<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED : JUNE 30, 1997
COMMISSION FILE NUMBER: 0-16334
ALLIANCE IMAGING, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1065 NORTH PACIFICENTER DRIVE
SUITE 200
ANAHEIM, CALIFORNIA 92806
--------------------------
(Address of principal executive office)
(714) 688-7100
--------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997:
Common Stock, $.01 par value, 10,943,138
1
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ALLIANCE IMAGING, INC.
FORM 10-Q
June 30, 1997
Index
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements:
Condensed Consolidated Balance Sheets 3
June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Income 4
Three and six months ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows 5
Six months ended June 30, 1997 and 1996
Note to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
PART II - OTHER INFORMATION 16
SIGNATURES 23
2
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996*
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 13,817,000 $ 10,867,000
Accounts receivable, net of allowance for doubtful accounts 9,207,000 8,889,000
Prepaid expenses 1,014,000 710,000
Other receivables 39,000 345,000
------------- -------------
Total current assets 24,077,000 20,811,000
Equipment, at cost 138,729,000 121,354,000
Less--Accumulated depreciation (48,953,000) (43,735,000)
------------- -------------
89,776,000 77,619,000
Goodwill 27,256,000 27,990,000
Deposits and other assets 2,161,000 2,090,000
------------- -------------
Total assets $ 143,270,000 $ 128,510,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 2,773,000 $ 1,765,000
Accrued compensation and related expenses 2,855,000 3,465,000
Other accrued liabilities 8,688,000 6,341,000
Current portion of long-term debt 19,618,000 16,323,000
------------- -------------
Total current liabilities 33,934,000 27,894,000
Long-term debt, net of current portion 60,930,000 72,702,000
Other liabilities 2,207,000 2,029,000
Deferred income taxes 4,831,000 4,831,000
Redeemable preferred stock - 4,694,000
Non-redeemable preferred and common stockholders' equity:
Convertible preferred stock 18,388,000 388,000
Common stock 109,000 109,000
Additional paid-in capital 36,171,000 34,404,000
Accumulated deficit (13,300,000) (18,541,000)
------------- -------------
Total non-redeemable preferred and common stockholders' equity 41,368,000 16,360,000
------------- -------------
Total liabilities and stockholders' equity $ 143,270,000 $ 128,510,000
------------- -------------
------------- -------------
</TABLE>
*Derived from audited financial statements
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 20,805,000 $ 16,616,000 $ 39,911,000 $ 31,302,000
Costs and expenses:
Operating expenses, excluding depreciation 9,134,000 7,838,000 17,815,000 15,019,000
Depreciation expenses 3,659,000 3,182,000 7,144,000 6,048,000
Selling, general and administrative expenses 2,093,000 1,653,000 3,990,000 3,160,000
Amortization expense, primarily goodwill 594,000 401,000 1,165,000 745,000
Interest expense, net of interest income 1,624,000 1,498,000 3,557,000 2,683,000
------------ ------------ ------------ ------------
Total costs and expenses 17,104,000 14,572,000 33,671,000 27,655,000
------------ ------------ ------------ ------------
Income before income taxes and extraordinary gain 3,701,000 2,044,000 6,240,000 3,647,000
Provision for income taxes 1,290,000 306,000 2,125,000 545,000
------------ ------------ ------------ ------------
Income before extraordinary gain 2,411,000 1,738,000 4,115,000 3,102,000
Extraordinary gain, net of taxes - - 1,332,000 -
------------ ------------ ------------ ------------
Net income 2,411,000 1,738,000 5,447,000 3,102,000
Less: Preferred stock dividends - (236,000) - (468,000)
Add: Excess of carrying amount of preferred stock
repurchased over consideration paid - - 1,906,000 -
------------ ------------ ------------ ------------
Income applicable to common stock $ 2,411,000 $ 1,502,000 $ 7,353,000 $ 2,634,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common and common equivalent
shares outstanding 14,934,000 11,522,000 13,456,000 11,416,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share:
Income before items below $ 0.16 $ 0.13 $ 0.31 $ 0.23
Excess of carrying amount of preferred stock
repurchased over consideration paid - - 0.14 -
------------ ------------ ------------ ------------
Income before extraordinary gain 0.16 0.13 0.45 0.23
Extraordinary gain, net of taxes - - 0.10 -
------------ ------------ ------------ ------------
Income applicable to common stock $ 0.16 $ 0.13 $ 0.55 $ 0.23
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net income $ 5,447,000 $ 3,102,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Extraordinary gain (1,332,000) -
Depreciation and amortization 8,309,000 6,793,000
Amortization of deferred financing charges 28,000 207,000
Distributions in excess of equity in income
of investee 91,000 2,000
Changes in operating assets and liabilities:
Accounts receivable, net (240,000) (1,216,000)
Prepaid expenses (304,000) (348,000)
Other receivables 306,000 (55,000)
Other assets (451,000) (7,000)
Accounts payable, accrued compensation and
other accrued liabilities 1,661,000 2,107,000
Other liabilities 178,000 281,000
------------ ------------
Net cash provided by operating activities 13,693,000 10,866,000
INVESTING ACTIVITIES:
Equipment purchases (19,036,000) (14,360,000)
Decrease in deposits on equipment 247,000 2,212,000
Purchase of contracts and related assets
of Mobile M.R. Venture, Ltd. - (455,000)
Purchase of common stock of Royal Medical
Health Services, Inc., net of cash acquired - (1,844,000)
Purchase of MRI contracts and related assets
of Pacific Medical Imaging, Inc. (756,000) -
------------ ------------
Net cash used in investing activities (19,545,000) (14,447,000)
------------ ------------
5
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
FINANCING ACTIVITIES:
Payment of preferred stock dividends (471,000) (930,000)
Repurchase of senior subordinated debentures (2,286,000) -
Repurchase of Series A preferred stock (2,523,000) -
Principal payments on long-term debt (9,190,000) (5,608,000)
Proceeds from long-term debt 18,123,000 10,227,000
Proceeds from senior bridge loan 5,128,000 -
Proceeds from exercise of employee stock options 21,000 20,000
Increase in deferred financing charges - (76,000)
------------ ------------
Net cash provided by financing activities 8,802,000 3,633,000
------------ ------------
Net increase in cash and short-term investments 2,950,000 52,000
Cash and short-term investments, beginning of period 10,867,000 11,128,000
------------ ------------
Cash and short-term investments, end of period $ 13,817,000 $ 11,180,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,727,000 $ 2,724,000
Income taxes paid 283,000 202,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of senior bridge loan into Series D 4%
convertible preferred stock $ 18,000,000 -
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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Alliance Imaging, Inc.
Note to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Alliance Imaging, Inc. ("Alliance" or "the Company") 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 the Company,
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. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1996.
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 the dilutive effect of stock
options with an exercise price lower than current market value and reflect
preferred dividend requirements of $468,000. For the six month period ended
June 30, 1997, common equivalent shares include the dilutive effect of
warrants and 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 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 the Company's first six months ended 1997 historical results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted on
December 31, 1997. At that time, the Company 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 primary 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 primary earnings per share for the six months ended
June 30, 1997 and 1996 of $.05 and $.01, per share respectively.
