowledge of Alliance, SMT or any of their respective property is subject,
before or brought by any court or governmental agency or body, which could
reasonably be expected to have a Material Adverse Effect.
(t) Alliance, the Guarantors and, to the best knowledge of Alliance,
SMT have obtained all licenses, permits, franchises and other governmental
authorizations necessary to conduct their respective business as described
in the Prospectus and the lack of which would have a Material Adverse
Effect.
(u) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
described therein or contemplated thereby, none of Alliance or the
Guarantors has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, not in the ordinary
course of business.
(v) Except as described in the Prospectus, (A) each of Alliance, the
Guarantors and, to the best knowledge of
<PAGE>
-10-
Alliance, SMT is in compliance with and not subject to liability under
applicable Environmental Laws (as defined below), (B) each of Alliance, the
Guarantors and, to the best knowledge of Alliance, SMT has made all filings
and provided all notices required under any applicable Environmental Law,
and is in compliance with all permits required under any applicable
Environmental Laws, (C) there is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or
threatened against Alliance, any of the Guarantors or, to the best
knowledge of Alliance, against SMT under any Environmental Law, (D) no
lien, charge, encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or property owned,
operated, leased or controlled by Alliance, any of the Guarantors or, to
the best knowledge of Alliance, by SMT, (E) none of Alliance, the
Guarantors or, to the best knowledge of Alliance, SMT, has received notice
that it has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any comparable state law, and (F) no
------
property or facility of Alliance, any of the Guarantors or, to the best
knowledge of Alliance, of SMT, is (i) listed or, to Alliance's knowledge,
proposed for listing on the National Priorities List under CERCLA or is
(ii) listed in the Comprehensive Environmental Response, Compensation,
Liability Information System List promulgated pursuant to CERCLA, or, to
Alliance's knowledge, on any comparable list maintained by any state or
local governmental authority; except, in the case of clauses (A), (B) and
(D) for such noncompliance with applicable Environmental Laws, failures to
make filings and provide notices under applicable Environmental Laws and
recording of liens, charges, encumbrances or restrictions under any
Environmental Laws that, individually or in the aggregate, has not had a
Material Adverse Effect and would not reasonably be expected to have a
Material Adverse Effect.
For purposes of this Agreement, "Environmental Laws" means the common law
------------------
and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder, relating to pollution or protection of public health
and safety or the environment, including, without limitation, laws relating
to (i) emissions, discharges, releases or threatened releases of hazardous
materials
<PAGE>
-11-
into the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation, treatment, storage,
disposal, transport or handling of hazardous materials, and (iii)
underground and above ground storage tanks and related piping, and
emissions, discharges, releases or threatened releases therefrom.
(w) There is no strike, labor dispute, slowdown or work stoppage with
the employees of Alliance or, to the best knowledge of Alliance, of SMT, or
any of the Guarantors which is pending or, to the knowledge of Alliance,
threatened.
(x) Each of Alliance, the Guarantors and, to the best knowledge of
Alliance, SMT, carries insurance (including self-insurance) in such amounts
and covering such risks as would be obtained by companies in the same or
similar businesses in the ordinary course for the conduct of its business
and the value of its properties.
(y) Each of Alliance, the Guarantors and, to the best knowledge of
Alliance, SMT, has good title to all personal property described in the
Prospectus as being owned by it and good and marketable title to a
leasehold estate in the real and personal property described in the
Prospectus as being leased by it free and clear of all liens, charges,
encumbrances or restrictions, except as described in the Prospectus or to
the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect.
(z) None of Alliance, the Guarantors or, to the best knowledge of
Alliance, SMT, has any liability for any prohibited transaction or
accumulated funding deficiency (within the meaning of Section 412 of the
Code) or any complete or partial withdrawal liability with respect to any
pension, profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which
-----
Alliance or any of the Guarantors makes or ever has made a contribution and
in which any employee of Alliance or any of the Guarantors is or has ever
been a participant. With respect to such plans, Alliance and each of the
Guarantors is in compliance in all material respects with all applicable
provisions of ERISA.
<PAGE>
-12-
(aa) Neither Alliance nor any of the Guarantors or any agent acting on
behalf of them, has taken or will take any action that might cause this
Agreement or the issuance or sale of the Securities to violate Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System as in
effect on the Closing Date.
(bb) Neither Alliance nor any of the Guarantors is now, and after
giving effect to the Transactions and the other transactions contemplated
by the Prospectus will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(cc) All taxes, assessments, fees and other charges (including,
without limitation, withholding taxes, penalties, and interest) due or
claimed to be due from Alliance, the Guarantors and, to the best knowledge
of Alliance, from SMT, that are due and payable have been paid, other than
those being contested in good faith or those currently payable without
penalty or interest and for which an adequate reserve or accrual has been
established in accordance with generally accepted accounting principles,
and except where the failure so to pay would not, individually or in the
aggregate, have a Material Adverse Effect. Neither Alliance or any of the
Guarantors knows of any actual or proposed additional tax assessments for
any fiscal period against Alliance, the Guarantors nor SMT, individually or
in the aggregate, which would have a Material Adverse Effect.
(dd) Alliance has delivered to the Underwriters a true and correct
copy of each of the documents contemplated by the Transactions, together
with all related agreements and all schedules and exhibits thereto, and
there shall have been no material amendments, alterations, modifications or
waivers of any of the provisions of any such documents since their
respective dates of execution, other than any such amendments, alterations,
modifications and waivers as to which the Underwriters have been advised in
writing and which would be required to be disclosed in the Prospectus; and
to the best knowledge of Alliance and the Guarantors there exists no event
or condition which would constitute a default or an event of default under
any of the documents contemplated by the Transactions which would result in
a Material Adverse Effect or materially adversely affect the ability of
Alliance and the Guarantors to consummate the Transactions.
<PAGE>
-13-
Any certificate signed by any officer of Alliance or any of the
Guarantors and delivered to the Underwriters or to counsel for the Underwriters
shall be deemed a joint and several representation and warranty by Alliance and
the Guarantors to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of the
---------------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, Alliance agrees to issue
and sell to the Underwriters, and each of the Underwriters severally agrees to
purchase from Alliance, at [ ]% of their principal amount, the respective
aggregate principal amounts of the Notes set forth opposite their respective
names on Exhibit B hereto. The obligations of the Underwriters under this
Agreement are several and not joint. One or more certificates in definitive
form for the Notes that the Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Underwriters request upon notice to Alliance at least two business days
prior to the Closing Date, shall be delivered by or on behalf of Alliance,
against payment by or on behalf of the Underwriters, of the purchase price
therefor by wire transfer of immediately available funds to the account of
Alliance previously designated by it in writing. Such delivery of and payment
for the Securities shall be made at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York 10005, at 10:00 a.m. New York time, on [ ],
1997, or at such other place, time or date as the Underwriters and Alliance
may agree upon, such time and date of delivery against payment being herein
referred to as the "Closing Date." Alliance will make such certificate or
------------
certificates for the Notes available for checking and packaging by the
Underwriters at the offices in New York, New York of BT Securities Corporation
at least 24 hours prior to the Closing Date.
4. Offering by the Underwriters. After the Registration Statement
----------------------------
becomes effective, the Underwriters propose to offer for sale to the public the
Securities at the price and upon the terms set forth in the Prospectus.
5. Certain Covenants. Each of the Issuers covenants and agrees with
-----------------
the Underwriters that:
(a) The Issuers will use all reasonable efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective promptly. If, at
the time
<PAGE>
-14-
the Registration Statement becomes effective, any information shall have
been omitted therefrom in reliance upon Rule 430A of the rules and
regulations of the Commission under the Act, then immediately following the
execution of this Agreement, the Issuers will prepare, and thereafter the
Issuers will file or transmit for filing with the Commission in accordance
with such Rule 430A and Rule 424(b) of the rules and regulations of the
Commission under the Act, copies of an amended Prospectus relating to such
Registration Statement, or, if required by such Rule 430A, a post-effective
amendment to such Registration Statement (including an amended Prospectus),
containing all information so omitted. The Issuers will give each
Underwriter notice of their intention to file any amendment to any
Registration Statement (including any post-effective amendment) or any
amendment or supplement to any Prospectus (including any revised prospectus
which the Issuers propose for use by the Underwriters in connection with
the offering of the Securities which differs from any prospectus on file at
the Commission at the time the Registration Statement including such
prospectus becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the rules and regulations
of the Commission under the Act), will furnish the Underwriters with copies
of any such amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which the
Underwriters shall reasonably object in writing or which is not in
compliance with the Act. The Issuers will advise the Underwriters, promptly
after any of them receive notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or
the Prospectus or any amendment or supplement thereto has been filed and
will provide evidence satisfactory to the Underwriters of such filing or
effectiveness.
(b) The Issuers will advise the Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or any Prospectus, or any
amendment or supplement thereto, (ii) the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, (iii) the
institution, threatening or contemplation of any proceeding for any such
purpose or (iv) any request made by the Commis-
<PAGE>
-15-
sion for amending any Registration Statement, for amending or supplementing
the Prospectus or for additional information. The Issuers will use their
best efforts to prevent the issuance of any such stop order and, if any
such stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(c) The Issuers will cooperate with the Underwriters in arranging for
the qualification of the Notes for offering and sale under the securities
or "Blue Sky" laws of such jurisdictions as the Underwriters may designate
and will continue such qualifications in effect for as long as may be
necessary to complete the initial distribution of the Notes by the
Underwriters; provided, however, that in connection therewith the Issuers
-------- -------
shall not be required to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction, to take any
other action that would subject it to general service of process or to
taxation in respect of doing business.
(d) If, at any time when a Prospectus relating to the Securities is
required to be delivered under the Act, any event shall occur as a result
of which it is necessary, in the opinion of counsel for the Underwriters,
to amend or supplement any Prospectus in order to make such Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if for any other reason it shall be necessary
to amend or supplement the Prospectus in order to comply with the Act and
the Exchange Act, the Issuers shall (subject to Section 5(a)) forthwith
amend or supplement such Prospectus so that, as so amended or supplemented,
such Prospectus will 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 the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading and will comply with the Act and
the Exchange Act, and the Issuers will furnish to the Underwriters a
reasonable number of copies of such amendment or supplement.
(e) The Issuers will without charge, provide (i) to each Underwriter
and to counsel for the Underwriters a signed copy of each registration
statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) and (ii) so
long as a prospectus relating to the Securities is required to be delivered
under the Act, as many copies of
<PAGE>
-16-
the Preliminary Prospectus or Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(f) Subject to Section 5(a), the Issuers will timely complete all
required filings and otherwise comply fully in a timely manner with all
provisions of the Exchange Act and promptly file all reports and any
definitive proxy or information statements required to be filed by the
Issuers with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offer or sale of any of the Notes.
(g) The Issuers will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earning statement (in form complying with the
provisions of Rule 158 of the rules and regulations of the Commission under
the Act) covering a twelve-month period beginning not later than the first
day of the fiscal quarter of the Issuers next following the "effective
date" (as defined in Rule 158) of the Registration Statement.
(h) The Issuers will apply the net proceeds from the sale of the
Securities as set forth in the Prospectus.
(i) Prior to the Closing Date, the Issuers will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Issuers, a copy of any unaudited interim financial statements of the
Issuers for any period subsequent to the period covered by the most recent
financial statements appearing in the Registration Statement and the
Prospectus.
(j) Upon consummation of the SMT Acquisition, the Issuers will cause
SMT to enter into a supplemental indenture to the Indenture providing for
the guarantee by SMT of the Notes on a senior subordinated basis.
6. Expenses. The Issuers agree to pay all costs and expenses incident
--------
to the performance of their obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including, but not limited to, all costs and
expenses incident to (i) the printing, word processing or other production of
documents with respect to such transac-
<PAGE>
-17-
tions, including any costs of printing the registration statement originally
filed with respect to the Securities and any amendments thereto, any Preliminary
Prospectus and any Prospectus and any amendments or supplements thereto, and any
"Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Issuers, (iv) the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, (v) the
qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and reasonable fees and disbursements of counsel for the
Underwriters relating thereto, (vi) the filing fees of the Commission and the
National Association of Securities Dealers, Inc. relating to the Securities,
(vii) expenses in connection with any meetings with prospective investors in the
Securities, (viii) fees and expenses of the Trustee, including fees and expenses
of its counsel, (ix) advertising relating to the offering of the Securities
(other than as shall have been specifically approved by the Underwriters to be
paid for by the Underwriters), and (x) any fees charged by investment rating
agencies for the rating of the Securities. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated or because of any failure, refusal or inability on the
part of the Issuers to perform all obligations and satisfy all conditions on
their part to be performed or satisfied hereunder (other than solely by reason
of a default by the Underwriters of their obligations hereunder after all
conditions hereunder have been satisfied in accordance herewith), the Issuers
agree to promptly reimburse the Underwriters upon demand for all out-of-pocket
expenses (including all counsel fees and disbursements) that shall have been
incurred by the Underwriters in connection with the proposed purchase and sale
of the Securities and any other transactions contemplated by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligation of the
-------------------------------------------
Underwriters to purchase and pay for the Securities are subject to the accuracy
of the representations and warranties contained herein, to the performance by
the Issuers of their covenants and agreements hereunder and in satisfaction of
the following additional conditions:
(a) If the registration statement originally filed with respect to the
Securities, or any amendment thereto filed prior to the Closing Date has
not been declared ef-
<PAGE>
-18-
fective as of the time of execution hereof, such registration statement or
such amendment shall have been declared effective not later than 12:00
noon, New York City time, on the date on which the amendment to such
registration statement originally filed with respect to the Securities, or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been
filed with the Commission, or such later time and date as shall have been
consented to by the Underwriters; if required, the Prospectus and any
amendment or supplement thereto shall have been filed in accordance with
Rule 424(b) under the Act; no stop order suspending the effectiveness of
the Registration Statement or any amendment thereto or the qualification of
the Indenture under the Trust Indenture Act shall have been issued and no
proceedings for that purpose shall have been instituted or to the knowledge
of the Issuers or the Underwriters, shall be threatened or contemplated by
the Commission.
(b) The Underwriters shall have received an opinion in form and
substance satisfactory to the Underwriters, dated the Closing Date, of
O'Sullivan Graev and Karabell LLP, special counsel to the Issuers,
substantially in the form of Exhibit C hereto.
(c) The Underwriters shall have received an opinion in form and
substance satisfactory to the Underwriters, dated the Closing Date, of
Irell & Manella LLP, general counsel to the Issuers, substantially in the
form of Exhibit D hereto.
(d) The Underwriters shall have received an opinion in form and
substance satisfactory to the Underwriters, dated the Closing Date, of
[ ], Pennsylvania counsel to Alliance, substantially in the form
of Exhibit E hereto.
(e) The Underwriters shall have received an opinion in form and
substance satisfactory to the Underwriters, dated the Closing Date, of
[ ], Georgia counsel to the Issuers, substantially in the form of
Exhibit F hereto.
(f) The Underwriters shall have received an opinion, dated the Closing
Date, of Cahill Gordon & Reindel, counsel for the Underwriters, with
respect to the sufficiency of certain corporate proceedings and other legal
matters
<PAGE>
-19-
relating to this Agreement, and such other related matters as the
Underwriters may require. In rendering such opinion, Cahill Gordon &
Reindel shall have received and may rely upon such certificates and other
documents and information as they may reasonably request to pass upon such
matters. In addition, in rendering their opinion, Cahill Gordon & Reindel
may state that their opinion is limited to matters of New York, Delaware
corporate and federal law.
(g) The Underwriters shall have received from Ernst & Young LLP,
independent public accountants for Alliance, and KPMG Peat Marwick LLP,
independent public accountants for SMT, letters dated, respectively, the
date hereof and the Closing Date, in form and substance satisfactory to the
Underwriters.
(h) The Underwriters shall have received an opinion from Houlihan,
Lokey, Howard & Zukin, Inc. in form and substance satisfactory to the
Underwriters, regarding the solvency of Alliance at the Closing Date and
immediately after giving effect to the Transactions and the other
transactions contemplated thereby.
(i) The representations and warranties of the Issuers contained in
this Agreement shall be true and correct in all material respects on and as
of the Closing Date (other than to the extent any such representation or
warranty is expressly made as to a certain date); and the Issuers shall
have complied in all material respects with all agreements and satisfied
all conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date.
(j) The Recapitalization, the SMT Acquisition and the transactions
contemplated thereby shall have been consummated concurrently with the
Offering.
(k) The Credit Agreement shall have been executed and delivered by all
parties thereto.
(l) Subsequent to the respective dates of the most recent financial
statements of Alliance and SMT contained in the Prospectus, there shall
have been no material adverse change in the business, condition (financial
or other) results of operations or prospects of Alliance and the
Subsidiaries taken as a whole (a "Material Adverse Change") or any
-----------------------
development which could reasonably be ex-
<PAGE>
-20-
pected to result in a Material Adverse Change, except as set forth in, or
contemplated by, the Prospectus.
(m) None of the issuance and sale of the Securities pursuant to this
Agreement or the other Transactions 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 the Transactions before any court or
governmental authority.
(n) The Underwriters shall have received certificates, dated the
Closing Date, of the appropriate officers of Alliance and each of the
Guarantors as to such person, to the effect that:
(A) The representations and warranties of such person in this
Agreement are true and correct in all material respects as if made on
and as of the Closing Date and such person has performed in all
material respects all covenants and agreements and satisfied in all
material respects all conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(B) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or the qualification
of the Indenture under the Trust Indenture Act has been issued, and no
proceedings for those purposes have been instituted or, to the best of
such person's knowledge, are threatened or contemplated by the
Commission; and
(C) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any Material Adverse Change except as set forth in or
contemplated by the Prospectus.
(o) On the Closing Date, Alliance and SMT shall have, to the extent
each is a party thereto, complied in all material respects with all
agreements and covenants in all documents contemplated by the Transactions
and satisfied all conditions specified therein to be complied with or
performed at or prior to the Closing Date, and each of the documents
contemplated by the Transactions shall be in full force and effect.