The provisions for income taxes for the six month periods ended June 30,
1997 and 1996 are less than the statutory federal rate due to utilization of
certain net operating loss carryforwards during the periods.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW
The Company's financial performance depends substantially upon the scan
volume of its magnetic resonance imaging (MRI) systems. Revenues are
generally derived from one to eight year contracts with health care
providers. Since a majority of the Company's expenses are fixed, increased
revenues as a result of higher scan volumes significantly improve the
Company's profitability. Conversely, lower scan volumes result in lower
profitability.
Among other things, the Company is subject to the risk that customers
will cease using the Company's MRI services, upon expiration of contracts, to
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.
The health care industry is highly regulated and very competitive. The
current health care environment is characterized by cost containment
pressures which management 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. However, in many
cases higher scan volumes associated with new customer contracts justify
lower scan prices and such contracts do not adversely impact the Company's
revenues and profitability. Although the Company has experienced increased
scan volumes in 1995, 1996, and in the first half of 1997, it has also had
periods of declining volumes in earlier years, and there can be no assurance
that the recent positive trends will continue.
The Company has implemented numerous cost containment and efficiency
measures to reduce operating, payroll and selling, general and administrative
costs. It has also developed a new marketing plan to refocus and expand its
sales and marketing efforts, and has substantially upgraded its MRI systems
over the last few years. Additionally, the Company continues to evaluate the
profitability of certain existing customer relationships with a view toward
eliminating unprofitable accounts.
The Company's ongoing equipment trade-in and upgrade program has
substantially improved the marketability and productivity of its MRI and
computed axial tomography (CT) systems. The Company periodically evaluates
its older, less marketable MRI systems to determine if it is more beneficial
for them to continue in profitable, although reduced, revenue service, or to
trade in such equipment in connection with new system purchases. The Company
expects to operate some of its few remaining older systems for another one to
two years and to trade in the balance of such systems.
8
<PAGE>
RESULTS OF OPERATIONS
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
1.5% decrease in the average revenue realized per MRI scan. The average
number of scans per day for each MRI system increased 7.7% to 7.0 from 6.5
in 1996. Management attributes the volume increase to the Company's
continuing MRI systems upgrade program, which has enabled the Company 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 revenues realized per scan is the result of:
continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payers; obtaining contracts with customers
that have high scan volumes which justify lower scan prices; and many
customers achieving discount price levels on incremental scan volume. CT
revenue increased $397,000, or 21.6%, as a result of internal growth and the
fourth quarter 1996 acquisition of a small CT business. Other revenue
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.
The Company 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 the
Company 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 3.4%, due to the expiration of initial one-year
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 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
9
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increased $227,000, or 8.5%, primarily as a result of increased staffing
levels necessary to support the Company's increased level of operations.
Other expenses increased primarily as a result of expanded marketing programs
and costs associated with relocating the Company'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 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 the Company's effective
tax rate. The effective income tax rate increased to 34.1% in 1997 from 14.9%
in 1996 because the Company's taxable income in 1997 is expected to exceed
remaining available net operating loss carryforwards.
The Company'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 expenses. Earnings per common share directly related
to operations totaled $0.31 in the first six months of 1997, compared to
earnings per common share of $0.23 for the same period in 1996, an increase
of 34.8%. The Company reported an extraordinary gain, net of income taxes,
in the first quarter of 1997 of $1,332,000, or $0.11 per common share, on
early extinguishment of debt in January 1997. In addition, the Company
recorded earnings of $1,906,000, or $0.16 per common share related to the
excess of the carrying amount of the Series A 6% cumulative preferred stock
repurchased over the consideration paid in January 1997. Earnings per common
share totaled $0.55 in the first six months of 1997. The earnings per common
share calculations reflect preferred dividend requirements of $468,000 in the
first six months of 1996 and none in 1997.
QUARTER ENDED JUNE 30, 1997 COMPARED TO QUARTER ENDED JUNE 30, 1996 -- Revenues
for the second quarter of 1997 were $20,805,000, an increase of $4,189,000,
or 25.2%, over 1996. This increase reflects a scan-based MRI revenue increase
of $3,909,000, or 26.6%, resulting from a 28.5% increase in total scan volume
partially offset by a 1.4% decrease in the average revenue realized per MRI
scan. The average number of scans per day for each MRI system increased 5.9%
to 7.2 from 6.8 in 1996. Management attributes the volume increase to: the
Company's continuing MRI systems upgrade program, which has enabled the
Company to obtain new, long-term contracts from both existing and new
customers; certain smaller business acquisitions; and to the effect of
recently implemented marketing programs. 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 payers; obtaining contracts with customers that have high scan volumes
which justify lower scan prices; and many customers achieving discount price
levels by virtue of attaining higher scan volumes. CT revenue increased
10
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$239,000, or 25.7%, as a result of internal growth and the fourth quarter
1996 acquisition of a small CT business.
The average number of MRI systems operated by the Company was 88 during
the second quarter of 1997, compared to 86 during the second quarter of 1996.
Operating expenses, excluding depreciation, totaled $9,134,000 in the
second quarter of 1997, an increase of $1,296,000, or 16.5%, from the second
quarter of 1996. Payroll and related employee expenses increased $638,000,
or 18.0%, primarily as a result of increased staffing levels necessary to
support the Company's increased level of operations. Repairs and maintenance
increased $186,000, or 48.8%, due to an increased number of systems in
service. Fuel and other vehicle expenses collectively increased $138,000, or
41.1%, primarily due to increasing fuel prices and the addition of new mobile
MRI systems. Preventative maintenance and cryogen contract expense increased
$139,000, or 3.4% due to the expiration of initial one-year warranties on an
increased number of MRI systems. Other operating expenses (including
insurance, equipment rental, supplies and professional services) increased
$272,000, or 14.2%, as a result of the increased level of operations.
Depreciation expense during the second quarter of 1997 totaled
$3,659,000, an increase of $477,000, or 15.0%, from the 1996 level
principally due to a higher amount of depreciable assets associated with
equipment additions and upgrades. Amortization expense during the second
three months of 1997 increased $193,000, or 48.1%, over the 1996 period as a
result of goodwill amortization associated with recent business acquisitions.
Selling, general and administrative expenses totaled $2,093,000 in the
second quarter of 1997, an increase of $440,000, or 26.6%, from the same
period in 1996. Professional services increased $193,000, or 130.4%,
primarily as a result of increased expenses associated with increased
investor relations efforts and merger and acquisition activity. Other
expenses increased primarily as a result of expanded marketing programs and
costs associated with relocating the Company's corporate offices.
Interest expense of $1,624,000 in the second quarter of 1997 was
$126,000, or 8.4%, higher than 1996, as a result of higher average
outstanding debt balances during 1997 as compared to 1996. This increase was
primarily related to debt assumed in connection with acquisitions made
subsequent to the second quarter of 1996, as well as to financed purchases of
new equipment.
An income tax provision of $1,290,000 was recorded in in the second
quarter of 1997, which was higher than the tax provision recorded in the
second quarter of 1996 by $984,000, or 321.6%. The increase resulted from
the increase in income before taxes and an increase in the Company's
effective tax rate. The effective income tax rate increased to 34.8% in the
second quarter of 1997 from 15.0% in 1996 because the Company's taxable
income in 1997 is expected to exceed remaining available net operating loss
carryforwards.
The Company's net income was $2,411,000 in the second quarter of 1997
compared to net income of $1,738,000 in the second quarter of 1996, an increase
of $673,000, or 38.7%,
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primarily attributable to the increase in revenues achieved without a
proportionate increase in costs and expenses. Earnings per common share
totaled $0.16 in the second quarter of 1997, compared to $0.13 for the same
period in 1996, an increase of 23.1%. The earnings per common share
calculations reflect preferred dividend requirements of $236,000 in the second
quarter of 1996 and none in the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, cash and short-term investments were $13,817,000
compared to $10,867,000 at December 31, 1996, and the aggregate of the
Company's long-term debt was $60,930,000 compared to $72,702,000 at December
31, 1996. The Company maintains a $3,000,000 revolving line of credit
secured by accounts receivable. This line, which has not been utilized, is
intended to act as a temporary supplement to fund working capital needs.
The Company generated $13,693,000 in net cash from operating activities
during the first six months of 1997, compared to $10,866,000 for the same
period in 1996, an increase of $2,827,000, or 26.0%. This cash flow was
sufficient to meet the Company's debt service obligations and capital
expenditures not financed. During the first six months of 1997, the Company
financed $18,123,000 of capital expenditures and repaid $9,190,000 of
long-term debt. The Company believes its continuing cash flow from operations
as well as its cash balances and other credit sources will be adequate for
anticipated operating, debt service and capital expenditure requirements.
On December 31, 1996, the Company entered into a Bridge Loan Agreement
(enabling the Company 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 was convertible into 18,000 shares of a new
Series D 4% convertible preferred stock. On December 31, 1996, the Company
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 6% redeemable preferred stock at a discount (plus
related accrued interest and dividends). In connection with this
transaction, on January 2, 1997, the Company 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). 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 investor became convertible into a
new Series E convertible preferred stock on or after January 1, 1998. The
senior note agreement contains limitations on equipment additions, incurrence
of debt and other similar items.
In connection with the Company's debt refinancing effective December 31,
1996, the Company 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. Unpaid dividends accumulate and are payable quarterly
by the Company 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
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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 the
Company after December 31, 2006.
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. ("Royal") of Pittsburgh, Pennsylvania,
and certain related assets. Like the Company, Royal is a provider of
comprehensive MRI services to hospitals. The Company issued 3,876 shares of a
new Series C convertible preferred stock valued at $388,000, common stock
warrants valued at $212,000 and paid $1,914,000 in cash as consideration for
the acquisition of Royal. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations of Royal have been
included in the Company's consolidated financial statements from the date of
acquisition. 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 the Company'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 the Company,
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 Series C, D or E convertible preferred
stock.
RECAPITALIZATION MERGER -- On July 23, 1997, Alliance entered into an
Agreement and Plan of Merger (the "Recapitalization Merger Agreement") dated
as of that date, with Newport Investment LLC (the "Investor"), a Delaware
limited liability company and an affiliate of Apollo Management, L.P.
("Apollo"). Pursuant to the Recapitalization Merger Agreement, at the
effective time of the Recapitalization Merger (the "Recapitalization
Effective Time"), a new corporation formed by the Investor ("Newco") will be
merged into Alliance (the "Recapitalization Merger"), the separate corporate
existence of Newco will cease, and Alliance will continue as the surviving
corporation (the "Recapitalization Company"). Pursuant to the
Recapitalization Merger, each share of Alliance common stock, par value $.01
("Common Stock"), issued and outstanding immediately prior to the
Recapitalization Effective Time other than dissenting shares, either (1) will
be converted into the right to receive $11.00 in cash (the "Cash Merger
Price"), or (2) will be retained by such stockholder. Because the
Recapitalization Merger Agreement requires that 727,273 shares in the
aggregate of Common Stock be retained by Alliance's existing shareholders,
the right to either receive $11.00 in cash for each share or to retain that
share of Alliance common Stock is subject to proration, as set forth in the
Recapitalization Merger Agreement included as an exhibit to the Form 8-K
filed by Alliance on August 1, 1997.
In addition, in connection with the Recapitalization Merger, subject to
certain conditions, Alliance will acquire all the shares of common stock of a
new holding company formed by Apollo to acquire SMT Health Services Inc. (the
"Acquisition"). After the Recapitalization
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<PAGE>
Merger and the Acquisition, affiliates of Apollo will own approximately 90%
of the outstanding Common Stock of Alliance, and Alliance's existing
shareholders will own approximately 10% of the outstanding Common Stock of
Alliance.
In connection with the Recapitalization Merger Agreement, the Investor
entered into a Stockholder Agreement, dated as of July 23, 1997 (the
"Stockholder Agreement"), with certain beneficial owners of shares of
Alliance Common Stock (the "Stockholders") representing beneficial ownership
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of approximately 66% of Alliance's Common Stock. Pursuant to the
Stockholder Agreement, 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 Merger. The Stockholders that hold
securities convertible into or exercisable for shares of Alliance Common
Stock have further agreed to convert or exercise all such securities prior to
the time of the special meeting of shareholders called in connection with the
Recapitalization Merger. In addition, each Stockholder has granted Investor
an option to acquire their shares of Common Stock, and a proxy to vote such
shares in favor of the Recapitalization Merger and the Recapitalization
Merger Agreement, among other things.
At the closing of the Recapitalization Merger and the Acquisition,
significant new sources of financing will be provided to Alliance for the
purchase of shares of Common Stock in the Recapitalization Merger, repayment
of indebtedness and for working capital purposes, among other uses. Details
concerning the impact of the Recapitalization Merger and the Acquisition, and
the related financing on the capitalization of Alliance will be provided in
the Registration Statement on Form S-4 relating to the Recapitalization
Merger and Acquisition, and the Registration Statement on Form S-2 relating
to a portion of the new financing, both of which are expected to be filed
shortly.
CAPITAL EXPENDITURES -- The Company purchased 12 new high-field MRI systems
and upgraded two other MRI systems at a total approximate cost of $19,000,000
during the first half of 1997. Approximately 95% of this amount was financed
by long-term secured loans. During the first half of 1997 the Company also
disposed of ten less technologically advanced mid-field MRI systems.