<PAGE>
-21-
(p) On the Closing Date, the Underwriters shall have received copies
of all certificates, documents and opinions, reasonably requested by the
Underwriters, delivered by Alliance and SMT or any of their counsels and
such other certificates, documents and opinions reasonably obtainable by
Alliance and SMT pursuant to the Transactions.
(q) On the Closing Date, the Certificate of Merger with respect to the
SMT Acquisition shall have been filed with the Secretary of State of the
State of Delaware.
On or before the Closing Date, the Underwriters shall have received
such further documents, opinions, certificates and schedules or instruments
relating to the business, corporate, legal and financial affairs of Alliance,
Newco and SMT as they shall have theretofore reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Underwriters. The Issuers shall furnish to the Underwriters such conformed
copies of such opinions, certificates, letters, schedules, documents and
instruments in such quantities as the Underwriters shall reasonably request.
8. Indemnification and Contribution. (a) Each of the Issuers agree,
--------------------------------
jointly and severally, to indemnify and hold harmless each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as any such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto
or any Preliminary Prospectus or any Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by any of the Issuers or based
upon written information furnished by or on behalf of any of the Issuers
filed in any jurisdiction in order to qualify the Securities under the
securities or "Blue Sky" laws thereof or filed with the Commission or
<PAGE>
-22-
any securities association or securities exchange (each, an "Application")
or
(ii) the omission or alleged omission to state, in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or any
Prospectus or any amendment or supplement thereto, or any Application, 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 will reimburse, as incurred, each Underwriter and
each such controlling person for any reasonable and documented out-of-
pocket legal or other expenses reasonably incurred by the Underwriters or
such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, that none of the
-------- -------
Issuers will be liable in any such case to an Underwriter to the extent
that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or any Prospectus or any amendment or
supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Issuers by or on behalf of any of
such Underwriter specifically for use therein; and provided, further, that
-------- -------
none of the Issuers will be liable to an Underwriter or any person
controlling such Underwriter with respect to any such untrue statement or
omission made in any Preliminary Prospectus that is corrected in the
Prospectus (or any amendment or supplement thereto) if the person asserting
any such loss, claim, damage or liability purchased Securities from such
Underwriter in reliance upon the Preliminary Prospectus or Prospectus but
was not sent or given a copy of the Prospectus (as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities to
such person in any case where such delivery of such Prospectus or
Prospectus (as so amended or supplemented) is required by the Act, unless
such failure to deliver such Prospectus (as amended or supplemented) was a
result of noncompliance by the Issuers with Section 5(e)(ii) of this
Agreement. This indemnity agreement will be in addition to any liability
that the Issuers may otherwise have to the indemnified parties. None of the
Issuers will, without the prior written consent of the Underwriters, settle
or compromise or consent to the entry of any judgment in any pending or
threatened
<PAGE>
-23-
claim, action, suit or proceeding in respect of which indemnification from
the Underwriters may be sought hereunder (whether or not the Underwriters
or any person who controls either of the Underwriters within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Underwriters and each such
controlling person from all liability arising out of such claim, action,
suit or proceeding.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Issuers, their directors, officers who signed the Registration
Statement and each person, if any, who controls any of the Issuers within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which any of the Issuers or any such
director, officer or controlling person may become subject under the Act, the
Exchange Act, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or any Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Registration Statement or any
amendment thereto, any Preliminary Prospectus or any Prospectus or any amendment
or supplement thereto, or any Application, or necessary to make the statements
therein (in the case of any Preliminary Prospectus, any Prospectus or any
amendment or supplement thereto or any Application, in the light of the
circumstances under which such statements were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Issuers by or
on behalf of such Underwriter specifically for use therein; and, subject to the
limitation set forth immediately preceding this clause, will reimburse, as
incurred, any reasonable and documented out-of-pocket legal or other expenses
reasonably incurred by the Issuers or any such director, officer or controlling
person in connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action in respect thereof. This indemnity agreement will be in addition to
any liability that the Underwriters may otherwise have to the indemnified
parties. The Underwriters will not, without
<PAGE>
-24-
the prior written consent of the Issuers, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification from the Issuers may be sought
hereunder (whether or not any of the Issuers or any person who controls any of
the Issuers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release any of the
Issuers and each such controlling person from all liability arising out of such
claim, action, suit or proceeding.
(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 of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8 except to the extent that such omission results in the forfeiture by
the indemnifying party of substantial rights and defenses. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or in addition to
those available to any such indemnifying party such that representation of both
the indemnified parties and the indemnifying parties by the same counsel is
inappropriate then the indemnifying parties shall not have the right to direct
the defense of such action on behalf of such indemnified party or parties and
such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable and documented out-of-pocket costs of
investigation, subsequently incurred by such indemni-
<PAGE>
-25-
fied party in connection with the defense thereof, unless (i) the indemnified
party shall have employed separate counsel in accordance with the proviso to the
immediately preceding sentence (it being understood, however, that in connection
with such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any one action
or separate but substantially similar actions in the same jurisdiction arising
out of the same general allegations or circumstances, designated by the
Underwriters in the case of paragraph (a) of this Section 8 or Alliance in the
case of paragraph (b) of this Section 8, representing the indemnified parties
under such paragraph (a) or paragraph (b), as the case may be, who are parties
to such action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying parties. After such notice from the indemnifying parties to
such indemnified party (so long as the indemnified party shall have informed the
indemnifying parties of such action in accordance with this Section 8 on a
timely basis prior to the indemnified party seeking indemnification hereunder),
the indemnifying parties will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party, unless such indemnified party waived its rights under
this Section 8, in which case the indemnified party may effect such a settlement
without such consent.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Issuers on the one hand and the Underwriters on the
other shall be deemed to be in the
<PAGE>
-26-
same proportion as the total proceeds from the offering of the Securities
(before deducting expenses other than underwriting discounts and commissions)
received by the Issuers bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers on the one hand,
or the Underwriters on the other, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Issuers and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Issuers on the one hand and the Underwriters on
the other hand were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total underwriting discounts and commissions received by the
Underwriters under this Agreement, less the aggregate amount of any damages that
the Underwriters have otherwise been required to pay by reason of the untrue or
alleged untrue statements or the omissions or alleged omissions to state a
material fact, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this paragraph (d), each person, if any, who controls any of the Underwriters
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as the Underwriters, and each
director and each officer of the Issuers who signed the Registration Statement
and each person, if any, who controls the Issuers within the meaning of Section
15 of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Issuers.
9. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Issuers, their
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Issuers, any of their officers or directors, the Underwriters or any
controlling person referred to in
<PAGE>
-27-
Section 8 hereof and (ii) delivery of and payment for the Securities, and shall
be binding upon and shall inure to the benefit of, any successors, assigns,
heirs, personal representatives of the Issuers, the Issuers, the Underwriters
and indemnified parties referred to in Section 8 hereof. The respective
agreements, covenants, indemnities and other statements set forth in Sections 6
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
10. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Underwriters by notice to Alliance given in the event that the
Issuers shall have failed, refused or been unable to satisfy all conditions on
their part to be performed or satisfied hereunder on or prior to the Closing
Date or, if at or prior to the Closing Date:
(i) The Issuers shall have sustained any loss or interference with
respect to their respective businesses or properties from fire, flood,
hurricane, earthquake, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, which loss or interference has had or has a Material Adverse
Effect, or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of any of the
Issuers), in the business, condition (financial or other), results of
operations or prospects of Alliance and the Subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock Exchange,
Inc., the American Stock Exchange or the Nasdaq Stock Market shall have
been suspended or minimum or maximum prices shall have been established on
any such exchange;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, (B) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (c) any material change in the financial markets of the United
States which, in the sole judgment of the Under-
<PAGE>
-28-
writers, makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof; or
(v) any securities of the Issuers shall have been downgraded or placed
on any "watch list" for possible downgrading by any nationally recognized
statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in Section
9 hereof.
11. Information Supplied by the Underwriters. The statements set forth
----------------------------------------
in the last paragraph on the front cover page, the last paragraph on page ii,
and the third paragraph, the second sentence in the fourth paragraph and the
sixth and seventh paragraphs under the caption "Underwriting" in the Prospectus
constitute the only information furnished by the Underwriters to the Issuers for
the purposes of Section 8 hereof.
12. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Underwriters, shall be mailed, delivered or telecopied and confirmed
in writing to the Underwriters c/o BT Alex. Brown Incorporated, One Bankers
Trust Plaza, 130 Liberty Street, New York, New York 10005, Attention: Corporate
Finance Department, and with a copy to Cahill Gordon & Reindel, 80 Pine Street,
New York, New York 10005, Attention: James J. Clark. If sent to the Issuers,
shall be mailed, delivered or telecopied confirmed in writing, to Alliance
Imaging, Inc., 1065 North PacifiCenter Drive, Suite 200, Anaheim, California
92806, and with copies to O'Sullivan Graev & Karabell, LLP, 30 Rockefeller
Plaza, New York, New York 10112, Attention: John J. Suydam, and Irell &
Manella LLP, 333 South Hope Street, Suite 3300, Los Angeles, California 90071,
Attention: Anthony T. Iler.
13. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Underwriters, the Issuers and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemni-
<PAGE>
-29-
ties of the Issuers contained in Section 8 of this Agreement shall also be for
the benefit of any person or persons who control the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Issuers, their officers who have
signed the Registration Statement and any person or persons who controls the
Issuers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Securities from the Underwriters will be deemed a
successor because of such purchase.
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto and supersedes all prior agreements, understandings and
arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
--------------
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Issuers and
the Underwriters.
Very truly yours,
ISSUER:
ALLIANCE IMAGING, INC.
By:
-----------------------------------
Name:
Title:
GUARANTORS:
SMT ACQUISITION CORP.
By:
-----------------------------------
Name:
Title:
ROYAL MEDICAL HEALTH SERVICES, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
-2-
ALLIANCE IMAGING OF CENTRAL
GEORGIA, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
-3-
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
By:
------------------------------
Name:
Title:
SMITH BARNEY INC.
By:
------------------------------
Name:
Title:
SALOMON BROTHERS INC
By:
------------------------------
Name:
Title:
<PAGE>
Exhibit A
Subsidiaries
------------
[To be provided by O'Sullivan Graev & Karabell]
<PAGE>
Exhibit B
Underwriter Principal Amount of Notes
- ----------- -------------------------
BT Alex. Brown Incorporated $
Smith Barney Inc.
Salomon Brothers Inc
_________________
$170,000,000
<PAGE>
Exhibit C
---------
Form of Opinion of O'Sullivan Graev & Karabell, LLP
---------------------------------------------------
[To be amended]
1. Each of Alliance and the Guarantors have been duly incorporated and
are validly existing and in good standing under the laws of their respective
states of incorporation with corporate power and authority to own or lease their
properties and to conduct their businesses as now conducted as described in each
Prospectus.
2. Each of Alliance and the Guarantors has the corporate power and
authority to execute, deliver and perform its respective obligations under the
Underwriting Agreement, the Indenture and the Securities and to issue the
Securities to be issued by it pursuant to the Indenture.
3. To the best of our knowledge, there is no action, suit, proceeding
or investigation pending or threatened against or affecting any of Alliance or
the Guarantors, any of their respective subsidiaries or any of their respective
properties or assets in any court or before any governmental authority or
arbitration board or tribunal that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge any of the Transactions.
4. The Indenture has been duly authorized, executed and delivered by
Alliance and the Guarantors and (assuming due authorization, execution and
delivery by the Trustee) is the valid and legally binding agreement of Alliance
and each of the Guarantors, enforceable against Alliance and each of the
Guarantors in accordance with its terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity and the discretion of the court before
which any proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
5. The Notes have been duly and validly authorized by Alliance for
issuance and, when executed and authenticated in accordance with the terms of
the Indenture and delivered to and paid for by the Underwriters in accordance
with the terms
<PAGE>
-2-
of the Underwriting Agreement, will conform in all material respects to the
description thereof in the Registration Statement and will be the legally valid
and binding obligations of Alliance, enforceable against Alliance in accordance
with their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether such enforcement is considered in
a proceeding in equity or at law).
6. The Guarantees have been duly authorized by each of the Guarantors
for issuance and, when executed and delivered in accordance with the terms of
the Indenture, will conform in all material respects to the description thereof
in the Registration Statement and will be the legally valid and binding
obligations of each of the Guarantors, enforceable against each of the
Guarantors in accordance with their terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
7. The Underwriting Agreement has been duly authorized, executed and
delivered by Alliance and the Guarantors; the execution and delivery of the
Underwriting Agreement, the Indenture and the Securities by Alliance and the
Guarantors, and the issuance and sale of the Securities pursuant to the
Underwriting Agreement and the performance of the Transactions do not and will
not conflict with or constitute or result in a breach or a default under (or an
event which with notice or passage of time or both would constitute a default
under) or violation of or cause an acceleration of any obligation under, or on
any properties or assets of Alliance or any Guarantor with respect to (i) the
terms or provisions of any Contract known to such counsel to which Alliance or
any Guarantor is a party, except for any such conflict, breach, violation,
default or event which would not, individually or in the aggregate, have a
Material Adverse Effect, or (ii) the certificate of incorporation or bylaws of
Alliance or any Guarantor, or (iii) any statute, rule or regulation known to
such counsel to be of general applicability to, or any judgment, decree or order
known to such counsel to be applicable to, Alliance or any Guarantor or any of
their respective properties or assets, ex-
<PAGE>
-3-
cept for any such conflict, breach or violation which would not, individually or
in the aggregate, have a Material Adverse Effect.
8. To the best of our knowledge, no consent, approval, authorization
or order of, or filing with any or governmental entity or body is required for
the issuance and sale of the Securities by Alliance and the Guarantors pursuant
to the Underwriting Agreement or pursuant to the Indenture, except (i) such as
have been obtained or made under the Act or the Trust Indenture Act or
otherwise, and (ii) such as may be required under state securities laws in
connection with the purchase and distribution of the Securities by the
Underwriters.
9. The Indenture has been duly qualified under the Trust Indenture
Act.
10. The Registration Statement has become effective under the Act and,
to the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the Act and no proceedings therefor
have been initiated by the Commission. Any required filing of the Prospectus
pursuant to Rule 424(b) under the Act has been made in accordance with Rules
424(b) and 430A under the Act.
11. The Registration Statement and the Prospectus comply as to form in
all material respects with the applicable requirements for registration
statements on Form S-2 under the Act, the Trust Indenture Act and the rules and
regulations of the Commission thereunder; it being understood, however, that we
express no opinion with respect to the financial statements, schedules and other
financial and statistical data included in or omitted from the Registration
Statement or Prospectus.
12. To the best of our knowledge, there are no contracts or documents
of a character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement that are not
described or filed as required.
13. The Transactions conform in all material respects to the
descriptions thereof in the Prospectus.
In addition, we have participated in conferences with officers and
other representatives of Alliance and the Guarantors, representatives of the
independent public accountants for Alliance and the Guarantors and SMT and your
representatives, at which the contents of the Registration Statement and the
<PAGE>
-4-
Prospectus and related matters were discussed and, although we are not passing
upon, and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus and have not made any independent check or verification thereof,
during the course of such participation (relying as to materiality to a large
extent upon the statements of officers and other representatives of Alliance and
the Guarantors), no facts came to our attention that caused us to believe that
the Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, 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 a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; it being understood
that we express no opinion with respect to the financial statements, schedules
and other financial and statistical data included in or omitted from the
Registration Statement or the Prospectus or with respect to the Form T-1.
<PAGE>
EXHIBIT 4.1
===============================================================================
ALLIANCE IMAGING, INC.,
as Issuer,
the GUARANTORS named herein,
as Guarantors,
and
[ ],
as Trustee
---------------------
INDENTURE
Dated as of , 1997
---------------------
up to $270,000,000
[ ]% Senior Subordinated Notes due 2005
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -----------
310(a)(1).................................................. 7.10
(a)(2).................................................. 7.10
(a)(3).................................................. N.A.
(a)(4).................................................. N.A.
(a)(5).................................................. 7.08; 7.10
(b)..................................................... 7.08; 7.10;
13.02
(c)..................................................... N.A.
311(a)..................................................... 7.11
(b)..................................................... 7.11
(c)..................................................... N.A.
312(a).................................................. 2.05
(b)..................................................... 13.03
(c)..................................................... 13.03
313(a)..................................................... 7.06
(b)(1).................................................. 7.06
(b)(2).................................................. 7.06
(c)..................................................... 7.06; 13.02
(d)..................................................... 7.06
314(a)..................................................... 4.08; 4.10;
13.02
(b)..................................................... N.A.
(c)(1).................................................. 7.02; 13.04;
13.05
(c)(2).................................................. 7.02; 13.04;
13.05
(c)(3).................................................. N.A.
(d)..................................................... N.A.
(e)..................................................... 13.05
(f)..................................................... N.A.