The Company currently plans to purchase twelve additional new high-field
and open MRI systems in 1997 and plans to upgrade certain existing systems by
year-end, subject to obtaining related MRI service contracts with customers
and obtaining financing for the equipment acquisitions. The Company intends
to use a combination of existing cash reserves, cash flow from operations and
long-term secured equipment financing to finance its capital expenditures,
although there can be no assurance that such financing will be available to
the Company. The Company intends to continue focusing on acquiring
state-of-the-art equipment while disposing of older systems, and expects to
dispose of most of its remaining older systems during 1997.
In February 1996, the Company acquired four MRI systems and associated MRI
contracts from Mobile M.R. Venture, Ltd. In connection with the Royal
acquisition, the Company acquired six MRI systems. In August, the Company
acquired all of the outstanding shares of Sun MRI Services, Inc., a northern
California based MRI service provider. In connection with this transaction, the
Company obtained one MRI system and six hospital contracts. In late
14
<PAGE>
September 1996, the Company acquired certain assets and associated contracts
from West Coast Mobile Imaging, a southern California based CT service
provider. Although the acquisition was comparatively small, it added 16 new
CT customers. In May 1997, the Company acquired two MRI systems and related
customer contracts from Pacific Medical Imaging, Inc. These transactions
were primarily funded with approximately $3,600,000 from existing cash
reserves, debt assumed and issuance of equity securities. Additional
investments of this nature may be made in the future (subject to certain
conditions contained in the Company's long-term financing arrangements) from
a combination of cash reserves, cash flow from operations, common or
preferred equity and long-term secured or unsecured financing, if available.
If the Company adds MRI systems at a more rapid rate than is currently
planned, or if it acquires additional business entities, or if the net cash
generated by operations declines from current or anticipated levels, the
Company could be required to raise additional capital. However, there can be
no assurance that the Company would be able to raise such capital, or do so
on terms acceptable to the Company.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company held its annual meeting of stockholders on May 15, 1997.
The following six persons were elected as Directors of the Company to serve
until the next annual meeting of stockholders or until their respective
successors shall be duly elected and shall qualify:
NAME VOTES FOR VOTES WITHHELD
James E. Buncher 10,197,318 21,600
Vincent S. Pino 10,200,318 18,600
Robert B. Waley-Cohen 10,200,318 18,600
John C. Wallace 10,200,318 18,600
Richard N. Zehner 10,200,318 18,600
Douglas M. Hayes 10,200,318 18,600
The stockholders also approved a proposal to amend the Company's
Restated Certificate of Incorporation to increase the number of shares of
authorized common stock from 25,000,000 to 50,000,000, with 10,122,688 votes
cast in favor of the proposal, 85,355 votes cast against the proposal, 10,875
votes abstaining, and 708,553 shares unvoted.
The stockholders also approved a proposal to amend the Company's
Amended and Restated 1991 Stock Option Plan, with 7,320,535 votes cast in
favor of the proposal, 1,009,869 votes cast against the proposal, 16,575
votes abstaining, and 1,871,939 shares unvoted.
The stockholders further approved the appointment of Ernst & Young
LLP as the Company's independent auditors for the year ending December 31,
1997, with 10,190,168 votes cast in favor of such action, 3,850 votes cast
against such action, and 24,900 votes abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. NOTE DESCRIPTION
2.1 (22) Stockholder Agreement among Newport Investment LLC
and the individuals listed on Schedule A attached
thereto, dated as of July 23, 1997.
2.2 (22) Agreement and Plan of Merger between Alliance
Imaging, Inc., and Newport Investment LLC, dated as
of July 23, 1997.
3.1 (21) Restated Certificate of Incorporation of Alliance
Imaging, Inc.
3.2 (1) By-Laws of Alliance Imaging, Inc., as amended.
16
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4.1 (1) Specimen of Common Stock Certificate.
4.2 (9) Amended and Restated Purchase Agreement dated as of
December 31, 1994 among the Registrant and the
holders of the Registrant's Senior Subordinated
Debentures due 2005.
4.2.1 (8) Amendment No. 1 to Amended and Restated Purchase
Agreement dated as of December 31, 1994 among the
Registrant and the holders of the Registrant's
Senior Subordinated Debentures.
4.2.2 (18) Amendment No. 2 to Amended and Restated Purchase
Agreement dated as of April 15, 1996 among the
Registrant and the holders of the Registrant's Senior
Subordinated Debentures due 2005.
4.3 (1) Note Purchase Agreement dated as of April 14, 1989
governing sale of Senior Notes by Alliance Imaging,
Inc.
4.4 (1) First Amendment to Note Purchase Agreement dated as
of September 20, 1990 among Alliance Imaging, Inc.,
CIGNA Property and Casualty Insurance Company,
Connecticut General Life Insurance Company, Insurance
Company of America and Life Insurance Company of
North America.
4.4.1 (1) Amendment No. 2 to Note Purchase Agreement dated as
of June 3, 1991.
4.4.2 (2) Amendment No. 3 to Note Purchase Agreement dated as
of December 1, 1991.
4.4.3 (3) Amendment No. 4 to Note Purchase Agreement dated as
of December 31, 1992.
4.4.4 (4) Amendment No. 5 to Note Purchase Agreement dated as
of June 30, 1993.
4.4.5 (6) Amendment No. 6 to Note Purchase Agreement dated as
of January 1, 1994.
4.4.9 (10) Amendment No. 7 to Note Purchase Agreement dated as
of December 31, 1994.
4.4.10 (8) Amendment No. 8 to Note Purchase Agreement dated as
of December 31, 1994.
4.4.11 (18) Amendment No. 9 to Note Purchase Agreement dated as
of April 15, 1996.
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<PAGE>
4.4.12 (19) Amendment No. 10 to Note Purchase Agreement dated as
of November 6, 1996.
4.4.13 (21) Amendment No. 11 to Note Purchase Agreement dated as
of March 25, 1997.
4.5 (1) Amended and Restated Shareholders Agreement dated as
of April 17, 1989.
4.6 (11) Security Agreement dated as of December 31, 1994
among the Registrant, the holders of the Senior
Notes and the Collateral Agent for the Senior
Noteholders.
4.7 (12) Guaranty dated as of December 31, 1994 of the
Registrant's obligations to the Senior Noteholders
and the Senior Subordinated Debentureholders
executed by the subsidiaries of the Registrant
identified therein.
4.8 (13) Registration Rights Agreement dated as of
December 31, 1994 among the Registrant, the Senior
Noteholders and the Senior Subordinated
Debentureholders.
4.9 (14) Certificate of Designation concerning the
Registrant's Series A 6.0% Cumulative Preferred
Stock.
4.10 (15) Certificate of Designation concerning the
Registrant's Series B Convertible Preferred Stock.
4.11 (18) Certificate of Designation concerning the
Registrant's Series C 5% Cumulative Convertible
Redeemable Preferred Stock.
4.12 (21) Amended Certificate of Designation concerning the
Registrant's Series D 4% Cumulative Convertible
Redeemable Preferred Stock.
4.13 (21) Amended Certificate of Designation concerning the
Registrant's Series E 4% Cumulative Convertible
Redeemable Convertible Preferred Stock.