315(a)..................................................... 7.01(b)
(b)..................................................... 7.05
(c)..................................................... 7.01
(d)..................................................... 6.05; 7.01(c)
(e)..................................................... 6.11
316(a)(last sentence)...................................... 2.09
(a)(1)(A)............................................... 6.05
(a)(1)(B)............................................... 6.04
(a)(2).................................................. 9.05
(b)..................................................... 6.07
(c)..................................................... 9.05
317(a)(1).................................................. 6.08
(a)(2).................................................. 6.09
(b)..................................................... 2.04
318(a)..................................................... 13.01
(c)..................................................... 13.01
- -----------------
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01. Definitions.................................................................1
SECTION 1.02. Incorporation by Reference of TIA..........................................26
SECTION 1.03. Rules of Construction......................................................27
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating............................................................27
SECTION 2.02. Execution and Authentication...............................................28
SECTION 2.03. Registrar and Paying Agent.................................................29
SECTION 2.04. Paying Agent To Hold Assets in Trust.......................................30
SECTION 2.05. Holder Lists...............................................................30
SECTION 2.06. Transfer and Exchange......................................................30
SECTION 2.07. Replacement Securities.....................................................32
SECTION 2.08. Outstanding Securities.....................................................33
SECTION 2.09. Treasury Securities........................................................33
SECTION 2.10. Temporary Securities.......................................................33
SECTION 2.11. Cancellation...............................................................34
SECTION 2.12. Defaulted Interest.........................................................34
SECTION 2.13. CUSIP Number...............................................................35
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.........................................................35
SECTION 3.02. Selection of Securities To Be Redeemed.....................................35
SECTION 3.03. Notice of Redemption.......................................................36
SECTION 3.04. Effect of Notice of Redemption.............................................37
SECTION 3.05. Deposit of Redemption Price................................................37
SECTION 3.06. Securities Redeemed in Part................................................37
</TABLE>
-i-
<PAGE>
ARTICLE FOUR
COVENANTS
<TABLE>
Page
----
<S> <C>
SECTION 4.01. Payment of Securities......................................................38
SECTION 4.02. Maintenance of Office or Agency............................................38
SECTION 4.03. Limitation on Restricted Payments..........................................38
SECTION 4.04. Limitation on Incurrence of Additional Indebtedness........................41
SECTION 4.05. Corporate Existence........................................................41
SECTION 4.06. Payment of Taxes and Other Claims..........................................41
SECTION 4.07. Maintenance of Properties and Insurance....................................42
SECTION 4.08. Compliance Certificate; Notice of Default..................................42
SECTION 4.09. Compliance with Laws.......................................................43
SECTION 4.10. Reports to Holders.........................................................44
SECTION 4.11. Waiver of Stay, Extension or Usury Laws....................................44
SECTION 4.12. Limitations on Transactions with Affiliates................................44
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries........................................46
SECTION 4.14. Limitation on Liens........................................................47
SECTION 4.15. Change of Control..........................................................48
SECTION 4.16. Limitation on Asset Sales..................................................50
SECTION 4.17. Prohibition on Incurrence of Senior Subordinated Debt......................54
SECTION 4.18. Additional Subsidiary Guarantees...........................................54
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets...................................55
SECTION 5.02. Successor Corporation Substituted..........................................56
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default..........................................................57
SECTION 6.02. Acceleration...............................................................59
SECTION 6.03. Other Remedies.............................................................60
SECTION 6.04. Waiver of Past Defaults....................................................60
SECTION 6.05. Control by Majority........................................................60
SECTION 6.06. Limitation on Suits........................................................61
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SECTION 6.07. Rights of Holders To Receive Payment.......................................61
SECTION 6.08. Collection Suit by Trustee.................................................61
SECTION 6.09. Trustee May File Proofs of Claim...........................................62
SECTION 6.10. Priorities.................................................................62
SECTION 6.11. Undertaking for Costs......................................................63
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee..........................................................63
SECTION 7.02. Rights of Trustee..........................................................65
SECTION 7.03. Individual Rights of Trustee...............................................66
SECTION 7.04. Trustee's Disclaimer.......................................................66
SECTION 7.05. Notice of Default..........................................................66
SECTION 7.06. Reports by Trustee to Holders..............................................67
SECTION 7.07. Compensation and Indemnity.................................................67
SECTION 7.08. Replacement of Trustee.....................................................68
SECTION 7.09. Successor Trustee by Merger, Etc...........................................70
SECTION 7.10. Eligibility; Disqualification..............................................70
SECTION 7.11. Preferential Collection of Claims Against Company..........................70
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations...................................71
SECTION 8.02. Legal Defeasance and Covenant Defeasance...................................72
SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance......................74
SECTION 8.04. Application of Trust Money.................................................76
SECTION 8.05. Repayment to the Company...................................................77
SECTION 8.06. Reinstatement..............................................................77
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.................................................78
SECTION 9.02. With Consent of Holders....................................................78
SECTION 9.03. Effect on Senior Debt......................................................80
SECTION 9.04. Compliance with TIA........................................................80
SECTION 9.05. Revocation and Effect of Consents..........................................80
SECTION 9.06. Notation on or Exchange of Securities......................................81
SECTION 9.07. Trustee To Sign Amendments, Etc............................................81
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ARTICLE TEN
SUBORDINATION OF SECURITIES
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SECTION 10.01. Securities Subordinated to Senior Debt....................................82
SECTION 10.02. Suspension of Payment When Senior Debt Is in Default......................82
SECTION 10.03. Securities Subordinated to Prior Payment of All Senior
Debt on Dissolution, Liquidation or
Reorganization of Company.....................................84
SECTION 10.04. Payments May Be Paid Prior to Dissolution.................................86
SECTION 10.05. Holders To Be Subrogated to Rights of Holders of Senior
Debt..........................................................86
SECTION 10.06. Obligations of the Company Unconditional..................................86
SECTION 10.07. Notice to Trustee.........................................................87
SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating
Agent.........................................................88
SECTION 10.09. Trustee's Relation to Senior Debt.........................................88
SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Debt......................89
SECTION 10.11. Securityholders Authorize Trustee To Effectuate
Subordination of Securities...................................89
SECTION 10.12. This Article Ten Not To Prevent Events of Default.........................90
SECTION 10.13. Trustee's Compensation Not Prejudiced.....................................90
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee...................................................90
SECTION 11.02. Limitations on Guarantees.................................................92
SECTION 11.03. Execution and Delivery of Guarantee.......................................93
SECTION 11.04. Release of a Guarantor....................................................93
SECTION 11.05. Waiver of Subrogation.....................................................94
SECTION 11.06. Immediate Payment.........................................................95
SECTION 11.07. No Set-Off. 95
SECTION 11.08. Obligations Absolute......................................................95
SECTION 11.09. Obligations Continuing....................................................95
SECTION 11.10. Obligations Not Reduced...................................................96
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SECTION 11.11. Obligations Reinstated....................................................96
SECTION 11.12. Obligations Not Affected..................................................96
SECTION 11.13. Waiver. 98
SECTION 11.14. No Obligation To Take Action Against the Company..........................98
SECTION 11.15. Dealing with the Company and Others.......................................98
SECTION 11.16. Default and Enforcement...................................................99
SECTION 11.17. Amendment, Etc............................................................99
SECTION 11.18. Acknowledgment...........................................................100
SECTION 11.19. Costs and Expenses.......................................................100
SECTION 11.20. No Merger or Waiver; Cumulative Remedies.................................100
SECTION 11.21. Survival of Obligations..................................................100
SECTION 11.22. Guarantee in Addition to Other Obligations...............................100
SECTION 11.23. Severability.............................................................101
SECTION 11.24. Successors and Assigns...................................................101
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Debt.........................................................101
SECTION 12.02. Suspension of Guarantee Obligations When Guarantor
Senior Debt Is in Default....................................102
SECTION 12.03. Guarantee Obligations Subordinated to Prior Payment of
All Guarantor Senior Debt on Dissolution,
Liquidation or Reorganization of Such
Guarantor....................................................103
SECTION 12.04. Payments May Be Paid Prior to Dissolution................................105
SECTION 12.05. Holders of Guarantee Obligations To Be Subrogated to
Rights of Holders of Guarantor Senior Debt...................105
SECTION 12.06. Obligations of the Guarantors Unconditional..............................106
SECTION 12.07. Notice to Trustee........................................................106
SECTION 12.08. Reliance on Judicial Order or Certificate of Liquidating
Agent........................................................107
SECTION 12.09. Trustee's Relation to Guarantor Senior Debt..............................107
SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions
of the
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Guarantors or Holders of Guarantor
Senior Debt..................................................108
SECTION 12.11. Holders Authorize Trustee To Effectuate Subordination of
Guarantee Obligations........................................109
SECTION 12.12. This Article Twelve Not To Prevent Events of Default.....................109
SECTION 12.13. Trustee's Compensation Not Prejudiced....................................110
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.............................................................110
SECTION 13.02. Notices. 110
SECTION 13.03. Communications by Holders with Other Holders.............................111
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.......................112
SECTION 13.05. Statements Required in Certificate or Opinion............................112
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar................................113
SECTION 13.07. Legal Holidays...........................................................113
SECTION 13.08. Governing Law............................................................113
SECTION 13.09. No Adverse Interpretation of Other Agreements............................113
SECTION 13.10. No Recourse Against Others...............................................113
SECTION 13.11. Successors. 113
SECTION 13.12. Duplicate Originals......................................................114
SECTION 13.13. Severability.............................................................114
Signatures..............................................................................S-1
Exhibit A - Form of Security
Exhibit B - Form of Guarantee
Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture
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<PAGE>
INDENTURE dated as of , 1997 among ALLIANCE IMAGING,
INC., a Delaware corporation (the "Company"), as Issuer, each of the Guarantors
-------
named herein, as Guarantors, and [ ], a , as Trustee
(the "Trustee").
-------
The Company has duly authorized the creation of an issue of [ ]%
Senior Subordinated Notes due 2005 (the "Securities") and, to provide therefor,
----------
the Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when duly issued and executed by
the Company and authenticated and delivered hereunder, the valid and binding
obligations of the Company and to make this Indenture a valid and binding
agreement of the Company have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person or any of its
---------------------
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other
---------
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
<PAGE>
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"Affiliate Transaction" has the meaning set forth in Section 4.12.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Apollo" means Apollo Management, L.P. and its affiliates.
------
"Asset Acquisition" means (a) an Investment by the Company or any
-----------------
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
-------- -------
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $1.0 million, (ii) 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 and its Restricted
Subsidiaries, and (iii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under Section 5.01.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
--------------
state or foreign law for the relief of debtors.
<PAGE>
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"Board of Directors" means, as to any Person, the board of directors
------------------
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any
------------
other day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capitalized Lease Obligation" means, as to any Person, the
----------------------------
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
-------------
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person, and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
----------------
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services ("S&P") or Moody's
---
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
-------
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing
<PAGE>
-4-
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million; (v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (iv) above; and
(vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
-----------------
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
-----
thereof (whether or not otherwise in compliance with the provisions of this
Indenture), other than to the Permitted Holders; (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by the Permitted
Holders or a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Change of Control Date" has the meaning set forth in Section 4.16.
----------------------
"Change of Control Offer" has the meaning set forth in Section 4.16.
-----------------------
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.16.
<PAGE>
-5-
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" of any Person means any and all shares, interests or
------------
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to this Indenture.
"Consolidated EBITDA" means, with respect to any Person, for any
-------------------
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges less any non-cash items
----
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the two full
fiscal quarters (the "Two Quarter Period") ending on or prior to the date of the
------------------
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such
----------------
Person for the Two Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
---
forma basis for the period of such calculation to (i) the incurrence or
- -----
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Two Quarter Period or at any time subsequent to the last day of the
Two Quarter Period and on or prior to the Transaction Date, as if
<PAGE>
-6-
such incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Two Quarter Period and (ii)
any Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions and
other operating improvements as determined in good faith by a responsible
financial or accounting officer of the Company) attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Two Quarter
Period) occurring during the Two Quarter Period or at any time subsequent to the
last day of the Two Quarter Period and on or prior to the Transaction Date, as
if such Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Two Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum, without duplication, of (i) Consolidated Interest Expense
(excluding amortization or write-off of deferred financing costs), plus (ii) the
product of (x) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in Qualified Capital Stock)
paid, accrued or scheduled to be paid or accrued during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus
<PAGE>
-7-
the then current effective consolidated federal, state and local tax rate
of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs (including the amortization of costs relating to
interest rate caps or other similar agreements), (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP, minus interest
income for such period.
"Consolidated Net Income" means, with respect to any Person, for any
-----------------------
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
--------
or losses from Asset Sales (without regard to the $1.0 million limitation set
forth in the definition thereof) or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains or losses,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
referent Person or is merged or consolidated with the referent Person or any
Restricted Subsidiary of the referent Person, (d) the net income (but not loss)
of any Restricted Subsidiary of the referent Person to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by contract, operation of law or otherwise, (e) the
net income of any Person, other than a Restricted Subsidiary of the referent
Person, except to the extent of cash dividends or distributions paid to the
referent Person or to a Wholly Owned Restricted Subsidiary of the referent
Person by such Person, (f) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), and (g)
in the case of a successor to the referent Person by consolidation or merger or
as a transferee of the referent
<PAGE>
-8-
Person's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person, for
-----------------------------
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net Income
of such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Covenant Defeasance" has the meaning set forth in Section 8.02.
-------------------
"Credit Agreement" means the Credit Agreement to be dated as of the
----------------
Issue Date, between the Company, the lenders party thereto in their capacities
as lenders thereunder and Bankers Trust Company, as administrative agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
--------
increase in borrowings is permitted by Section 4.04) or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
-------
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" shall mean The Depository Trust Company, New York, New
----------
York, or a successor thereto registered under the Exchange Act or other
applicable statute or regulation.
<PAGE>
-9-
"Designated Senior Debt" means (i) Indebtedness under or in respect of
----------------------
the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
--------------------------
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof, on or prior to the Maturity Date of the Securities.
"Equity Offering" means a public or private offering of Qualified
---------------
Capital Stock (other than public offerings with respect to the Company's Common
Stock on Form S-8) of the Company for aggregate net cash proceeds to the Company
of at least $25.0 million.
"Event of Default" has the meaning set forth in Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
-----------------
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
<PAGE>
-10-
"Global Security" shall mean a Security which is executed by the
---------------
Company and authenticated and delivered by the Trustee to the Depository or
pursuant to the Depository's instruction, all in accordance with this Indenture
and pursuant to a written order, which shall be registered in the name of the
Depository or its nominee.
"Guarantees" means the guarantees of the Securities of the Company by
----------
the Guarantors.
"Guarantor" means (i) each of SMT Acquisition Corp., Royal Medical
---------
Health Services, Inc. and Alliance Imaging of Central Georgia, Inc. and (ii)
each of the Company's Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees to be bound by
the terms of this Indenture as a Guarantor; provided that any Person
--------
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of this Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, (i) the
---------------------
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing by any Guarantor in respect of, (x) all monetary
obligations of every nature of a Guarantor under, or with respect to, the Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations (including guarantees thereof)
and (z) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include (i) any Indebt-
<PAGE>
-11-
edness of such Guarantor to a Restricted Subsidiary of such Guarantor, (ii)
Indebtedness to, or guaranteed on behalf of, any director, officer or employee
of such Guarantor or any Restricted Subsidiary of such Guarantor (including,
without limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by such Guarantor, (vi) that portion of any Indebtedness incurred in violation
of the provisions of Section 4.04 (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (vi) if the
holder(s) of such obligation or their representative and the Trustee shall have
received an officers' certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at the
date on which the initial borrowing thereunder is made would not) violate such
provisions of this Indenture), (vii) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to the Company or any Guarantor and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of such Guarantor.
"incur" has the meaning set forth in Section 4.04.
-----
"Indebtedness" means with respect to any Person, without duplication,
------------
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all Obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (i) through (v) above and clause
(viii) below, (vii) all Obligations of any other Person of the type referred to
in clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under cur-
<PAGE>
-12-
rency agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does not, and
-----------------------------
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Payment Date" means the stated maturity of an installment of
---------------------
interest on the Securities.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
----------
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such
<PAGE>
-13-
Person of any Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any Person. "Investment" shall exclude
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. For purposes of
Section 4.03, (i) "Investment" shall include and be valued at the fair market
value of the net assets of any Restricted Subsidiary of the Company at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary of the
Company and shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary of the Company at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; provided that no
--------
such payment of dividends or distributions or receipt of any such other
amounts shall reduce the amount of any Investment if such payment of dividends
or distributions or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means , 1997.
----------
"Legal Defeasance" has the meaning set forth in Section 8.02.
----------------
"Lien" means any lien, mortgage, deed of trust, pledge, security
----
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means , 2005.
-------------
<PAGE>
-14-
"Net Cash Proceeds" means, with respect to any Asset Sale, the
-----------------
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.17.
------------------
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.17.
-------------------------
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
-------------------------------
4.17.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
-------------------------------
4.17.
"Obligations" means all obligations for principal, premium, interest,
-----------
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
-------
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
---------------------
the Company.
<PAGE>
-15-
"Opinion of Counsel" means a written opinion from legal counsel which
------------------
opinion and counsel are reasonably acceptable to the Trustee.
"Paying Agent" has the meaning set forth in Section 2.03.
------------
"Permitted Holders" means Apollo Management, L.P. and its affiliates.
-----------------
"Permitted Indebtedness" means, without duplication, each of the
----------------------
following:
(i) Indebtedness represented by $170.0 million aggregate principal
amount of the Securities and the related Guarantees issued on the Issue
Date;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $200.0
million less the amount of all repayments and permanent commitment
reductions under the Credit Agreement with Net Cash Proceeds of Asset Sales
applied thereto as required by Section 4.16;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Swap Obligations covering Indebtedness of the Company
or any of its Restricted Subsidiaries; provided, however, that such
-------- -------
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not, at the time of
the incurrence thereof, exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the
--------
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
<PAGE>
-16-
(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company; provided that if as of any date any Person other than the
--------
Company or a Wholly Owned Restricted Subsidiary of the Company owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company and is subject to no
Lien; provided that (a) any Indebtedness of the Company to any Wholly Owned
--------
Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under this
Indenture and the Securities and (b) if as of any date any Person other
than a Wholly Owned Restricted Subsidiary of the Company owns or holds any
such Indebtedness or any Person holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the Company;
(viii) 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;
(ix) 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;
(x) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary
<PAGE>
-17-
course of business not to exceed $25.0 million at any one time outstanding;
provided that all or a portion of the $25.0 million permitted to be
--------
incurred under this clause (x) may, at the option of the Company, be
incurred under the Credit Agreement instead of pursuant to Capitalized
Lease Obligations or Purchase Money Indebtedness;
(xi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (a) such
-------- -------
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary of the Company (contingent obligations referred to in
a footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (a)) and (b) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
including non-cash proceeds (the fair market value of such noncash proceeds
being measured at the time they are received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(xiii) Refinancing Indebtedness; and
(xiv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25.0 million
at any one time outstanding (which amount may, but need not, be incurred in
whole or in part under the Credit Agreement).