4.14 (21) Certificate of Elimination concerning the
Registrant's Series A 6% Cumulative Preferred Stock
and Series B Convertible Redeemable Preferred Stock.
9.1 (1) Amended and Restated Voting Trust Agreement between
Donaldson, Lufkin & Jenrette Capital Corporation and
Meridian Trust Company dated December 29, 1988.
18
<PAGE>
10.4 (20) Amended and Restated 1991 Stock Option Plan of
Alliance Imaging, Inc., including forms of agreement
used thereunder.
10.16 (1) Form of Indemnification Agreement between Alliance
Imaging, Inc. and its directors and/or officers.
10.20 (5) Georgia Magnetic Imaging Center, Ltd. Limited
Partnership Agreement dated as of March 22, 1985.
10.20.1 (5) Amendment to Georgia Magnetic Imaging Center, Ltd.
Limited Partnership Agreement dated as of July 1,
1993.
10.24 (23) Amended and Restated Employment Agreement dated as
of May 15, 1997, between Alliance Imaging, Inc. and
Richard N. Zehner.
10.25 (23) Amended and Restated Employment Agreement dated as
of May 15, 1997, between Alliance Imaging, Inc. and
Vincent S. Pino.
10.26 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Terry A. Andrues.
10.27 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Jay A. Mericle.
10.28 (23) Amended and Restated Employment Agreement dated as of
May 15, 1997, between Alliance Imaging, Inc. and
Terrence M. White.
10.29 (7) Employment Agreement dated as of June 6, 1994,
between Alliance Imaging, Inc. and Neil M. Cullinan.
10.30 (7) Employment Agreement dated as of June 6, 1994,
between Alliance Imaging, Inc. and Cheryl A. Ford.
10.31 (21) Amended and Restated Standstill Agreement dated as of
December 31, 1996 between the Registrant and
Connecticut General Life Insurance Company, CIGNA
Property and Casualty Insurance Company, Insurance
Company of North America and Life Insurance Company
of North America.
10.32 (21) Amended and Restated Standstill Agreement, dated as
of December 31, 1996, between Richard N. Zehner and
Alliance Imaging, Inc.
19
<PAGE>
10.33 (21) Amended and Restated Standstill Agreement, dated as
of December 31, 1996, between each of The
Northwestern Mutual Life Insurance Company, The
Travelers Indemnity Company, The Travelers Insurance
Company, The Travelers Life and Annuity Company, The
Lincoln National Life Insurance Company and Bedrock
Asset Trust I and Alliance Imaging, Inc.
10.34 (21) Amended and Restated Standstill Agreement, dated as
of December 31, 1996, between DLJ Capital Corporation
and Alliance Imaging, Inc.
10.36 (16) Employment Agreement dated July 7, 1995 between
Alliance Imaging, Inc. and Michael W. Grismer.
10.37 (23) Amended and Restated Long-Term Executive Incentive
Plan dated as of July 22, 1997.
10.38 (17) Loan and Security Agreement with Comerica
Bank-California, dated as of December 21, 1995.
10.39 (18) Royal Medical Health Services, Inc. Merger Agreement
dated as of April 16, 1996.
10.40 (18) A & M Trucking, Inc. Acquisition Agreement dated as
of April 16, 1996.
10.41 (18) Form of Warrant Agreement concerning 100,000 common
shares with an exercise price of $3.9375 per share
dated as of April 15, 1996.
10.42 (18) Form of Warrant Agreement concerning 96,900 common
shares with an exercise price of $5.00 per share
dated as of April 26, 1996.
10.43 (19) Form of Warrant Agreement concerning 125,000 common
shares with an exercise price of $5.00 per share
dated as of November 6, 1996.
10.44 (21) Bridge Loan Agreement dated as of December 31, 1996
between Alliance Imaging, Inc. and General Electric
Company, acting through GE Medical Systems.
10.45 (21) Form of Senior Bridge Note in the aggregate principal
amount of $18,000,000, dated December 31, 1996.
20
<PAGE>
10.46 (21) Assignment, dated December 31, 1996, by The
Northwestern Mutual Life Insurance Company, The
Travelers Indemnity Company, The Travelers Insurance
Company, The Travelers Life and Annuity Company, The
Lincoln National Life Insurance Company and Bedrock
Asset Trust I to Alliance Imaging, Inc.
10.47 (21) Stock Purchase Agreement dated as of March 25, 1997,
between Alliance Imaging, Inc. and General Electric
Company, acting through GE Medical Systems.
- ------------------
(1) Incorporated by reference herein to the indicated exhibits filed in
response to Item 16, "Exhibits" of the Company'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 21, "Exhibits" of the Company's Registration Statement on
Form S-4, No. 33-46052, initially filed on February 28, 1992.
(3) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
(4) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
(5) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(7) Incorporated by reference herein to the indicated exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.
(8) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(9) Incorporated by reference herein to Exhibit 4.4 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
21
<PAGE>
(10) Incorporated by reference herein to Exhibit 4.1 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(11) Incorporated by reference herein to Exhibit 4.2 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(12) Incorporated by reference herein to Exhibit 4.3 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(13) Incorporated by reference herein to Exhibit 4.5 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(14) Incorporated by reference herein to Exhibit 4.6 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(15) Incorporated by reference herein to Exhibit 4.7 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated January
25, 1995.
(16) Incorporated by reference herein to Exhibit 10.36 filed in response to
Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(17) Incorporated by reference herein to the indicated Exhibit in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(18) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
(19) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(20) Incorporated by reference herein to Exhibits filed with the Company's
Registration Statement on Form S-1, No. 33-40805, initially filed on May
24, 1991 and the Company's definitive Proxy Statement with respect to its
Annual Meeting of Stockholders held May 16, 1996.
(21) Incorporated by reference herein to the indicated Exhibit in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
(22) Incorporated by reference herein to Exhibits 2.1 and 2.2 filed in
response to Item 7, "Exhibits" of the Company's Form 8-K Current Report
dated August 1, 1997.
22
<PAGE>
(23) Filed herewith.
(b) REPORTS ON FORM 8-K IN THE SECOND QUARTER OF 1997:
None filed for the quarter ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE IMAGING, INC.
August 8, 1997 By: /s/ RICHARD N. ZEHNER
--------------------------
Richard N. Zehner
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on August 8, 1997.
Signature Title
/s/ RICHARD N. ZEHNER Chairman of the Board of Directors,
- ----------------------------- President and Chief Executive Officer
Richard N. Zehner (Principal Executive Officer)
/s/ TERRENCE M. WHITE Senior Vice President, Chief
- ----------------------------- Financial Officer and Secretary
Terrence M. White (Principal Financial Officer)
23
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
as of May 15, 1997 between Alliance Imaging, Inc., a Delaware corporation
(the "Company"), and the executive employee identified on the signature page
hereto (the "Executive") with reference to the following:
A. The Compensation Committee of the Board of Directors of the Company
has previously determined that the execution of employment agreements
(without finite term) with certain of the Company's key executives, including
Executive, that provide, among other things, for severance compensation
benefits under the circumstances described herein, will assist the Company in
attracting and retaining highly qualified individuals to serve as executive
employees of the Company. As a result, the Company and the Executive
previously entered into an Amended and Restated Employment Agreement dated as
of June 6, 1994 (the "Original Agreement").
B. The Compensation Committee of the Board of Directors of the Company
and Executive wish to amend the terms of the Original Agreement in certain
respects, and therefore wish to enter into this Agreement to evidence their
agreement, as so amended, on the terms and conditions of Executive's
employment by the Company.
C. Executive desires to continue to provide executive services to the
Company based in part on the agreements of the Company provided in this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
1.1 "CHANGE OF CONTROL" means the occurrence of any of the
following events:
(i) directly or indirectly, a transfer, sale, lease or other
disposition of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any "person" or "group" (as such terms are
used under Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not applicable), excluding any
disposition to or among the Company and/or one or more of its subsidiaries;
<PAGE>
(ii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is
or becomes, whether by means of any issuance or direct or indirect transfer
of securities, merger, consolidation, liquidation, dissolution or otherwise,
the "beneficial owner" (as that term is used under Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a "person" or
"group" shall be deemed to have "beneficial ownership" of all shares that he
or it has the right to acquire, whether such right is exercisable immediately
or only after the passage of time or otherwise), directly or indirectly
through one or more intermediaries, of 35% or more of the total voting power
represented by all of the voting stock of the Company; or
(iii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
otherwise obtains the right or power (through any arrangement, contract,
proxy or other means) to elect or designate a majority of the members of the
Board of Directors then in office, without regard to whether such right or
power is exercised or invoked and without taking into account the necessity
of a special or annual shareholders meeting or the taking of other procedural
actions to exercise or invoke such right or power.
1.2 "CONSTRUCTIVE DISCHARGE" means that Executive elects to
terminate his employment with the Company within 60 days after the occurrence
of any of the following events:
(i) the Company reduces by 10% or more Executive's base
salary and/or incentive compensation target from the higher of that in effect
on the date hereof or immediately prior to such change; or changes the
incentive compensation plan as in effect on the date hereof such that, in the
Executive's reasonable determination, it is significantly more difficult for
the Executive to achieve the incentive compensation target;
(ii) the Company, without Executive's consent, materially
reduces Executive's job authority or responsibility from his authority from
that in effect immediately prior to such change;
(iii) the Company, without Executive's consent, materially
increases, in terms of scope or quantity or required work time, Executive's
job authority or responsibility from that in effect immediately prior to such
change;
(iv) the Company requires Executive to change the location of
his principal office such that Executive will be required to travel more than
20 miles further than Executive is currently traveling to his principal
offices immediately prior to such change;
<PAGE>
(v) the Company materially increases the amount of travel
necessitated for Executive to discharge his job authority and responsibility
from the amount of travel historically engaged in by Executive prior to such
change (or, in the case of newly hired employees, the initial six month
period following commencement of employment); or
(vi) the Company otherwise subjects Executive to abusive,
critical or adversarial conditions such that there is a material worsening of
the general quality of Executive's job conditions immediately prior to such
change.
1.3 "JUST CAUSE" means that any of the following has occurred with
respect to Executive:
(i) Executive has committed a felony (other than a motor
vehicle moving violation);
(ii) Executive has stolen funds or property from the Company
or otherwise engaged in fraudulent conduct against the Company;
(iii) Executive has engaged in knowing and willful misconduct,
or has been reckless or grossly negligent, in his performance of duties owed
to the Company; or
(iv) Executive has deliberately failed or refused to comply
with a direction of the Board of Directors of the Company that is reasonably
consistent with Executive's current executive employee title, the failure
with which to comply could have a material adverse effect on the Company and
its subsidiaries taken as a whole;
PROVIDED, HOWEVER, that, for any termination of Executive's employment by the
Company for any action or omission described in clause (iii) or (iv) above to
constitute a "Just Cause" dismissal, the Company must have provided Executive
with at least 30 days' prior written notice specifying the actions or
omissions constituting such "Just Cause" and an opportunity to cure such
defects in his performance during such 30-day period.
2. EMPLOYMENT AND COMPENSATION.
2.1 TERM; POSITION. The Company hereby employs Executive as its
Chairman, President and Chief Executive Officer, and Executive shall have
such powers and duties as may be reasonably consistent with that title and
that are reasonably consistent with the powers and duties held and discharged
by Executive prior to the date hereof, in addition to such other powers and
duties as may be prescribed by the Board of Directors of the Company or the
Bylaws of the Company from time to time. The term of Executive's employment
shall continue until such time as the Company gives Executive written notice
of its election to terminate Executive's employment for any reason, or for no
reason; and, in the event of such
<PAGE>
written notice, Executive's employment shall terminate on the date specified
in such written notice, if any, or on the date of the giving of such written
notice if no effective date of termination is specified. Except as otherwise
provided in this Agreement, if Executive voluntarily terminates his
employment with the Company, he shall not be entitled to any of the Severance
Benefits provided for in Section 3.
2.2 EXECUTIVE'S DUTIES. Executive hereby accepts said employment and
agrees to devote his entire working time and attention and best talents and
abilities exclusively to the services of the Company as the Board may direct
during the term hereof; PROVIDED, HOWEVER, that Executive may engage in and
devote time to other non-competitive activities to the extent that such time
spent is immaterial and does not interfere with Executive's obligations
hereunder.
2.3 REPORTING. During the term hereof, Executive shall report to the
Board of Directors of the Company.
2.4 COMPENSATION. For his services to the Company pursuant to this
Agreement, Executive shall continue to receive his salary as currently in
effect and shall continue to be entitled to participate in all incentive
compensation plan and other employee benefit plans and programs at levels and
pursuant to such terms as are substantially consistent with the levels and
terms of his current participation in such plans and programs, subject to
periodic review and possible increases as the Board of Directors or the
Compensation Committee thereof may deem appropriate.