"Permitted Investments" means (i) Investments by the Company or any
---------------------
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, provided that such Wholly Owned Re-
--------
<PAGE>
-18-
stricted Subsidiary of the Company is not restricted from making dividends or
similar distributions by contract, operation of law or otherwise; (ii)
Investments in the Company by any Restricted Subsidiary of the Company;
provided that any Indebtedness evidencing such Investment is unsecured
- --------
and subordinated, pursuant to a written agreement, to the Company's obligations
under the Securities and this Indenture; (iii) Investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and its Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not to exceed $1.0 million at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with this Indenture; (vi) additional Investments (including joint
ventures) not to exceed $20.0 million at any one time outstanding; (vii)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (viii) Investments made by the
Company or its Restricted Subsidiaries as a result of consideration received in
connection with an Asset Sale made in compliance with Section 4.16; and (ix)
Investments of a Person or any of its Subsidiaries existing at the time such
Person becomes a Restricted Subsidiary of the Company or at the time such Person
merges or consolidates with the Company or any of its Restricted Subsidiaries,
in either case in compliance with this Indenture; provided that such
--------
Investments were not made by such Person in connection with, or in anticipation
or contemplation of, such Person becoming a Restricted Subsidiary of the Company
or such merger or consolidation.
"Permitted Liens" means the following types of Liens:
---------------
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
<PAGE>
-19-
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall
not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or asset
--------
which is not leased property subject to such Capitalized Lease Obligation;
(vii) Liens securing Capitalized Lease Obligations and Purchase
Money Indebtedness permitted pursuant to clause (x) of the definition of
"Permitted Indebtedness"; provided, however, that in the case of Purchase
-------- -------
Money Indebtedness (A) the Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of
the Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired or constructed and (B) the Lien securing
such Indebtedness shall be created within 180 days of such acquisition or
construction or, in the case of a refinancing of any Purchase Money
Indebtedness, within 180 days of such refinancing;
<PAGE>
-20-
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xii) Liens in the ordinary course of business not exceeding $5.0
million at any one time outstanding that (a) are not incurred in connection
with borrowing of money and (b) do not materially detract from the value of
the property or materially impair its use;
(xiii) Liens by reason of a judgment or decree not otherwise
resulting in an Event of Default;
(xiv) Liens securing Indebtedness permitted to be incurred pursuant
to clause (xiv) of the definition of "Permitted Indebtedness";
(xv) Liens securing Indebtedness under Currency Agreements permitted
under this Indenture; and
(xvi) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.04; provided that (A) such Liens secured such Acquired
--------
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Restricted Subsidiary of
the Company and (B) such Liens do not extend to or cover any property or
assets of the Company or of any of its Restricted Subsidiar-
<PAGE>
-21-
ies other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company.
"Person" means an individual, partnership, corporation, unincorporated
------
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and
---------------------------
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not
-----------------------
Disqualified Capital Stock.
"Record Date" means the applicable Record Date specified in the
-----------
Securities; provided that if any such date is not a Business Day, the Record
--------
Date shall be the first day immediately preceding such specified day that is a
Business Day.
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"Reference Date" has the meaning set forth in Section 4.03.
--------------
"Refinance" means, in respect of any security or Indebtedness, to
---------
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebted-
<PAGE>
-22-
ness in whole or in part. "Refinanced" and "Refinancing" shall have correlative
meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
------------------------
Restricted Subsidiary of the Company of Indebtedness incurred or existing in
accordance with Section 4.04 (other than pursuant to clause (ii), (iv), (v),
(vi), (vii), (viii), (ix), (x), (xi), (xii) or (xiv) of the definition of
"Permitted Indebtedness"), in each case that does not (1) result in an increase
in the aggregate principal amount of Indebtedness of such Person as of the date
of such proposed Refinancing (plus the amount of any premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
--------
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Securities,
then such Refinancing Indebtedness shall be subordinate to the Securities at
least to the same extent and in the same manner as the Indebtedness being
Refinanced.
"Registrar" has the meaning set forth in Section 2.03.
---------
"Replacement Assets" has the meaning set forth in Section 4.16.
------------------
"Representative" means the indenture trustee or other trustee, agent
--------------
or representative in respect of any Designated Senior Debt; provided that if,
--------
and for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times constitute
the holders of a majority in outstanding principal amount of such Designated
Senior Debt in respect of any Designated Senior Debt.
"Responsible Officer" means, when used with respect to the Trustee,
-------------------
any officer in the Corporate Trust Office of the Trustee including any vice
president, assistant vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time
<PAGE>
-23-
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Payment" has the meaning set forth in Section 4.03.
------------------
"Restricted Subsidiary" of any Person means any Subsidiary of such
---------------------
Person which at the time of determination is not an Unrestricted Subsidiary.
"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 the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary 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.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor statute or statutes thereto.
"Securityholder" or "Holder" means the Person in whose name a Security
-------------- ------
is registered on the Registrar's books.
"Senior Debt" means the principal of, premium, if any, and interest
-----------
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing by the Company in respect of,
(x) all monetary obligations of every nature of the Company under the Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit,
<PAGE>
-24-
fees, expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations under Currency Agreements (including
guarantees thereof), in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Subsidiary of the Company, (ii)
Indebtedness to, or guaranteed on behalf of, any director, officer or employee
of the Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iii) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any liability for
federal, state, local or other taxes owed or owing by the Company, (vi) that
portion of any Indebtedness incurred in violation of Section 4.04 (but, as to
any such obligation, no such violation shall be deemed to exist for purposes of
this clause (vi) if the holder(s) of such obligation or their representative and
the Trustee shall have received an officers' certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of this Indenture), (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of the Company.
"Significant Subsidiary" shall have the meaning set forth in Rule
----------------------
1.02(w) of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
----------
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.01.
----------------
"TIA" means the Trust Indenture act of 1939 (15 U.S.C. (S)(S) 77aaa-
---
77bbbb), as amended, as in effect on the date
<PAGE>
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of the execution of this Indenture until such time as this Indenture is
qualified under the TIA, and thereafter as in effect on the date on which this
Indenture is qualified under the TIA, except as otherwise provided in Section
9.03.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
-----------------------
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that (x) the
--------
Company certifies to the Trustee that such designation complies with Section
4.03 and (y) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.04 and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation and
an officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations of, and
---------------------------
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged and which
are not callable or redeemable at the issuer's option.
<PAGE>
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"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
----------------------------------
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
--------------------
"indenture security holder" means a Holder or a Securityholder.
-------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
"obligor" on the indenture securities means the Company, any Guarantor
-------
or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
<PAGE>
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SECTION 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company and the Trustee shall approve the form of the Securities and any
notation, legend or endorsement on them. Each Security shall be dated the date
of its issuance and show the date of its authentication. Each Security shall
have an executed Guarantee from each of the Guarantors endorsed thereon
substantially in the form of Exhibit B.
The terms and provisions contained in the Securities and the
Guarantees shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
<PAGE>
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SECTION 2.02. Execution and Authentication.
----------------------------
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company and the Guarantees for
each of the Guarantors by manual or facsimile signature.
If an Officer whose signature is on a Security or Guarantee, as the
case may be, was an Officer at the time of such execution but no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue on the
Issue Date in the aggregate principal amount of $170,000,000 upon a written
order of the Company in the form of an Officers' Certificate. In addition, the
Trustee shall authenticate Securities for original issue after the Issue Date in
the aggregate principal amount of up to $100,000,000 upon a written order of the
Company in the form of an Officers' Certificate. Each such Officers'
Certificate shall specify the amount of Securities to be authenticated and the
date on which the Securities are to be authenticated. Such Securities shall
initially be in the form of one or more Global Securities, which (i) shall
represent, and shall be denominated in an amount equal to the aggregate
principal amount of, the Securities to be issued, (ii) shall be registered in
the name of the Depository for such Global Security or Securities or its
nominee, (iii) shall be delivered by the Trustee to the Depository or pursuant
to the Depository's instruction and (iv) shall bear a legend substantially to
the following effect: "Unless and until this Global Security is exchanged in
whole or in part for the individual Securities represented hereby, this Global
Security may not be transferred except as a whole by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or by a
Depository or any such nominee to a successor Depository or a nominee of a
successor Depository." The aggregate principal amount of Securities outstanding
at any time may not exceed $270,000,000, except as provided in Section 2.07.
<PAGE>
-29-
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
SECTION 2.03. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one
or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; 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 Borough of Manhattan, The City of New York, for such purposes. The
Company may act as its own Registrar or Paying Agent except that for the
purposes of Articles Three and Eight and Sections 4.15 and 4.16, neither the
Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more co-
Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent. The
------------
Company initially appoints the Trustee as Registrar and Paying Agent until such
time as the Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee, in advance, of the name and address of any such Agent. If
the
<PAGE>
-30-
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that, subject to Article Four and Article Twelve, each Paying
Agent shall hold in trust for the benefit of Holders or the Trustee all assets
held by the Paying Agent for the payment of principal of, or interest on, the
Securities (whether such assets have been distributed to it by the Company or
any other obligor on the Securities), and shall notify the Trustee of any
Default by the Company (or any other obligor on the Securities) in making any
such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund. The Company at
any time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
---------------------
(a) When Securities are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Securities or to exchange such
Securities for an equal principal amount of Securities of other authorized
denominations, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Securi-
- -------- -------
<PAGE>
-31-
ties surrendered for transfer or exchange shall be duly endorsed or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchanges or transfers pursuant to Sections
2.02, 2.10, 3.06, 4.15, 4.16 or 9.06). The Registrar or co-Registrar shall not
be required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing, (ii) selected for redemption in whole or in part pursuant
to Article Three, except the unredeemed portion of any Security being redeemed
in part, and (iii) during a Change of Control Offer or an Net Proceeds Offer if
such Security is tendered pursuant to such Change of Control Offer or Net
Proceeds Offer and not withdrawn. A Global Security may be transferred, in whole
but not in part, in the manner provided in this Section 2.06(a), only to a
nominee of the Depository for such Global Security, or to the Depository, or a
successor Depository for such Global Security selected or approved by the
Company, or to a nominee of such successor Depository.
(b) If at any time the Depository for the Global Security or
Securities notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security or Securities or the Company becomes aware
that the Depository has ceased to be a clearing agency registered under the
Exchange Act, the Company shall appoint a successor Depository with respect to
such Global Security or Securities. If a successor Depository for such Global
Security or Securities has not been appointed within 120 days after the Company
receives such notice or becomes aware of such ineligibility, the Company shall
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Securities, shall authenticate and deliver,
Securities in definitive form, in an aggregate principal amount at maturity
equal to the principal amount at maturity of the Global Security representing
such Securities, in exchange for such Global Security. The Company shall
reimburse the Registrar, the Depository and the Trustee
<PAGE>
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for expenses they incur in documenting such exchanges and issuances of
Securities in definitive form.
The Company may at any time and in its sole discretion determine that
the Securities shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the Trustee, upon
receipt of a written order for the authentication and delivery of individual
Securities in exchange in whole or in part for such Global Security or
Securities, will authenticate and deliver individual Securities in definitive
form in an aggregate principal amount equal to the principal amount of such
Global Security or Securities in exchange for such Global Security or
Securities.
In any exchange provided for in any of the preceding two paragraphs,
the Company will execute and the Trustee will authenticate and deliver
individual Securities in definitive registered form in authorized denominations.
Upon the exchange of a Global Security for individual Securities, such Global
Security shall be cancelled by the Trustee. Securities issued in exchange for a
Global Security pursuant to this Section 2.06(b) shall be registered in such
names and in such authorized denominations as the Depository for such Global
Security, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such
Securities to the persons in whose names such Securities are so registered.
None of the Company, the Trustee, any Paying Agent or the Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests of a Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
SECTION 2.07. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
the Company, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee or any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge such Holder for its reasonable
out-of-pocket expenses in replacing a Security pur-
<PAGE>
-33-
suant to this Section 2.07, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Security does not cease to be outstanding because the Company, the Guarantors
or any of their respective Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
---- ----
upon surrender of such Security and replacement thereof pursuant to Section
2.07. If the principal amount of any Security is considered paid under Section
4.01, it ceases to be outstanding and interest ceases to accrue.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government
obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any of its Subsidiaries or any of their respective Affiliates
shall be disregarded, except that, for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities that the Trustee knows or has reason to know are so owned shall
be disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate tem-
<PAGE>
-34-
porary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until such exchange, temporary Securities
shall be entitled to the same rights, benefits and privileges as definitive
Securities. Notwithstanding the foregoing, so long as the Securities are
represented by a Global Security, such Global Security may be in typewritten
form.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary), and no one else, shall cancel and, at
the written direction of the Company, shall dispose of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.07, the Company may not issue new Securities to replace Securities that it has
paid or delivered to the Trustee for cancellation. If the Company or any
Guarantor shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Securities, it
shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, the Company shall mail to each Holder, with a
copy to the Trustee, a notice that states the subsequent special record date,
the payment date and the amount of defaulted interest, and interest payable on
such defaulted interest, if any, to be paid.
<PAGE>
-35-
SECTION 2.13. CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number, and if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided, however, that any such notice may state
-------- -------
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 6 or
Paragraph 7 of the Securities, it shall notify the Trustee in writing of the
Redemption Date, the Redemption Price and the principal amount of Securities to
be redeemed. The Company shall give notice of redemption to the Paying Agent
and Trustee at least 30 days but not more than 60 days before the Redemption
Date (unless a shorter notice shall be agreed to by the Trustee in writing),
together with an Officers' Certificate stating that such redemption will comply
with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
--------------------------------------
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
--- ----
or by such method as the Trustee shall deem fair and appropriate; provided,
--------
however, that no Securities of a principal amount of $1,000 or less shall be
- -------
redeemed in part; and provided, further, that if a partial redemption is made
-------- -------
with the net cash proceeds of an Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
--- ----
basis or on as nearly a pro rata basis as is practicable (subject to the
--- ----
procedures of the Depository), unless such method is otherwise prohibited.
<PAGE>
-36-
SECTION 3.03. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at its registered
address. At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. Each notice for
redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if
any, to be paid;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price plus accrued interest, if
any;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the
Securities are to be redeemed.
<PAGE>
-37-
The notice, if mailed in a manner herein provided, shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption in whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
SECTION 3.04. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to
the Trustee or Paying Agent, such Securities called for redemption shall be paid
at the Redemption Price (which shall include accrued interest thereon to the
Redemption Date), but installments of interest, the maturity of which is on or
prior to the Redemption Date, shall be payable to Holders of record at the close
of business on the relevant Record Dates.
SECTION 3.05. Deposit of Redemption Price.
---------------------------
On or before 11:00 a.m New York time on the Redemption Date, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Securities to be redeemed will cease to accrue on and
after the applicable Redemption Date, whether or not such Securities are
presented for payment.
SECTION 3.06. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part only, the
Trustee shall upon written instruction from the Company authenticate for the
Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
<PAGE>
-38-
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
---------------------
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities. An installment of principal of or
interest on the Securities shall be considered paid on the date it is due if the
Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and
sufficient to pay the installment. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
SECTION 4.02. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of 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 address of the Trustee set forth in Section 11.02.
SECTION 4.03. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Securities or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
------------------
Restricted Pay-
<PAGE>
-39-
ment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.04 or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated
Net Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
----------------
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (y) without duplication of
any amounts included in clause (iii)(x) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock; plus (z) without duplication, the sum of (1) the
aggregate amount returned in cash on or with respect to Investments (other than
Permitted Investments) made subsequent to the Issue Date whether through
interest payments, principal payments, dividends or other distributions or
payments, (2) the net cash proceeds received by the Company or any Restricted
Subsidiary of the Company from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company) and (3) upon
redesignation of an Unrestricted Subsidiary of the Company as a Restricted
Subsidiary of the Company, the fair market value of such Subsidiary; provided,
--------
however, that the sum of clauses (1), (2) and (3) above shall not exceed the
- -------
aggregate amount of all such Investments made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration of such dividend if the dividend
would have been permitted on the date of declaration; (2) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Sub-
<PAGE>
-40-
sidiary of the Company) of shares of Qualified Capital Stock of the Company; (3)
if no Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Securities either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) so long as no Default or Event of Default shall
have occurred and be continuing, repurchases by the Company of Common Stock of
the Company from employees of the Company or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $5.0 million
in any calendar year (with unused amounts in any calendar year being carried
over to succeeding years subject to a maximum of $7.5 million in any calendar
year); (5) the declaration and payment of dividends to holders of any class or
series of Preferred Stock (other than Disqualified Capital Stock) issued after
the Issue Date, provided that for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of issuance of such Preferred Stock, after giving effect to
such issuance on a pro forma basis, the Company would have had a Consolidated
--- -----
Fixed Charge Coverage Ratio of at least 1.75 to 1.00; (6) the payment of
dividends on the Company's Common Stock, following the first public offering of
the Company's Common Stock after the Issue Date, of up to 6% per annum of the
net proceeds received by the Company in such public offering, other than public
offerings with respect to the Company's Common Stock registered on Form S-8; (7)
the repurchase, retirement or other acquisition or retirement for value of
equity interests of the Company in existence on the Issue Date and from the
persons holding such equity interests on the Issue Date and which are not held
by Apollo or any of its Affiliates or members of management of the Company and
its Subsidiaries on the Issue Date (including any equity interests issued in
respect of such equity interests as a result of a stock split, recapitalization,
merger, combination, consolidation or similar transaction), provided, however,
-------- -------
that the Company shall be permitted to make Restricted Payments under this
clause only if after giving effect thereto, the Company would be permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.04 and (8) other Restricted Payments in an
aggregate amount not to exceed $5.0 million. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of
<PAGE>
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the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2), (4), (5), (6), (7) and (8) shall be included in such calculation.
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 complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
SECTION 4.04. Limitation on Incurrence of
Additional Indebtedness.