3. SEVERANCE COMPENSATION.
3.1 TERMINATION NOT IN CONNECTION WITH A CHANGE OF CONTROL. In
the event (a) that the Company terminates Executive's employment without Just
Cause (excluding termination due to death or permanent disability (as defined
in Section 22(e) of the Internal Revenue Code of 1986, as amended)), or (b)
of a Constructive Discharge (any termination described in clause (a) or (b)
being referred to as a "Severance"), unless such Severance occurs within one
(1) year prior to a Change of Control (in which event Section 3.2 below shall
govern), then Executive shall be entitled to the following (collectively, the
"Severance Benefits"):
(i) a cash amount equal to fifteen (15) months of salary at
the rate of salary in effect immediately prior to the Severance (or, in the
case of a Constructive Discharge pursuant to clause (i) of the definition
thereof, immediately prior to the reduction in base salary described therein);
<PAGE>
(ii) a cash amount equal to (a) Executive's annual incentive
compensation target under the Company's annual cash bonus program with
respect to the fiscal year in which Severance occurs, multiplied by (b) a
fraction the numerator of which is the number of months specified in clause
3.1(i) above (including any greater amount provided pursuant to Section 3.2
below) and the denominator of which is twelve (12);
(iii) Executive's car allowance and continued participation
in all Company-provided employee benefit plans, including, without
limitation, the Company's health insurance plan and 401(k) plan, for the same
number of months as specified in clause (i) of this Section 3.1 (including
any greater amount provided pursuant to Section 3.2 below) (the foregoing
participation to be in addition to Executive's right to elect continuation
health coverage under the "COBRA" provisions of the Internal Revenue code of
1986, as amended); and
(iv) immediately prior to the time of Severance, Executive's
stock options granted under the 1991 Stock Option Plan shall become
immediately exercisable as to all of the shares covered thereby and Executive
shall be permitted a period of three (3) months (or such longer period as
Executive may have under the governing stock option agreement) in which to
exercise such options (the Company agreeing to take such steps, promptly
following the execution of this Agreement, as may be necessary to effectuate
the intent of this clause (iv), including by executing an amendment to the
stock option agreement or agreements governing Executive's currently
outstanding stock options).
3.2 BENEFITS IN CONNECTION WITH A CHANGE OF CONTROL. In the event
(a) that a Severance occurs within one year prior to a Change of Control, or
(b) a Change of Control occurs, whether or not Executive elects to or is
given the opportunity to continue his employment with the Company, then
Executive shall be entitled to Severance Benefits identical to those provided
in Section 3.1 above, except that the number of months referred to in clauses
(i), (ii) and (iii) of Section 3.1 shall be thirty (30) instead of the figure
used or referred to therein. In the event that Severance Benefits are paid
pursuant to clause (b) of the preceding sentence, then no additional
Severance Benefits (on account of a later Severance or otherwise) shall be
payable to Executive pursuant to Section 3.1 or this Section 3.2.
3.3 PAYMENT. The payment of the cash portion of Severance
Benefits shall be made by the Company to Executive in a lump sum within 30
days following Severance or immediately following such Change of Control, as
applicable. In addition, in the event that Executive initially receives
Severance Benefits under Section 3.1 above and thereafter a Change of Control
occurs within the period indicated in Section 3.2 above, the Company shall
make an additional lump sum payment to Executive pursuant to Section 3.2
immediately following such Change of Control.
<PAGE>
4. DEFRA LIMITATION. Notwithstanding anything in this Agreement to
the contrary, in the event that the provisions of the Deficit Reduction Act
of 1984 ("DEFRA") relating to "excess parachute payments" shall be applicable
to the Severance Benefits or any other payment or benefit received or to be
received by Executive in connection with a termination of the Executive's
employment with the Company, then the total amount of the Severance Benefits
or other payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest amount such
that that provisions of DEFRA relating to "excess parachute payment" shall no
longer be applicable. Should such a reduction be required, the Executive
shall determine, in the exercise of his sole discretion, which payment or
benefit to reduce or eliminate. In the event of a disagreement between the
Company and Executive as to whether the provisions of DEFRA are applicable or
whether the Severance Benefits or any other payment or benefit constitutes a
"parachute payment", such determination shall be made by an accounting firm
mutually acceptable to Executive and the Company. All costs relating to such
determination shall be borne by the Company. Pending such determination, the
Company shall continue to make all other required payments to Executive at
the time and in the manner provided herein and shall pay the largest portion
of any parachute payments such that the provisions of DEFRA relating to
"excess parachute payments" shall no longer be applicable.
5. NO DUTY OF MITIGATION. The Company acknowledges that it would be
very difficult and generally impracticable to determine the ability of, or
extent to which, Executive could mitigate any lost wages or other damages he
may incur by reason of a Severance or Change of Control or other termination
of employment. The Company has taken this into account in entering into this
Agreement and, accordingly, the Company acknowledges and agrees that
Executive shall have no duty to mitigate any such damages and that Executive
shall be entitled to receive his entire Severance Benefits regardless of any
income which he may receive from other sources following his Severance.
6. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes required
to be withheld by the Company.
7. OTHER BENEFITS. This Agreement is in lieu of and replaces, with
respect to Executive, any and all other severance plans or policies of the
Company. In particular, this Agreement supersedes and replaces in its
entirety the Original Agreement, effective as of the first date set forth
above. However, neither the provisions of this Agreement nor the Severance
Benefits provided for hereunder shall in any way diminish Executive's rights
as an employee of the Company, whether existing now or hereafter, under any
benefit, incentive, retirement, profit sharing, stock option, stock bonus,
stock purchase plan, or any other plan or
<PAGE>
arrangement not specifically related to severance, all of which plans and
programs, as provided in Section 2.4 hereof, to remain in place with respect
to Executive substantially consistent with Executive's participation therein
as of the date hereof. Any such other amounts or benefits payable shall be
included, as necessary, for making any of the calculations required under
Section 4.
8. EMPLOYMENT STATUS. This Agreement does not impose on the Company
any obligation to retain Executive as an employee, to change the status of
Executive's employment as an employee at will, or to change the Company's
policies regarding termination of employment.
9. SUCCESSORS TO COMPANY. The Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company", as used in
this Agreement, shall mean the Company as hereinbefore defined and any
successor or assignee to the business or assets which by reason hereof
becomes bound by the terms and provisions of this Agreement.
10. ATTORNEY'S FEES. The Company shall pay all legal fees, costs of
litigation, and other expenses incurred in good faith by Executive as a
result of the Company's refusal to provide the Severance Benefits to which
the Executive becomes entitled under this Agreement, or as a result of the
Company's contesting the validity, enforceability or interpretation of this
Agreement; PROVIDED, HOWEVER, that if the Company is the prevailing party, it
shall be obligated to pay only its own attorneys' fees and costs, witness
expenses and court costs.
11. RELEASE. In connection with the performance of its obligations
under this Agreement (and conditioned upon its full performance thereof), the
Company may require Executive to execute a full release of claims against the
Company and its officers, directors, agents and affiliates covering such
matters and in such form as the Company shall prescribe.
12. TABLE OF CONTENTS; HEADINGS. The headings of the Sections of this
Agreement have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California but without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
<PAGE>
14. CONFIDENTIALITY. In view of the fact that Executive's work as an
executive of the Company will bring Executive into close contact with many
confidential affairs of the Company, including matters of a business nature,
such as information about customers (including pricing information), costs,
profits, markets, sales strategic plans for future development and any other
information not readily available to the public, Executive hereby agrees:
14.1 To keep secret all confidential matters of the Company
(including without limitation such matters which the Company notifies
Executive are confidential) learned prior to the date of this Agreement and
in the course of Executive's employment hereunder, and not to disclose them
to anyone outside of the Company, either during or after Executive's
employment with the Company, or both, until such time as the Company gives
its written consent to such disclosure; and
14.2 To deliver promptly to the Company on termination of
Executive's employment by the Company or at any other time the Company may so
request, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company's business which Executive may then
possess or have under Executive's control.