---------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
-----
(other than Permitted Indebtedness); provided, however, that if no Default or
-------- -------
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any of
the Guarantors may incur Indebtedness (including, without limitation, Acquired
Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired
Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than 1.75 to 1.0 if such
incurrence is on or prior to December 31, 1999 and 2.0 to 1.0 if such incurrence
is thereafter.
SECTION 4.05. Corporate Existence.
-------------------
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Restricted Subsidiaries in accordance with the respective
organizational documents of each such Restricted Subsidiary and the rights
(charter and statutory) and material franchises of the Company and each of its
Restricted Subsidiaries.
SECTION 4.06. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent,
<PAGE>
-42-
(a) all material taxes, assessments and governmental charges levied or imposed
upon it or any of its Subsidiaries or upon the income, profits or property of it
or any of its Restricted Subsidiaries and (b) all lawful claims for labor,
materials and supplies which, in each case, if unpaid, might by law become a
material liability or Lien upon the property of it or any of its Restricted
Subsidiaries; 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 and for which appropriate provision has been
made.
SECTION 4.07. Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material properties owned by or
leased by it or any of its Restricted Subsidiaries used or useful to the conduct
of its business or the business of any of its Restricted Subsidiaries to be
maintained and kept in normal condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all repairs, renewals,
replacements, and betterments thereof, all as in its judgment 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 4.07 shall prevent the Company or any of its Restricted Subsidiaries
from discontinuing the use, operation or maintenance of any of such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors of the Company or any such Restricted
Subsidiary desirable in the conduct of the business of the Company or any such
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause its Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance.
SECTION 4.08. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the close of each fiscal year an Officers' Certificate stating that a review of
the activities of the Company
<PAGE>
-43-
has been made under the supervision of the signing officers with a view to
determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge the Company during
such preceding fiscal year has kept, observed, performed and fulfilled each and
every such covenant and no Default or Event of Default occurred during such year
and at the date of such certificate there is no Default or Event of Default that
has occurred and is continuing or, if such signers do know of such Default or
Event of Default, the certificate shall describe its status with particularity.
The Officers' Certificate shall also notify the Trustee should the Company elect
to change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to Section
4.10 shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit of such financial statements nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four, Five or Six of this Indenture insofar as they relate
to accounting matters or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall deliver to the Trustee, forthwith upon becoming
aware of any Default or Event of Default in the performance of any covenant,
agreement or condition contained in this Indenture, an Officers' Certificate
specifying the Default or Event of Default and describing its status with
particularity.
SECTION 4.09. Compliance with Laws.
--------------------
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States, all states and municipalities thereof, and of
any governmental department, commission, board, regulatory authority, bureau,
agency and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not in the aggregate have a material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries taken as a whole.
<PAGE>
-44-
SECTION 4.10. Reports to Holders.
------------------
The Company will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company
will also comply with the other provisions of TIA (S) 314(a).
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
Each of the Company and each Guarantor covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest on the Securities or the Guarantee of any such Guarantor as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture, and (to the
extent that it may lawfully do so) each 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 4.12. Limitations on Transactions with Affiliates.
-------------------------------------------
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
---------
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
- -----------
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable
<PAGE>
-45-
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1.0 million shall be approved by the
Board of Directors of the Company or such Restricted Subsidiary, as the case may
be, such approval to be evidenced by a Board Resolution stating that such Board
of Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $10.0 million, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors; (ii) transactions exclusively between or among the Company and any of
its Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
--------
otherwise prohibited by this Indenture; (iii) any agreement as in effect as of
the Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
this Indenture; (v) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of the first sentence of paragraph (a) above; (vi) the
existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agree-
<PAGE>
-46-
ment related thereto) to which it is a party as of the Issue Date and any
similar agreements which it may enter into thereafter; provided, however, that
-------- -------
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under, any future amendment to any such existing
agreement or under any similar agreement entered into after that Issue Date
shall only be permitted by this clause to the extent that the terms of any such,
amendment or new agreement are not otherwise disadvantageous to the holders of
the Securities in any material respect; (vii) loans to employees of the Company
and its Subsidiaries which are approved by the Board of Directors of the Company
in good faith; (viii) the payment of all fees and expenses related to the
Transactions; and (ix) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of this Indenture, which
are fair to the Company or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of the Company or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.
SECTION 4.13. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
----------------------------------------
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) the Credit Agreement;
(4) customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (5) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (7) purchase money obligations for
property acquired in the ordinary course of
<PAGE>
-47-
business that impose restrictions of the nature discussed in clause (c) above on
the property so acquired; (8) contracts for the sale of assets, including,
without limitation, customary restrictions with respect to a Restricted
Subsidiary of the Company pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary; (9) secured Indebtedness otherwise
permitted to be incurred pursuant to Section 4.04 and Section 4.14; (10)
customary provisions in joint venture agreements and other similar agreements
entered into in the ordinary course of business; (11) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clauses (1) through (10) above;
provided, however, that the provisions relating to such encumbrance or
- -------- -------
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clauses; or (12) an agreement governing Indebtedness permitted to be incurred
pursuant to Section 4.04; provided that the provisions relating to such
--------
encumbrance or restriction contained in such Indebtedness are no less favorable
to the Company in any material respect as determined by the Board of Directors
of the Company in their reasonable and good faith judgment than the provisions
contained in the Credit Agreement as in effect on the Issue Date.
SECTION 4.14. Limitation on Liens.
-------------------
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Securities are equally
and ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Debt and Liens securing Guarantor Senior Debt; (C) Liens
securing the Securities and the Guarantees; (D) Liens of the
<PAGE>
-48-
Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any
Restricted Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; provided, however, that such
-------- -------
Liens (A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (F) Permitted Liens.
SECTION 4.15. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase (the "Change of Control Offer"), and
-----------------------
shall purchase, on a Business Day (the "Change of Control Payment Date") as
------------------------------
described below, all of the then outstanding Securities at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the Change of Control Payment Date. The Change of Control
Offer shall remain open for at least 20 Business Days and until the close of
business on the Change of Control Payment Date.
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following any Change of Control, the Company covenants to
(i) repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Debt the terms of which require repayment
upon a Change of Control or offer to repay in full and terminate all commitments
under all Indebtedness under the Credit Agreement and all other such Senior Debt
and to repay the Indebtedness owed to each lender which has accepted such offer
or (ii) obtain the requisite consents under the Credit Agreement and all other
Senior Debt to permit the repurchase of the Securities as provided below. The
Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Securities pursuant to the
provisions described below. The Company's failure to comply with the covenant
described in the immediately preceding sentence shall constitute an Event of
Default described in clause (c) and not in clause (b) of Section 6.01.
(c) Within 30 days following the date upon which a Change of Control
occurs (the "Change of Control Date"), the
----------------------
<PAGE>
-49-
Company shall send, by first class mail, a notice to each Holder, with a copy to
the Trustee, which notice shall govern the terms of the Change of Control Offer.
The notice to the Holders shall contain all instructions and materials necessary
to enable such Holders to tender Securities pursuant to the Change of Control
Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued interest)
and the Change of Control Payment Date, which shall be a Business Day, that
is not earlier than 30 days or later than 60 days from the date such notice
is mailed;
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
a Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Change of Control Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will
be issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
<PAGE>
-50-
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price plus accrued interest, if any, and the Trustee shall promptly authenticate
and mail to such Holders new Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.15, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities pursuant to a Change of Control Offer. To the extent the
provisions of any securities laws or regulations conflict with the provisions of
this Section 4.15, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Asset Sales.
-------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 75% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such
<PAGE>
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disposition; provided that the amount of (a) any liabilities (as shown
--------
on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the Securities) that are assumed by the
transferee of any such assets, and (b) any notes or other obligations received
by the Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 180 days
after such Asset Sale (to the extent of the cash received) shall be deemed to be
cash for the purposes of this provision; and (iii) upon the consummation of an
Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to
apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of
receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt
and, in the case of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, effect a permanent reduction in the availability under such
revolving credit facility, (B) to make an Investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of the Company and
its Restricted Subsidiaries as existing on the Issue Date or in businesses the
same, similar or reasonably related thereto ("Replacement Assets"), or (C) a
------------------
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
-------------------------------
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
-------------------------
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
------------------ ------------------
Payment Date") not less than 30 nor more than 45 days following the applicable
- ------------
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
--------
amount of Securities equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Securities to be purchased, plus accrued and
unpaid interest thereon, if any, to the date of purchase; provided, however,
-------- -------
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for
<PAGE>
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cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5.0 million resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5.0 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted by Section 5.01, the successor
corporation shall be deemed to have sold the properties and assets of the
Company and its Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the fair market
value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notice of each Net Proceeds Offer pursuant to this Section 4.16 shall
be mailed or caused to be mailed, by first class mail, by the Company within 25
days following the applicable Net Proceeds Offer Trigger Date to all Holders at
their last registered addresses, with a copy to the Trustee. A Net Proceeds
Offer shall remain open for a period of 20 Business Days or such longer period
as may be required by law. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer and shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.16 and that all Securities tendered will be accepted for payment;
provided, however, that if the principal amount of Securities tendered in
-------- -------
the Net Proceeds Offer exceeds the aggregate amount of Net Proceeds Offer
Amount, the Company shall select the Securities to be purchased on a pro
rata basis;
(2) the purchase price (including the amount of accrued interest,
if any) and the purchase date (which shall be no earlier than 30 days nor
later than 45 days from the
<PAGE>
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date such notice is mailed, other than as may be required by applicable law);
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
the Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Net Proceeds Offer Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Net Proceeds Offer Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part will
be issued new Securities in a principal amount at maturity equal to the
unpurchased portion of the Securities surrendered.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price, plus accrued interest, if any, of all
Securities to be purchased and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to the Holders of Securities so accepted payment in an amount
equal to the purchase price, plus accrued interest, if any, thereon. Any
Security not so accepted shall be promptly mailed by the Company to the Holder
thereof. For purposes of this Section 4.16, the Trustee shall act as the Paying
Agent. Any amounts remaining
<PAGE>
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after the purchase of Securities pursuant to a Net Proceeds Offer shall be
returned by the Trustee to the Company.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.16, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.16 by virtue thereof.
SECTION 4.17. Prohibition on Incurrence of
Senior Subordinated Debt.
-------------------------
The Company and the Guarantors shall not incur or suffer to exist
Indebtedness that is senior in right of payment to the Securities or the
Guarantees, as the case may be, and subordinate in right of payment by its terms
to any other Indebtedness of the Company or such Guarantor, as the case may be.
SECTION 4.18. Additional Subsidiary Guarantees.
--------------------------------
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another domestic Restricted Subsidiary
having total equity value in excess of $1.0 million, then such transferee or
acquired or other Restricted Subsidiary shall (i) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Securities and this Indenture on the
terms set forth in this Indenture and (ii) deliver to the Trustee an Opinion of
Counsel that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture.
<PAGE>
-55-
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
----------------------------------------
(a) The Company shall not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
----------------
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Securities and the
performance of every covenant of the Securities and this Indenture on the part
of the Company to be performed or observed; (ii) immediately after giving effect
to such transaction on a pro forma basis and the assumption contemplated by
--- -----
clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.04; (iii) immediately before
and immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity, as the
<PAGE>
-56-
case may be, shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such transaction
have been satisfied.
Notwithstanding the foregoing, the merger of the Company with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction shall be permitted.
(b) For purposes of the foregoing paragraph (a), 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 of the Company 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 5.02. Successor Corporation Substituted.
---------------------------------
(a) Upon any consolidation, combination or merger or any transfer of
all or substantially all of the assets of the Company in accordance with Section
5.01 in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such Surviving
Entity had been named as such.
(b) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.16)
shall not, and the Company shall not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity as-
<PAGE>
-57-
sumes by supplemental indenture all of the obligations of the Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Company could satisfy the provisions
--- -----
of clause (ii) of Section 5.01(a). Any merger or consolidation of a Guarantor
with and into the Company (with the Company being the surviving entity) or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
need only comply with clause (iv) of Section 5.01(a).
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
-----------------
Each of the following shall be an "Event of Default":
----------------
(a) the failure to pay interest on any Securities when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by Articles Ten and Twelve
of this Indenture);
(b) the failure to pay the principal on any Securities, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by Articles Ten and Twelve
of this Indenture);
(c) a default in the observance or performance of any other covenant
or agreement contained in this Indenture, which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Securities;
(d) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Com-
<PAGE>
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pany, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final stated maturity or which has
been accelerated, aggregates $5.0 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(f) the Company or any of its Significant Subsidiaries (i) commences
a voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (ii) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding under any Bankruptcy
Law, (iii) consents to the appointment of a custodian of it or for
substantially all of its property, (iv) consents to or acquiesces in the
institution of a bankruptcy or an insolvency proceeding against it, (v)
makes a general assignment for the benefit of its creditors or (vi) takes
any corporate action to authorize or effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law,
which shall (i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any of its Significant Subsidiaries, (ii) appoint a Custodian of
the Company or any of its Significant Subsidiaries or for substantially all
of any of its property or (iii) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(h) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Guarantee (other than by reason of release
of such Guarantor in accordance with the terms of this Indenture).
<PAGE>
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SECTION 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) of Section 6.01 above with respect to the Company) shall occur
and be continuing, the Trustee or the Holders of at least 25% in principal
amount of outstanding Securities may declare the principal of and accrued
interest on all the Securities to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice"), and the same (i)
-------------------
shall become immediately due and payable or (ii) if there are any amounts
outstanding under the Credit Agreement, shall become immediately due and payable
upon the first to occur of an acceleration under the Credit Agreement or 5
business days after receipt by the Company and the Representative under the
Credit Agreement of such Acceleration Notice. If an Event of Default specified
in clause (f) or (g) of Section 6.01 above with respect to the Company occurs
and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Securities shall 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 with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clause (f) or (g) of Section 6.01, the Trustee shall have received an Officers'
Certificate and an Opinion of Counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
<PAGE>
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SECTION 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
-----------------------
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than
a majority in principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default in the payment of principal of or interest on any Security as
specified in clauses (a) and (b) of Section 6.01. The Company shall deliver to
the Trustee an Officers' Certificate stating that the requisite percentage of
Holders have consented to such waiver and attaching copies of such consents.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
-------------------
The Holders of not less than a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.01, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
--------
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole dis-
<PAGE>
-61-
cretion against any loss or expense caused by taking such action or following
such direction.
SECTION 6.06. Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of
the outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 45 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(5) during such 45-day period the Holder or Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or
<PAGE>
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any other obligor on the Securities for the whole amount of principal and
accrued interest and fees remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
--- -----
borne by the Securities and 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.
SECTION 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and 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 the
Securityholders allowed in any judicial proceedings relating to the Company, its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder 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 Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
----------
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for interest accrued on the Securities, ratably,
without preference or priority of any
<PAGE>
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kind, according to the amounts due and payable on the Securities for
interest;
Third: to Holders for principal amounts due and unpaid on the
Securities, ratably, without preference or priority of any kind, according
to the amounts due and payable on the Securities for principal; and
Fourth: to the Company or, if applicable, the Guarantors, as their
respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, 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 their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
<PAGE>
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(1) The Trustee need perform only those duties as are specifically
set forth herein or in the TIA and no duties, covenants, responsibilities
or obligations shall be implied in this Indenture against the Trustee.
(2) 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 (including Officers'
Certificates) or opinions (including Opinions of Counsel) furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein, the Trustee may
not be relieved from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) 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.
(3) 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 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee
<PAGE>
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need not be segregated from other funds except to the extent required by law.
(g) In the absence of bad faith, negligence or willful misconduct on
the part of the Trustee, the Trustee shall not be responsible for the
application of any money by any Paying Agent other than the Trustee.
SECTION 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel, which shall conform to
the provisions of Section 13.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent (other
than an agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
<PAGE>
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(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate (including any
Officers' Certificate), statement, instrument, opinion (including any
Opinion of Counsel), notice, request, direction, consent, order, bond,
debenture, 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, upon reasonable notice to
the Company, to examine the books, records, and premises of the Company,
personally or by agent or attorney.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty.
SECTION 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication. The
Trustee makes no representations with respect to the effectiveness or adequacy
of this Indenture.
SECTION 7.05. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such De-
<PAGE>
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fault or Event of Default, the Trustee shall mail to each Securityholder notice
of the uncured Default or Event of Default within 60 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal of, or interest on, any Security, including an
accelerated payment and the failure to make payment on the Change of Control
Payment Date pursuant to a Change of Control Offer or the Net Proceeds Offer
Payment Date pursuant to a Net Proceeds Offer, the Trustee may withhold the
notice if and so long as the Board of Directors, the executive committee, or a
trust committee of directors and/or Responsible Officers, of the Trustee in good
faith determines that withholding the notice is in the interest of the
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each May 15, beginning with the first May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA (S) 313(a) occurred within the previous twelve
months, but not otherwise, mail to each Securityholder a brief report dated as
of such date that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA (S)(S) 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof and the Trustee shall
comply with TIA (S) 313(d).
SECTION 7.07. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances (including reasonable fees and expenses of
counsel) incurred or made by it in addition to the compensation for its
services, except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence, bad faith or willful misconduct. Such
expenses shall include the reasonable fees and expenses of the Trustee's agents
and counsel.
<PAGE>
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The Company shall indemnify the Trustee and its agents, employees,
officers, stockholders and directors for, and hold them harmless against, any
loss, liability or expense incurred by them except for such actions to the
extent caused by any negligence, bad faith or willful misconduct on their part,
arising out of or in connection with the acceptance or administration of this
trust including the reasonable costs and expenses of defending themselves
against or investigating any claim or liability in connection with the exercise
or performance of any of the Trustee's rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee or any of its agents, employees, officers, stockholders and directors
for which it may seek indemnity. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee and its agents, employees,
officers, stockholders and directors subject to the claim may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel; provided, however, that the Company will not be required to pay such
-------- -------
fees and expenses if it assumes the Trustee's defense and there is no conflict
of interest between the Company and the Trustee and its agents, employees,
officers, stockholders and directors subject to the claim in connection with
such defense as reasonably determined by the Trustee. The Company need not pay
for any settlement made without its written consent. The Company need not
reimburse any expense or indemnify against any loss or liability to the extent
incurred by the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a senior claim prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
assets or money held in trust to pay principal of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (f) or (g) of Section 6.01 occurs, such expenses and
the compensation for such services shall be paid to the extent allowed under any
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by
<PAGE>
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so notifying the Company and the Trustee and may appoint a successor Trustee.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
<PAGE>
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SECTION 7.09. Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided that such
--------
corporation shall be otherwise qualified and eligible under this Article Seven.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee shall
have a combined capital and surplus of at least $100,000,000 as set forth in its
most recent published annual report of condition. In addition, if the Trustee
is a corporation included in a bank holding company system, the Trustee,
independently of the bank holding company, shall meet the capital requirements
of TIA (S) 310(a)(2). The Trustee shall comply with TIA (S) 310(b); provided,
--------
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
- -------
any indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding,
if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
The provisions of TIA (S) 310 shall apply to the Company and any other obligor
of the Securities.
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee, in its capacity as Trustee hereunder shall comply with
TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A
Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to
the extent indicated.
<PAGE>
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ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations.
----------------------------------------
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.01, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid or Securities for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities under arrangements
satisfactory to the Trustee for the giving of such notice or (ii) all
Securities have otherwise become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit
of the Holders of that purpose, U.S. Legal Tender in such amount as is
sufficient without consideration of reinvestment of such interest, to pay
principal of, premium, if any, and interest on the outstanding Securities
to maturity or redemption; provided that the Trustee shall have been
--------
irrevocably instructed to apply such U.S. Legal Tender to the payment of
said principal, premium, if any, and interest with respect to the
Securities and provided, further, that from and after the time of deposit,
-------- -------
the money deposited shall not be subject to the rights of holders of Senior
Debt or Guarantor Senior Debt pursuant to the provisions of Article Ten or
Twelve, as the case may be;
(c) no Default or Event of Default with respect to this Indenture or
the Securities shall have occurred and be continuing on the date of such
deposit or shall occur
<PAGE>
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as a result of such deposit and such deposit will not result in a breach or
violation of, or constitute a default under, any other instrument to which
the Company is a party or by which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for or relating to the termination of the Company's
obligations under the Securities and this Indenture have been complied
with. Such Opinion of Counsel shall also state that such satisfaction and
discharge does not result in a default under the Credit Agreement or any
other agreement or instrument then known to such counsel that binds or
affects the Company.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive
until the Securities are no longer outstanding pursuant to the last paragraph of
Section 2.08. After the Securities are no longer outstanding, the Company's
obligations in Sections 7.07, 8.05 and 8.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.02. Legal Defeasance and Covenant Defeasance.
----------------------------------------
(a) The Company may, at its option by Board Resolution of the Board
of Directors of the Company, at any time, elect to have either paragraph (b) or
(c) below be applied to all outstanding Securities upon compliance with the
conditions set forth in Section 8.03.
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03, be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
-----
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
- ----------
be deemed to have paid
<PAGE>
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and discharged the entire Indebtedness represented by the outstanding
Securities, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.04 hereof and the other Sections of this Indenture
referred to in (i) and (ii) below, and to have satisfied all its other
obligations under such Securities and this Indenture (and the Trustee, on demand
of and at the expense of the Company, shall execute proper instruments
acknowledging the same), and Holders of the Securities and any amounts deposited
under Section 8.03 hereof shall cease to be subject to any obligations to, or
the rights of, any holder of Senior Debt under Article Ten or otherwise, except
for the following provisions, which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 8.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of and
interest on such Securities when such payments are due, (ii) the Company's
obligations with respect to such Securities under Article Two and Section 4.02
hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and (iv) this
Article Eight. Subject to compliance with this Article Eight, the Company may
exercise its option under this paragraph (b) notwithstanding the prior exercise
of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03 hereof, be released
from its obligations under the covenants contained in Sections 4.03, 4.04 and
Sections 4.12 through 4.18 and Article Five hereof with respect to the
outstanding Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
-------------------
thereafter be deemed not "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 (it being understood that such
Securities shall not be deemed outstanding for accounting purposes) and Holders
of the Securities and any amounts deposited under Section 8.03 hereof shall
cease to be subject to any obligations to, or the rights of, any holder of
Senior Debt under Article Ten or otherwise. For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Securities, the Company
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
<PAGE>
-74-
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 Section 6.01(c) hereof, but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby. In addition, upon the Company's exercise under
paragraph (a) hereof of the option applicable to this paragraph (c), subject to
the satisfaction of the conditions set forth in Section 8.03 hereof, Sections
6.01(c), 6.01(d) and 6.01(e) shall not constitute Events of Default.
SECTION 8.03. Conditions to Legal Defeasance
or Covenant Defeasance.
------------------------------
The following shall be the conditions to the application of either
Section 8.02(b) or 8.02(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, U.S. Legal Tender or U.S. Government
Obligations which through the scheduled payment of principal and interest
in respect thereof in accordance with their terms, will provide, not later
than one day before the due date of any payment on the Securities, U.S.
Legal Tender, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Securities on the stated date for payment thereof or on the
applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02(b) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal
<PAGE>
-75-
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;
(c) in the case of an election under Section 8.02(c) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the Securities 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;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of
the proceeds of which will be used to defease the Securities pursuant to
this Article Eight concurrently with such incurrence) or insofar as
Sections 6.01(f) and 6.01(g) hereof are concerned, at any time in the
period ending on the 91st day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under this Indenture or
any other material 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 is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust
<PAGE>
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funds will not be subject to any rights of any holders of Senior Debt,
including, without limitation, those arising under this Indenture, and (ii)
assuming no intervening bankruptcy or insolvency of the Company between the
date of deposit and the 91st day following the deposit and that no Holder
is an insider of the Company, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable Bankruptcy
Law.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (b) above of this Section 8.03 need not be delivered if all Securities
not theretofore delivered to the Trustee for cancellation (i) have become due
and payable, (ii) will become due and payable on the Maturity Date within one
year or (iii) 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.
SECTION 8.04. Application of Trust Money.
--------------------------
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to this Article Eight,
and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of and interest on the Securities. The Trustee shall be under no
obligation to invest said U.S. Legal Tender or U.S. Government Obligations
except as it may agree with the Company.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.03 hereof 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 Securities.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any U.S. Legal Tender or U.S. Government Obligations held by it as
provided in Section 8.03 hereof 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 that would
then be required to be deposited to effect an equivalent Legal Defeasance or
Covenant Defeasance.
<PAGE>
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SECTION 8.05. Repayment to the Company.
------------------------
Subject to this Article Eight, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for two years; provided that the
--------
Trustee or such Paying Agent, before being required to make any payment, may at
the expense of the Company cause to be published once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that after a date specified
therein which shall be at least 30 days from the date of such publication or
mailing any unclaimed balance of such money then remaining will be repaid to the
Company. After payment to the Company, Holders entitled to such money must look
to the Company for payment as general creditors unless an applicable law
designates another Person.
SECTION 8.06. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with this Article Eight by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Eight until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in
accordance with this Article Eight; provided that if the Company has made any
--------
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the U.S. Legal
Tender or U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE>
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
--------------------------
The Company, the Guarantors and the Trustee, together, may amend or
supplement this Indenture, the Securities or the Guarantees without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to evidence the succession in accordance with Article Five
hereof of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Securities;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not adversely affect the
rights of any Securityholders hereunder in any material respect;
(5) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA; or
(6) to add or release any Guarantor pursuant to the terms of this
Indenture;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
- --------
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
-----------------------
Subject to Section 6.07, the Company, the Guarantors and the Trustee,
together, with the written consent of the Holder or Holders of at least a
majority in aggregate principal amount of the outstanding Securities, may amend
or supplement this Indenture, the Securities or the Guarantees, without notice
to any other Securityholders. Subject to Section 6.07, the Holder or Holders of
a majority in aggregate principal amount of the outstanding Securities may waive
compliance by
<PAGE>
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the Company with any provision of this Indenture, the Securities or the
Guarantees without notice to any other Securityholder. Without the consent of
each Securityholder affected, however, no amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, may:
(1) reduce the amount of Securities whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including default interest, on any Security;
(3) reduce the principal of or change or have the effect of
changing the fixed maturity of any Security, or change the date on which
any Securities may be subject to redemption or repurchase, or reduce the
redemption or purchase price therefor;
(4) make any Securities payable in money other than that stated in
the Securities;
(5) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Securities to waive Defaults or Events of Default;
(6) make any changes in Section 6.04, 6.07 or this Section 9.02;
(7) modify or change any provision of this Indenture or the related
definitions affecting the subordination or ranking of the Securities or any
Guarantee, in a manner which adversely affects the Holders;
(8) amend, modify or change in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or, modify any of
the provisions or definitions with respect thereto; or
(9) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms of
this Indenture.
<PAGE>
-80-
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Effect on Senior Debt.
---------------------
No amendment of this Indenture shall adversely affect the rights of
any holder of Senior Debt or Guarantor Senior Debt under Article Ten or Article
Twelve, as the case may be, of this Indenture, without the consent of such
holder.
SECTION 9.04. Compliance with TIA.
-------------------
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture, the Securities or the
Guarantees shall comply with the TIA as then in effect.
SECTION 9.05. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph,
<PAGE>
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those Persons who were Holders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (9) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
--------
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.06. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Company may require the Holder of the Security to deliver it to the Trustee.
The Company may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.07. Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
--------
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and constituted the legal, valid and binding obligations of the
<PAGE>
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Company enforceable in accordance with its terms. Such Opinion of Counsel shall
be at the expense of the Company.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 10.01. Securities Subordinated to
Senior Debt.
--------------------------
Anything herein to the contrary notwithstanding, the Company, for
itself and its successors, and each Holder, by his or her acceptance of
Securities, agrees that the payment of all Obligations owing to the Holders in
respect of the Securities is subordinated, to the extent and in the manner
provided in this Article Ten, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, of all Obligations on Senior Debt.
This Article Ten shall constitute a continuing offer to all Persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt and such holders are made
obligees hereunder and any one or more of them may enforce such provisions.
SECTION 10.02. Suspension of Payment When Senior
Debt Is in Default.
- -------------------
(a) Unless Section 10.03 shall be applicable, if any default occurs
and is continuing in the payment when due, whether at maturity, upon any
redemption, by declaration or otherwise, of any principal of, interest on,
unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Senior Debt (a "Payment Default"), then no
---------------
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their behalf with respect to any Obligations on the
Securities or to acquire any of the Securities for cash or property or otherwise
and until such Payment Default shall have been cured or waived or shall have
ceased to exist or such Senior Debt as to which such Payment Default relates
shall have been discharged or paid in full in cash or Cash Equivalents, after
which the Company shall resume making any and all required payments in respect
of the Securities, including any missed payments.
<PAGE>
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(b) Unless Section 10.03 shall be applicable, if any other event of
default (other than a Payment Default) occurs and is continuing with respect to
any Designated Senior Debt (as such event of default is defined in the
instrument creating or evidencing such Designated Senior Debt) permitting the
holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof (a "Non-payment Default") and if the Representative for the
-------------------
respective issue of Designated Senior Debt gives notice of the event of default
to the Trustee (a "Default Notice"), then, unless and until all events of
--------------
default have been cured or waived or have ceased to exist or the Trustee
receives notice thereof from the Representative for the respective issue of
Designated Senior Debt terminating the Payment Blockage Period (as defined
below), during the 180 days after the delivery of such Default Notice (the
"Payment Blockage Period"), neither the Company nor any other Person on its
- ------------------------
behalf shall (x) make any payment of any kind or character with respect to any
Obligations on the Securities or (y) acquire any of the Securities for cash or
property or otherwise. Notwithstanding anything herein to the contrary, (x) in
no event will a Payment Blockage Period extend beyond 180 days from the date the
payment on the Securities was due and (y) only one such Payment Blockage Period
may be commenced within any 360 consecutive days. For all purposes of this
Section 10.02(b), no event of default which existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Debt shall be, or be made, the basis for the commencement of a
second Payment Blockage Period by the Representative of such Designated Senior
Debt whether or not within a period of 360 consecutive days, unless such event
of default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Payment Blockage Period that, in either case, would give
rise to an event of default pursuant to any provisions under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose).
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by the foregoing provisions of this Section 10.02, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Debt (pro rata to such holders on the basis of the respective amount of
Senior Debt held by such holders) or their respective Representatives, as their
respective interests may appear. The Trustee shall be entitled to rely on
information
<PAGE>
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regarding amounts then due and owing on the Senior Debt, if any, received from
the holders of Senior Debt (or their Representatives) or, if such information is
not received from such holders or their Representatives, from the Company and
only amounts included in the information provided to the Trustee shall be paid
to the holders of Senior Debt.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Senior Debt thereafter due or declared to
--------
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment of any kind or character with
respect to Obligations on the Securities.
SECTION 10.03. Securities Subordinated to Prior Payment
of All Senior Debt on Dissolution,
Liquidation or Reorganization of Company.
-----------------------------------------
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors or marshaling of assets of the Company or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating to
the Company or its property, whether voluntary or involuntary, all Obligations
due or to become due upon all Senior Debt shall first be paid in full in cash or
Cash Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made on account of any Obligations on the Securities, or for the
acquisition of any of the Securities for cash or property or otherwise. Upon
any such dissolution, winding-up, liquidation, reorganization, receivership or
similar proceeding, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the Holders
of the Securities or the Trustee under this Indenture would be entitled, except
for the provisions hereof, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the Holders or by the Trustee under this
Indenture if received by them, directly to the holders of Senior Debt (pro rata
to such holders on the basis of the respective amounts of Senior Debt held by
such holders) or their respective Representatives, or to the trustee or trustees
under any indenture pur-
<PAGE>
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suant to which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full in cash or Cash
Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is prohibited by this Section 10.03(c), such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Senior Debt (pro rata to such holders on the
basis of the respective amount of Senior Debt held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of Senior Debt
remaining unpaid until all such Senior Debt has been paid in full in cash or
Cash Equivalents, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Debt.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Article Five hereof and as long as permitted under the terms of the Senior Debt
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, assume the Company's obligations
hereunder in accordance with Article Five hereof.
<PAGE>
-86-
SECTION 10.04. Payments May Be Paid Prior
to Dissolution.
--------------------------
Nothing contained in this Article Ten or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Sections
10.02 and 10.03, from making payments at any time for the purpose of making
payments of principal of and interest on the Securities, or from depositing with
the Trustee any moneys for such payments, or (ii) in the absence of actual
knowledge by the Trustee that a given payment would be prohibited by Section
10.02 or 10.03, the application by the Trustee of any moneys deposited with it
for the purpose of making such payments of principal of, and interest on, the
Securities to the Holders entitled thereto unless at least two Business Days
prior to the date upon which such payment would otherwise become due and payable
a Trust Officer shall have actually received the written notice provided for in
the first sentence of Section 10.02(b) or in Section 10.07 (provided that,
---------
notwithstanding the foregoing, such application shall otherwise be subject to
the provisions of Section 10.02(a) and Section 10.03). The Company shall give
prompt written notice to the Trustee of any dissolution, winding-up, liquidation
or reorganization of the Company.
SECTION 10.05. Holders To Be Subrogated to Rights
of Holders of Senior Debt.
----------------------------------
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt, the Holders of the Securities shall be subrogated to the rights of
the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Debt until the
Securities shall be paid in full; and, for the purposes of such subrogation, no
such payments or distributions to the holders of the Senior Debt by or on behalf
of the Company, or by or on behalf of the Holders by virtue of this Article Ten,
which otherwise would have been made to the Holders shall, as between the
Company and the Holders, be deemed to be a payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article Ten are and are intended solely for the purpose of defining the relative
rights of the Holders, on the one hand, and the holders of Senior Debt, on the
other hand.
SECTION 10.06. Obligations of the Company Unconditional.
----------------------------------------
Nothing contained in this Article Ten or elsewhere in this Indenture
or in the Securities is intended to or shall im-
<PAGE>
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pair, as among the Company, its creditors other than the holders of Senior Debt,
and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and any interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior Debt,
nor shall anything herein or therein prevent the Holder of any Security or the
Trustee on its behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
SECTION 10.07. Notice to Trustee.
-----------------
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 Securities pursuant to the provisions of this
Article Ten. Regardless of anything to the contrary contained in this Article
Ten or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Debt or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from the Company, or from a holder of Senior Debt or a
Representative therefor, together with proof satisfactory to the Trustee of such
holding of Senior Debt or of the authority of such Representative, and, prior to
the receipt of any such written notice, the Trustee shall be entitled to assume
(in the absence of actual knowledge to the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt 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 Ten, 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.
<PAGE>
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SECTION 10.08. Reliance on Judicial Order or
Certificate of Liquidating Agent.
--------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article Ten, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any
insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation,
reorganization or similar case or proceeding is pending, or upon a certificate
of the receiver, trustee in bankruptcy, liquidating trustee, assignee for the
benefit of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Securities, for the purpose of
ascertaining the persons entitled to participate in such payment or
distribution, the holders of the Senior Debt 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
Ten.
SECTION 10.09. Trustee's Relation to Senior Debt.
---------------------------------
The Trustee and any agent of the Company or the Trustee shall be
entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt.
Whenever a distribution is to be made or a notice given to holders or
owners of Senior Debt, the distribution may be made and the notice may be given
to their Representative, if any.
<PAGE>
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SECTION 10.10. Subordination Rights Not Impaired
by Acts or Omissions of the Company
or Holders of Senior Debt.
-----------------------------------
No right of any present or future holders of any Senior Debt to
enforce subordination as provided herein 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 by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee, without incurring responsibility to the
Trustee or the Holders of the Securities and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders of the Securities to the holders of the Senior Debt, do any one or more
of the following: (i) change the manner, place or terms of payment or extend
the time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt, or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any manner for the
payment or collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 10.11. Securityholders Authorize Trustee To
Effectuate Subordination of Securities.
--------------------------------------
Each Holder of Securities by its acceptance of them authorizes and
expressly directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate, as between the holders of Senior Debt
and the Holders of Securities, the subordination provided in this Article Ten,
and appoints the Trustee its attorney-in-fact for such purposes, including, in
the event of any dissolution, winding-up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of credits or
otherwise) tending towards liquidation of the business and assets of the
Company, the filing of a claim for the unpaid balance of its
<PAGE>
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Securities and accrued interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Debt or their
Representative are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Debt or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Senior Debt or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 10.12. This Article Ten Not To
Prevent Events of Default.
-------------------------
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Ten will not be
construed as preventing the occurrence of an Event of Default.
SECTION 10.13. Trustee's Compensation
Not Prejudiced.
----------------------
Nothing in this Article Ten will apply to amounts due to the Trustee
pursuant to other sections of this Indenture.
ARTICLE ELEVEN
GUARANTEE OF SECURITIES
SECTION 11.01. Unconditional Guarantee.
-----------------------
Subject to the provisions of this Article Eleven, each of the
Guarantors hereby, jointly and severally, unconditionally and irrevocably
guarantees, on a senior subordinated basis (such guarantees to be referred to
herein as a "Guarantee") to each Holder of a Security authenticated and
---------
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of
<PAGE>
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this Indenture, the Securities or the obligations of the Company or any other
Guarantors to the Holders or the Trustee hereunder or thereunder, that: (a) the
principal of, premium, if any, and interest on the Securities shall be duly and
punctually paid in full when due, whether at maturity, upon redemption at the
option of Holders pursuant to the provisions of the Securities relating thereto,
by acceleration or otherwise, and interest on the overdue principal and (to the
extent permitted by law) interest, if any, on the Securities and all other
obligations of the Company or the Guarantors to the Holders or the Trustee
hereunder or thereunder (including amounts due the Trustee under Section 7.07
hereof) and all other obligations shall be promptly 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 Securities or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
or failing performance of any other obligation of the Company to the Holders
under this Indenture or under the Securities, for whatever reason, each
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Securities
shall constitute an event of default under this Guarantee, and shall entitle the
Holders of Securities to accelerate the obligations of the Guarantors hereunder
in the same manner and to the same extent as the obligations of the Company.
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, any release of any other Guarantor,
the recovery of any judgment against the Company, any action to enforce the
same, whether or not a Guarantee is affixed to any particular Security, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a Guarantor. Each of the Guarantors hereby waives the
benefit of diligence, presentment, demand of 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, protest, notice and all demands
whatsoever and covenants that its Guarantee shall not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture and this Guarantee.
<PAGE>
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This Guarantee is a guarantee of payment and not of collection. If any Holder or
the Trustee is required by any court or otherwise to return to the Company or to
any Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Guarantor, any amount paid by the
Company or such Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between it, on the one hand, and the
Holders of Securities and the Trustee, on the other hand, (a) subject to this
Article Eleven, the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six hereof for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (b) in
the event of any acceleration of such obligations as provided in Article Six
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by the Guarantors for the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Guarantor, as such, shall have any personal liability
under this Guarantee by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor,
determined in accordance with GAAP.
SECTION 11.02. Limitations on Guarantees.
-------------------------
The obligations of each Guarantor under its Guarantee are limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, will result in the obligations of
such Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in an amount pro rata, based on the net assets of each
--- ----
Guarantor, determined in accordance with GAAP.
<PAGE>
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SECTION 11.03. Execution and Delivery of Guarantee.
-----------------------------------
To further evidence the Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Guarantee, substantially in the
form of Exhibit B hereto, shall be endorsed on each Security authenticated and
---------
delivered by the Trustee. Such Guarantee shall be executed on behalf of each
Guarantor by either manual or facsimile signature of two Officers of each
Guarantor, each of whom, in each case, shall have been duly authorized to so
execute by all requisite corporate action. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Guarantee no longer holds that office at the time the Trustee authenticates the
Security on which such Guarantee is endorsed or at any time thereafter, such
Guarantor's Guarantee of such Security shall nevertheless be valid.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Guarantor.
SECTION 11.04. Release of a Guarantor.
----------------------
(a) If no Default exists or would exist under this Indenture, upon
the sale or disposition of all of the Capital Stock of a Guarantor by the
Company, in a transaction or series of related transactions that either (i) does
not constitute an Asset Sale or (ii) constitutes an Asset Sale the Net Cash
Proceeds of which are applied in accordance with Section 4.16, or upon the
consolidation or merger of a Guarantor with or into any Person in compliance
with Article Five (in each case, other than to the Company or an Affiliate of
the Company), or if any Guarantor is dissolved or liquidated in accordance with
this Indenture, such Guarantor's Guarantee will be automatically discharged and
released from all obligations under this Article Eleven without any further
action required on the part of the Trustee or any Holder. Any Guarantor not so
released or the entity surviving such Guarantor, as applicable, shall remain or
<PAGE>
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be liable under its Guarantee as provided in this Article Eleven.
(b) The Trustee shall deliver an appropriate instrument evidencing
the release of a Guarantor upon receipt of a request by the Company or such
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 11.04; provided, however, that
-------- -------
the legal counsel delivering such Opinion of Counsel may rely as to matters of
fact on one or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested by the
Company or a Guarantor in order to evidence the release of such Guarantor from
its obligations under its Guarantee endorsed on the Securities and under this
Article Eleven.
Except as set forth in Articles Four and Five and this Section 11.04,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or another
Guarantor.
SECTION 11.05. Waiver of Subrogation.
---------------------
Until this Indenture is discharged and all of the Securities are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Securities or this Indenture
and such Guarantor's obligations under this Guarantee and this Indenture, in any
such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy of the Holders against the Company, whether
or not such claim, remedy or right arises in equity, or under contract, statute
or common law, including, without limitation, the right to take or receive from
the Company, directly or indirectly, in cash or other property or by set-off or
in any other manner, payment or security on account of such claim or other
rights. If any amount shall be paid to any Guarantor in violation of the
preceding sentence and any amounts owing to the Trustee or the Holders of
Securities under the Securities, this Indenture, or any other document or in-
<PAGE>
-95-
strument delivered under or in connection with such agreements or instruments,
shall not have been paid in full, such amount shall have been deemed to have
been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Trustee or the Holders and shall forthwith be paid to the
Trustee for the benefit of itself or such Holders to be credited and applied to
the obligations in favor of the Trustee or the Holders, as the case may be,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Indenture and that the
waiver set forth in this Section 11.05 is knowingly made in contemplation of
such benefits.
SECTION 11.06. Immediate Payment.
-----------------
Each Guarantor agrees to make immediate payment to the Trustee on
behalf of the Holders of all Obligations owing or payable to the respective
Holders upon receipt of a demand for payment therefor by the Trustee to such
Guarantor in writing.
SECTION 11.07. No Set-Off.
----------
Each payment to be made by a Guarantor hereunder in respect of the
Obligations shall be payable in the currency or currencies in which such
Obligations are denominated, and shall be made without set-off, counterclaim,
reduction or diminution of any kind or nature.
SECTION 11.08. Obligations Absolute.
--------------------
The obligations of each Guarantor hereunder are and shall be absolute
and unconditional and any monies or amounts expressed to be owing or payable by
each Guarantor hereunder which may not be recoverable from such Guarantor on the
basis of a Guarantee shall be recoverable from such Guarantor as a primary
obligor and principal debtor in respect thereof.
SECTION 11.09. Obligations Continuing.
----------------------
The obligations of each Guarantor hereunder shall be continuing and
shall remain in full force and effect until all the obligations have been paid
and satisfied in full. Each Guarantor agrees with the Trustee that it will from
time to time deliver to the Trustee suitable acknowledgments of this continued
liability hereunder and under any other instrument or instruments in such form
as counsel to the Trustee may advise
<PAGE>
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and as will prevent any action brought against it in respect of any default
hereunder being barred by any statute of limitations now or hereafter in force
and, in the event of the failure of a Guarantor so to do, it hereby irrevocably
appoints the Trustee the attorney and agent of such Guarantor to make, execute
and deliver such written acknowledgment or acknowledgments or other instruments
as may from time to time become necessary or advisable, in the judgment of the
Trustee on the advice of counsel, to fully maintain and keep in force the
liability of such Guarantor hereunder.
SECTION 11.10. Obligations Not Reduced.
-----------------------
The obligations of each Guarantor hereunder shall not be satisfied,
reduced or discharged solely by the payment of such principal, premium, if any,
interest, fees and other monies or amounts as may at any time prior to discharge
of this Indenture pursuant to Article Eight be or become owing or payable under
or by virtue of or otherwise in connection with the Securities or this
Indenture.
SECTION 11.11. Obligations Reinstated.
----------------------
The obligations of each Guarantor hereunder shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
which would otherwise have reduced the obligations of any Guarantor hereunder
(whether such payment shall have been made by or on behalf of the Company or by
or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders
upon the insolvency, bankruptcy, liquidation or reorganization of the Company or
any Guarantor or otherwise, all as though such payment had not been made. If
demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Guarantor as provided herein.
SECTION 11.12. Obligations Not Affected.
------------------------
The obligations of each Guarantor hereunder shall not be affected,
impaired or diminished in any way by any act, omission, matter or thing
whatsoever, occurring before, upon or after any demand for payment hereunder
(and whether or not known or consented to by any Guarantor or any of the
Holders) which, but for this provision, might constitute a whole or partial
defense to a claim against any Guarantor hereunder or
<PAGE>
-97-
might operate to release or otherwise exonerate any Guarantor from any of its
obligations hereunder or otherwise affect such obligations, whether occasioned
by default of any of the Holders or otherwise, including, without limitation:
(a) any limitation of status or power, disability, incapacity or
other circumstance relating to the Company or any other Person, including
any insolvency, bankruptcy, liquidation, reorganization, readjustment,
composition, dissolution, winding-up or other proceeding involving or
affecting the Company or any other Person;
(b) any irregularity, defect, unenforceability or invalidity in
respect of any indebtedness or other obligation of the Company or any other
Person under this Indenture, the Securities or any other document or
instrument;
(c) any failure of the Company, whether or not without fault on its
part, to perform or comply with any of the provisions of this Indenture or
the Securities, or to give notice thereof to a Guarantor;
(d) the taking or enforcing or exercising or the refusal or neglect
to take or enforce or exercise any right or remedy from or against the
Company or any other Person or their respective assets or the release or
discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(f) any change in the time, manner or place of payment of, or in any
other term of, any of the Securities, or any other amendment, variation,
supplement, replacement or waiver of, or any consent to departure from, any
of the Securities or this Indenture, including, without limitation, any
increase or decrease in the principal amount of or premium, if any, or
interest on any of the Securities;
(g) any change in the ownership, control, name, objects, businesses,
assets, capital structure or constitution of the Company or a Guarantor;
(h) any merger or amalgamation of the Company or a Guarantor with any
Person or Persons;
<PAGE>
-98-
(i) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of any
governmental authority or court amending, varying, reducing or otherwise
affecting, or purporting to amend, vary, reduce or otherwise affect, any of
the Obligations or the obligations of a Guarantor under its Guarantee; and
(j) any other circumstance, including release of the Guarantor
pursuant to Section 11.04 (other than by complete, irrevocable payment)
that might otherwise constitute a legal or equitable discharge or defense
of the Company under this Indenture or the Securities or of a Guarantor in
respect of its Guarantee hereunder.
SECTION 11.13. Waiver.
------
Without in any way limiting the provisions of Section 11.01 hereof,
each Guarantor hereby waives notice of acceptance hereof, notice of any
liability of any Guarantor hereunder, notice or proof of reliance by the Holders
upon the obligations of any Guarantor hereunder, and diligence, presentment,
demand for payment on the Company, protest, notice of dishonor or non-payment of
any of the Obligations, or other notice or formalities to the Company or any
Guarantor of any kind whatsoever.
SECTION 11.14. No Obligation To Take Action Against
the Company.
------------------------------------
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Company or any other Person or any
property of the Company or any other Person before the Trustee is entitled to
demand payment and performance by any or all Guarantors of their liabilities and
obligations under their Guarantees or under this Indenture.
SECTION 11.15. Dealing with the Company and Others.
-----------------------------------
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Guarantor
hereunder and without the consent of or notice to any Guarantor, may
<PAGE>
-99-
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases, discharges and other indulgences to the Company or any
other Person;
(b) take or abstain from taking security or collateral from the
Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or otherwise
deal with or do any act or thing in respect of (with or without
consideration) any and all collateral, mortgages or other security given by
the Company or any third party with respect to the obligations or matters
contemplated by this Indenture or the Securities;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or from
any security upon such part of the Obligations as the Holders may see fit
or change any such application in whole or in part from time to time as the
Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to deal with,
the Company and all other Persons and any security as the Holders or the
Trustee may see fit.
SECTION 11.16. Default and Enforcement.
-----------------------
If any Guarantor fails to pay in accordance with Section 11.06 hereof,
the Trustee may proceed in its name as trustee hereunder in the enforcement of
the Guarantee of any such Guarantor and such Guarantor's obligations thereunder
and hereunder by any remedy provided by law, whether by legal proceedings or
otherwise, and to recover from such Guarantor the obligations.
SECTION 11.17. Amendment, Etc.
--------------
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
<PAGE>
-100-
SECTION 11.18. Acknowledgment.
--------------
Each Guarantor hereby acknowledges communication of the terms of this
Indenture and the Securities and consents to and approves of the same.
SECTION 11.19. Costs and Expenses.
------------------
Each Guarantor shall pay on demand by the Trustee any and all costs,
fees and expenses (including, without limitation, legal fees on a solicitor and
client basis) incurred by the Trustee, its agents, advisors and counsel or any
of the Holders in enforcing any of their rights under any Guarantee.
SECTION 11.20. No Merger or Waiver; Cumulative Remedies.
----------------------------------------
No Guarantee shall operate by way of merger of any of the obligations
of a Guarantor under any other agreement, including, without limitation, this
Indenture. No failure to exercise and no delay in exercising, on the part of
the Trustee or the Holders, any right, remedy, power or privilege hereunder or
under this Indenture or the Securities, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder or under this Indenture or the Securities preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges in the Guarantee and
under this Indenture, the Securities and any other document or instrument
between a Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 11.21. Survival of Obligations.
-----------------------
Without prejudice to the survival of any of the other obligations of
each Guarantor hereunder, the obligations of each Guarantor under Section 11.01
shall survive the payment in full of the Obligations and shall be enforceable
against such Guarantor without regard to and without giving effect to any
defense, right of offset or counterclaim available to or which may be asserted
by the Company or any Guarantor.
SECTION 11.22. Guarantee in Addition to Other Obligations.
------------------------------------------
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Securities and any
<PAGE>
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guarantees or security at any time held by or for the benefit of any of them.
SECTION 11.23. Severability.
------------
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Eleven.
SECTION 11.24. Successors and Assigns.
----------------------
Each Guarantee shall be binding upon and inure to the benefit of each
Guarantor and the Trustee and the other Holders and their respective successors
and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated
to Guarantor Senior Debt.
----------------------------------
Anything herein to the contrary notwithstanding, each of the
Guarantors, for itself and its successors, and each Holder, by his or her
acceptance of Guarantees, agrees that the payment of all Obligations owing to
the Holders in respect of its Guarantee (collectively, as to any Guarantor, its
"Guarantee Obligations") is subordinated, to the extent and in the manner
---------------------
provided in this Article Twelve, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Guarantor Senior Debt, of all Obligations on Guarantor Senior Debt of
such Guarantor.
This Article Twelve shall constitute a continuing offer to all Persons
who become holders of, or continue to hold, Guarantor Senior Debt, and such
provisions are made for the benefit of the holders of Guarantor Senior Debt and
such holders are made obligees hereunder and any one or more of them may enforce
such provisions.
<PAGE>
-102-
SECTION 12.02. Suspension of Guarantee Obligations
When Guarantor Senior Debt Is in Default.
-----------------------------------------
(a) Unless Section 12.03 shall be applicable, if any Payment Default
occurs and is continuing with respect to any Guarantor Senior Debt, then no
payment of any kind or character shall be made by or on behalf of such Guarantor
or any other Person on its behalf with respect to any Guarantee Obligations or
to acquire any of the Securities for cash or property or otherwise and until
such Payment Default shall have been cured or waived or shall have ceased to
exist or such Guarantor Senior Debt shall have been discharged or paid in full
in cash or Cash Equivalents, after which such Guarantor shall resume making any
and all required payments in respect of its obligations under this Guarantee,
including any missed payments.
(b) Unless Section 12.03 shall be applicable, if any Non-payment
Default occurs and is continuing with respect to any Designated Senior Debt
under which a Guarantor is a primary obligor or which is guaranteed by a
Guarantor (which obligation or guarantee constitutes Guarantor Senior Debt of
such Guarantor) (as such event of default is defined in the instrument creating
or evidencing such Designated Senior Debt) and if the Representative for the
respective issue of Designated Senior Debt gives a Default Notice to the
Trustee, then, unless and until all events of default have been cured or waived
or have ceased to exist or the Trustee receives notice thereof from the
Representative for the respective issue of Designated Senior Debt terminating
the Guarantor Payment Blockage Period (as defined below), during the 180 days
after the delivery of such Default Notice (the "Guarantor Payment Blockage
--------------------------
Period"), neither such Guarantor nor any other Person on its behalf shall (x)
- ------
make any payment of any kind or character with respect to any Obligations on its
Guarantee or (y) acquire any of the Securities for cash or otherwise.
Notwithstanding anything herein to the contrary, (x) in no event will a
Guarantor Payment Blockage Period extend beyond 180 days from the date the
payment on a Guarantee was due and (y) only one such Guarantor Payment Blockage
Period may be commenced within any 360 consecutive days. For all purposes of
this Section 12.02(b), no event of default which existed or was continuing on
the date of the commencement of any Guarantor Payment Blockage Period with
respect to the Designated Senior Debt of a Guarantor shall be, or be made, the
basis for the commencement of a second Guarantor Payment Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period of
360 consecutive days, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive
<PAGE>
-103-
days (it being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of commencement of
such Guarantor Payment Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by the foregoing provisions of this Section 12.02, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Guarantor Senior Debt (pro rata to such holders on the basis of the respective
amount of Guarantor Senior Debt held by such holders) or their respective
Representatives, as their respective interests may appear. The Trustee shall be
entitled to rely on information regarding amounts then due and owing on the
Guarantor Senior Debt, if any, received from the holders of Guarantor Senior
Debt (or their Representatives) or, if such information is not received from
such holders or their Representatives, from a Guarantor and only amounts
included in the information provided to the Trustee shall be paid to the holders
of Guarantor Senior Debt.
SECTION 12.03. Guarantee Obligations Subordinated
to Prior Payment of All Guarantor
Senior Debt on Dissolution, Liquidation
or Reorganization of Such Guarantor.
---------------------------------------
(a) Upon any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities, to creditors
upon any liquidation, dissolution, winding-up, reorganization, assignment for
the benefit of creditors or marshaling of assets of such Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to such Guarantor or its property, whether voluntary or involuntary,
all Obligations due or to become due upon all Guarantor Senior Debt shall first
be paid in full in cash or Cash Equivalents, or such payment duly provided for
to the satisfaction of the holders of Guarantor Senior Debt, before any payment
or distribution of any kind or character is made on account of any Guarantee
Obligations or for the acquisition of any of the Securities for cash or property
or otherwise. Upon any such dissolution, winding-up, liquidation,
reorganization, receivership or similar proceeding, any payment or distribution
of assets of such Guarantor of any kind or character, whether in cash, property
or securities, to which
<PAGE>
-104-
the Holders or the Trustee under this Indenture would be entitled, except for
the provisions hereof, shall be paid by such Guarantor or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the Holders or by the Trustee under this
Indenture if received by them, directly to the holders of Guarantor Senior Debt
(pro rata to such holders on the basis of the respective amounts of Guarantor
Senior Debt held by such holders) or their respective Representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Guarantor
Senior Debt may have been issued, as their respective interests may appear, for
application to the payment of Guarantor Senior Debt remaining unpaid until all
such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of Guarantor Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt (whether by or
on behalf of a Guarantor, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Guarantor Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is prohibited by this Section 12.03(c), such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders
on the basis of the respective amount of Guarantor Senior Debt held by such
holders) or their respective Representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Guarantor Senior Debt may have
been issued, as their respective interests may appear, for application to the
payment of Guarantor Senior Debt remaining unpaid until all such Guarantor
Senior Debt has been paid in full in cash or Cash Equivalents, after giving
effect to any concurrent payment, distribution or provi-
<PAGE>
-105-
sion therefor to or for the holders of such Guarantor Senior Debt.
(d) The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
a Guarantor following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Article Five hereof and as long as permitted under the terms of the Guarantor
Senior Debt shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other corporation shall,
as a part of such consolidation, merger, conveyance or transfer, assumes the
Guarantee of such Guarantor hereunder in accordance with Article Five hereof.
SECTION 12.04. Payments May Be Paid Prior
to Dissolution.
--------------------------
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Sections 12.02 and 12.03, from making payments at any time for the purpose of
making payments on Guarantee Obligations, or from depositing with the Trustee
any moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments on Guarantee Obligations to the Holders entitled thereto
unless at least two Business Days prior to the date upon which such payment
would otherwise become due and payable a Trust Officer shall have actually
received the written notice provided for in the first sentence of Section
12.02(b) or in Section 12.07 (provided that, notwithstanding the foregoing, such
--------
application shall otherwise be subject to the provisions of Section 12.02(a) and
Section 12.03). Each Guarantor shall give prompt written notice to the Trustee
of any dissolution, winding-up, liquidation or reorganization of such Guarantor.
SECTION 12.05. Holders of Guarantee Obligations
To Be Subrogated to Rights of
Holders of Guarantor Senior Debt.
---------------------------------
Subject to the payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt, the Holders of Guarantee Obligations of any Guarantor
shall be subrogated to the rights of the holders of Guarantor Senior Debt of
such Guarantor to receive payments or distributions of cash, property or
<PAGE>
-106-
securities of such Guarantor applicable to such Guarantor Senior Debt until all
amounts owing on or in respect of the Guarantee Obligations shall be paid in
full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of such Guarantor Senior Debt by or on behalf of
such Guarantor, or by or on behalf of the Holders by virtue of this Article
Twelve, which otherwise would have been made to the Holders shall, as between
such Guarantor and the Holders, be deemed to be a payment by such Guarantor to
or on account of such Guarantor Senior Debt, it being understood that the
provisions of this Article Twelve are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
Guarantor Senior Debt, on the other hand.
SECTION 12.06. Obligations of the Guarantors Unconditional.
-------------------------------------------
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as among the
Guarantors, their creditors other than the holders of Guarantor Senior Debt, and
the Holders, the obligation of the Guarantors, which is absolute and
unconditional, to pay to the Holders all amounts due and payable under the
Guarantees as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors other than the holders of the Guarantor
Senior Debt, nor shall anything herein or therein prevent any Holder or the
Trustee on its behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Guarantors received upon the
exercise of any such remedy.
SECTION 12.07. Notice to Trustee.
-----------------
Each Guarantor shall give prompt written notice to the Trustee of any
fact known to such Guarantor which would prohibit the making of any payment to
or by the Trustee in respect of the Guarantees pursuant to the provisions of
this Article Twelve. Regardless of anything to the contrary contained in this
Article Twelve or elsewhere in this Indenture, the Trustee shall not be charged
with knowledge of the existence of any default or event of default with respect
to any Guarantor Senior Debt or of any other facts which would prohibit the
making of any payment to or by the Trustee unless and until the Trustee shall
have received notice in writing from a Guarantor, or from a holder of Guarantor
Senior Debt or a Representative
<PAGE>
-107-
therefor, together with proof satisfactory to the Trustee of such holding of
Guarantor Senior Debt or of the authority of such Representative, and, prior to
the receipt of any such written notice, the Trustee shall be entitled to assume
(in the absence of actual knowledge to the contrary) that no such facts exist.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amounts of Guarantor Senior
Debt 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 Twelve, 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 12.08. Reliance on Judicial Order or
Certificate of Liquidating Agent.
--------------------------------
Upon any payment or distribution of assets of a Guarantor referred to
in this Article Twelve, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which any insolvency, bankruptcy,
receivership, dissolution, winding-up, liquidation, reorganization or similar
case or proceeding is pending, or upon a certificate of the trustee in
bankruptcy, liquidating trustee, receiver, assignee for the benefit of
creditors, agent or other person making such payment or distribution, delivered
to the Trustee or the Holders, for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of the
Guarantor Senior Debt and other Indebtedness of such Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.09. Trustee's Relation to Guarantor Senior Debt.
-------------------------------------------
The Trustee and any agent of a Guarantor or the Trustee shall be
entitled to all the rights set forth in this Article Twelve with respect to any
Guarantor Senior Debt which may at any time be held by it in its individual or
any other capacity to the same extent as any other holder of Guarantor Senior
<PAGE>
-108-
Debt and nothing in this Indenture shall deprive the Trustee or any such agent
of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Twelve, and no implied covenants
or obligations with respect to the holders of Guarantor Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Guarantor Senior Debt.
Whenever a distribution is to be made or a notice given to holders or
owners of Guarantor Senior Debt, the distribution may be made and the notice may
be given to their Representative, if any.
SECTION 12.10. Subordination Rights Not Impaired
by Acts or Omissions of the Guarantors
or Holders of Guarantor Senior Debt.
------------------------------------
No right of any present or future holders of any Guarantor Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Guarantor
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by any Guarantor with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Guarantor Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Twelve or the
obligations hereunder of the Holders of the Securities to the holders of
Guarantor Senior Debt, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Guarantor Senior Debt, or otherwise amend or supplement in any manner
Guarantor Senior Debt, or any instrument evidencing the same or any agreement
under which Guarantor Senior Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Guarantor Senior Debt; (iii) release any Person liable in any manner for the
payment or collection of Guarantor Senior Debt; and
<PAGE>
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(iv) exercise or refrain from exercising any rights against the Guarantors and
any other Person.
SECTION 12.11. Holders Authorize Trustee To Effectuate
Subordination of Guarantee Obligations.
---------------------------------------
Each Holder of Guarantee Obligations by its acceptance of them
authorizes and expressly directs the Trustee on its behalf to take such action
as may be necessary or appropriate to effectuate, as between the holders of
Guarantor Senior Debt and the Holders, the subordination provided in this
Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of credits or otherwise) tending towards liquidation of the business
and assets of any Guarantor, the filing of a claim for the unpaid balance under
its Guarantee Obligations and accrued interest in the form required in those
proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Guarantor Senior Debt
or their Representative are or is hereby authorized to have the right to file
and are or is hereby authorized to file an appropriate claim for and on behalf
of the Holders of said Guarantee Obligations. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Guarantee Obligations or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 12.12. This Article Twelve Not To
Prevent Events of Default.
--------------------------
The failure to make a payment on account of principal of or interest
on the Guarantees by reason of any provision of this Article Twelve will not be
construed as preventing the occurrence of an Event of Default.
<PAGE>
-110-
SECTION 12.13. Trustee's Compensation
Not Prejudiced.
----------------------
Nothing in this Article Twelve will apply to amounts due to the
Trustee pursuant to other sections of this Indenture.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 13.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company or a Guarantor:
Alliance Imaging, Inc.
1065 Pacific Center Drive, Suite 200
Anaheim, California 92806
Attention: Chief Financial Officer
Telephone: (714) 688-7100
Facsimile: (714) 688-3377
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Center
New York, New York 10112
Attention: John J. Suydam
Telephone: (216) 408-2400
Facsimile: (212) 408-2420
<PAGE>
-111-
if to the Trustee:
Telephone:
Facsimile:
Each of the Company and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company and the Trustee, shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders
with Other Holders.
-------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture, the
Securities or the Guarantees. The Company, the Trustee, the Registrar and any
other Person shall have the protection of TIA (S) 312(c).
<PAGE>
-112-
SECTION 13.04. Certificate and Opinion as
to Conditions Precedent.
--------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed or effected by the Company, if any, provided for
in this Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, any and all such conditions precedent have been complied with.
SECTION 13.05. Statements Required in
Certificate or Opinion.
----------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such Person, 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
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided,
--------
however, that with respect to matters of fact an Opinion of Counsel may
-------
rely on an Officers' Certificate or certificates of public officials.
<PAGE>
-113-
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.07. Legal Holidays.
--------------
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day.
SECTION 13.08. Governing Law.
-------------
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture, the Securities or the
Guarantees.
SECTION 13.09. No Adverse Interpretation
of Other Agreements.
-------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities, this Indenture or the Guarantees or for any claim based
on, in respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 13.11. Successors.
----------
All agreements of the Company and the Guarantors in this Indenture,
the Securities and the Guarantees shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
<PAGE>
-114-
SECTION 13.12. Duplicate Originals.
-------------------
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
represent the same agreement.
SECTION 13.13. Severability.
------------
In case any one or more of the provisions in this Indenture, in the
Securities or in the Guarantees shall be 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 shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
ALLIANCE IMAGING, INC.,
as Issuer
By: ___________________________
Name:
Title:
SMT ACQUISITION CORP.,
as Guarantor
By: ___________________________
Name:
Title:
ROYAL MEDICAL HEALTH SERVICES,
INC., as Guarantor
By: ___________________________
Name:
Title:
ALLIANCE IMAGING OF CENTRAL
GEORGIA, INC., as Guarantor
By: ___________________________
Name:
Title:
<PAGE>
-2-
[ ],
as Trustee
By: ___________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
[FORM OF SECURITY]
[FACE OF SECURITY]
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), 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 DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
Unless and until this Global Security is exchanged in whole or in part
for the individual Securities represented hereby, this GLobal Security may not
be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or by a
Depository or any such nominee to a successor Depository or a nominee of a
successor Depository.
<PAGE>
-2-
% Senior Subordinated Note
due , 2005
CUSIP No.:
No. [ ] $[ ]
ALLIANCE IMAGING, INC., a Delaware corporation (the "Company", which
term includes any successor corporation), for value received promises to pay to
[ ] or registered assigns, the principal sum of $[ ] Dollars,
on , 2005.
Interest Payment Dates: and , commencing ,
1998.
Record Dates: and .
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
ALLIANCE IMAGING, INC.
By: ______________________
Name:
Title:
By: ______________________
Name
Title:
<PAGE>
-3-
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the % Senior Subordinated Notes due 2005
described in the within-mentioned Indenture.
Dated: [ ]
as Trustee
By____________________________
Authorized Signatory
<PAGE>
-4-
(REVERSE OF SECURITY)
ALLIANCE IMAGING, INC.
% Senior Subordinated Note
due , 2005
1. Interest.
--------
ALLIANCE IMAGING, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on
and of each year (the "Interest Payment Date"), commencing ,
1998. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from ,
1997. 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 from time to time
on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or co-
Registrar without notice to the
<PAGE>
-5-
Holders. The Company or any of its Subsidiaries may, subject to certain
exceptions, act as Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
, 1997 (the "Indenture"), among the Company, the Guarantors named
therein and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
amount to $270,000,000.
5. Subordination.
-------------
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Debt of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or
guaranteed. Each Holder by his acceptance hereof agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purposes.
6. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after , 2001, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount) if redeemed during the
twelve-month period commencing on of the years set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<PAGE>
-6-
Year Percentage
---- ----------
2001.................................... %
2002.................................... %
2003.................................... %
2004.................................... 100.000%
7. Optional Redemption upon Equity Offering.
-----------------------------------------
At any time, or from time to time, on or prior to , 2000,
the Company may, at its option, use the net cash proceeds of one or more Equity
Offerings to redeem up to 40% aggregate principal amount of Securities at a
redemption price equal to % of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided that
--------
after any such redemption the aggregate principal amount of Securities
outstanding must equal at least 60% of the aggregate amount of the Securities
issued pursuant to the Indenture. In order to effect the foregoing redemption
with the net cash proceeds of any Equity Offering, the Company shall make such
redemption not more than 120 days after the consummation of any such Equity
Offering.
As used in the preceding paragraph, "Equity Offering" means a public
or private offering of Qualified Capital Stock (other than public offerings with
respect to the Company's Common Stock on Form S-8) of the Company for aggregate
net cash proceeds to the Company of at least $25.0 million.
8. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of $1,000 may
be redeemed only in whole. The Trustee may select for redemption portions
(equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
<PAGE>
-7-
9. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
10. Limitation on Asset Sales.
-------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
14. Discharge Prior to Redemption or Maturity.
-----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the
<PAGE>
-8-
Guarantees except for certain provisions thereof, and may be discharged from
obligations to comply with certain covenants contained in the Indenture, the
Securities and the Guarantees, in each case upon satisfaction of certain
conditions specified in the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture, the Securities and the Guarantees to, among other things, cure
any ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
of the Company to the Company, to consolidate, merge or sell all or
substantially all of its assets or to engage in transactions with affiliates.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obli-
<PAGE>
-9-
gated to enforce the Indenture, the Securities or the Guarantees unless it has
received indemnity satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Securities then outstanding to direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of Securities
notice of certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security 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).
22. Governing Law.
-------------
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles of
conflicts of laws to the ex-
<PAGE>
-10-
tent that the application of the laws of another jurisdiction would be required
thereby.
23. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
<PAGE>
EXHIBIT B
---------
GUARANTEE
---------
For value received, the undersigned hereby unconditionally guarantees,
as principal obligor and not only as a surety, to the Holder of this Security
the cash payments in United States dollars of principal of, premium, if any, and
interest on this Security in the amounts and at the times when due and interest
on the overdue principal, premium, if any, and interest, if any, of this
Security, if lawful, and the payment or performance of all other obligations of
the Company under the Indenture (as defined below) or the Securities, to the
Holder of this Security and the Trustee, all in accordance with and subject to
the terms and limitations of this Security, Article Eleven of the Indenture and
this Guarantee. This Guarantee will become effective in accordance with Article
Eleven of the Indenture and its terms shall be evidenced therein. The validity
and enforceability of any Guarantee shall not be affected by the fact that it is
not affixed to any particular Security.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Indenture dated as of , 1997, among Alliance
Imaging, Inc., a Delaware corporation, as issuer (the "Company"), the Guarantors
named therein and , as trustee (the "Trustee"), as amended or
supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article Eleven of the Indenture and reference is hereby made to the Indenture
for the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. The undersigned Guarantor hereby agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
<PAGE>
-2-
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly
executed.
Date:____________________
SMT ACQUISITION CORP.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
ROYAL MEDICAL HEALTH SERVICES, INC.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
<PAGE>
-3-
ALLIANCE IMAGING OF CENTRAL GEORGIA, INC.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________
_______________________________________________________________
(Print or type name, address and zip code of assignee or
transferee)
_______________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: _________________ Signed: __________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: _______________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount: $___________
Dated: _________________ Signed: _________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ______________________________________
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Historical
Financial Information", "Selected Historical Consolidated Financial Information
of Alliance" and "Experts" and to the use of our reports dated February 21,
1997, except for Note 4, as to which the date is March 26, 1997, and Note 9, as
to which the date is July 23, 1997, in the Registration Statement (Form S-2) and
related Prospectus of Alliance Imaging, Inc. to be filed with the Securities and
Exchange Commission on or about August 15, 1997.
/s/ Ernst & Young LLP
Orange County, California
August 13, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
SMT Health Services Inc.:
We consent to the use of our reports dated January 31, 1997, except as to Note
18 which is as of March 4, 1997, included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
September 26, 1997