14.3 That as a means reasonably designed to protect certain
confidential information of the Company which would otherwise inherently be
utilized in the following proscribed activities, he will not: (a) for a
period of twelve (12) months following termination of services to the Company
(the date of termination being the "Termination Date"), solicit or make any
other contact with, directly or indirectly, any customer of the Company as of
the Termination Date with respect to the provision of any service to any such
customer that is the same or substantially similar to any service provided to
such customer by the Company on the Termination Date; or (b) for a period of
six months following the Termination Date, solicit or make any other contact
with, directly or indirectly, any employee of the Company on the Termination
Date (or any person who was employed by the Company at any time during the
three-month period prior to the Termination Date) with respect to any
employment, services or other relationship in connection with any service
that is the same or substantially similar to any service provided by the
Company as of the Termination Date.
14.4 That violation of this Section 14 would cause the Company
irreparable damage for which the Company cannot be reasonably compensated in
damages in an action at law, and therefore in the event of any breach or
threatened breach by Executive of this Section 14, the Company shall be
entitled to make application to a court of competent jurisdiction for
equitable relief by way of injunction or otherwise (without being required to
post a bond). This provision shall not, however, be construed as a waiver of
any of the rights which the Company may have for damages under this Agreement
or otherwise, and all of the Company's rights and remedies shall be
unrestricted and cumulative.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the first day
set forth above.
Compensation Committee of the Board of Directors
By:
--------------------------------
James E. Buncher
--------------------------------
John C. Wallace
--------------------------------
Douglas M. Hayes
Executive's
Signature:
--------------------------------
Name of
Executive: Richard N. Zehner
Title of
Executive: Chairman, President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the first day
set forth above.
ALLIANCE IMAGING, INC.
By:
-------------------------------------
Terrence M. White
Its: Senior Vice President, Chief Financial Officer & Secretary
Executive's
Signature:
------------------------------
Name of
Executive: Richard N. Zehner
Title of
Executive: Chairman, President & Chief Executive Officer
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
as of May 15, 1997 between Alliance Imaging, Inc., a Delaware corporation
(the "Company"), and the executive employee identified on the signature page
hereto (the "Executive") with reference to the following:
A. The Compensation Committee of the Board of Directors of the Company
has previously determined that the execution of employment agreements
(without finite term) with certain of the Company's key executives, including
Executive, that provide, among other things, for severance compensation
benefits under the circumstances described herein, will assist the Company in
attracting and retaining highly qualified individuals to serve as executive
employees of the Company. As a result, the Company and the Executive
previously entered into an Amended and Restated Employment Agreement dated as
of June 6, 1994 (the "Original Agreement").
B. The Compensation Committee of the Board of Directors of the Company
and Executive wish to amend the terms of the Original Agreement in certain
respects, and therefore wish to enter into this Agreement to evidence their
agreement, as so amended, on the terms and conditions of Executive's
employment by the Company.
C. Executive desires to continue to provide executive services to the
Company based in part on the agreements of the Company provided in this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
1.1 "CHANGE OF CONTROL" means the occurrence of any of the
following events:
(i) directly or indirectly, a transfer, sale, lease or other
disposition of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any "person" or "group" (as such terms are
used under Sections 13(d) and 14(d)
<PAGE>
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not applicable), excluding any disposition to or among the Company
and/or one or more of its subsidiaries;
(ii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is
or becomes, whether by means of any issuance or direct or indirect transfer
of securities, merger, consolidation, liquidation, dissolution or otherwise,
the "beneficial owner" (as that term is used under Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a "person" or
"group" shall be deemed to have "beneficial ownership" of all shares that he
or it has the right to acquire, whether such right is exercisable immediately
or only after the passage of time or otherwise), directly or indirectly
through one or more intermediaries, of 35% or more of the total voting power
represented by all of the voting stock of the Company; or
(iii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
otherwise obtains the right or power (through any arrangement, contract,
proxy or other means) to elect or designate a majority of the members of the
Board of Directors then in office, without regard to whether such right or
power is exercised or invoked and without taking into account the necessity
of a special or annual shareholders meeting or the taking of other procedural
actions to exercise or invoke such right or power.
1.2 "CONSTRUCTIVE DISCHARGE" means that Executive elects to
terminate his employment with the Company within 60 days after the occurrence
of any of the following events:
(i) the Company reduces by 10% or more Executive's base
salary and/or incentive compensation target from the higher of that in effect
on the date hereof or immediately prior to such change; or changes the
incentive compensation plan as in effect on the date hereof such that, in the
Executive's reasonable determination, it is significantly more difficult for
the Executive to achieve the incentive compensation target;
(ii) the Company, without Executive's consent, materially
reduces Executive's job authority or responsibility from his authority from
that in effect immediately prior to such change;
(iii) the Company, without Executive's consent, materially
increases, in terms of scope or quantity or required work time, Executive's
job authority or responsibility from that in effect immediately prior to such
change;
<PAGE>
(iv) the Company requires Executive to change the location of
his principal office such that Executive will be required to travel more than 20
miles further than Executive is currently traveling to his principal offices
immediately prior to such change;
(v) the Company materially increases the amount of travel
necessitated for Executive to discharge his job authority and responsibility
from the amount of travel historically engaged in by Executive prior to such
change (or, in the case of newly hired employees, the initial six month period
following commencement of employment); or
(vi) the Company otherwise subjects Executive to abusive,
critical or adversarial conditions such that there is a material worsening of
the general quality of Executive's job conditions immediately prior to such
change.
1.3 "JUST CAUSE" means that any of the following has occurred with
respect to Executive:
(i) Executive has committed a felony (other than a motor
vehicle moving violation);
(ii) Executive has stolen funds or property from the Company
or otherwise engaged in fraudulent conduct against the Company;
(iii) Executive has engaged in knowing and willful misconduct,
or has been reckless or grossly negligent, in his performance of duties owed
to the Company; or
(iv) Executive has deliberately failed or refused to comply
with a direction of the Board of Directors of the Company that is reasonably
consistent with Executive's current executive employee title, the failure
with which to comply could have a material adverse effect on the Company and
its subsidiaries taken as a whole;
PROVIDED, HOWEVER, that, for any termination of Executive's employment by the
Company for any action or omission described in clause (iii) or (iv) above to
constitute a "Just Cause" dismissal, the Company must have provided Executive
with at least 30 days' prior written notice specifying the actions or
omissions constituting such "Just Cause" and an opportunity to cure such
defects in his performance during such 30-day period.
2. EMPLOYMENT AND COMPENSATION.
2.1 TERM; POSITION. The Company hereby employs Executive as its
Executive Vice President and Chief Operating Officer, and Executive shall
have such powers and duties as may be reasonably consistent with that title
and that are reasonably consistent
<PAGE>
with the powers and duties held and discharged by Executive prior to the date
hereof, in addition to such other powers and duties as may be prescribed by
the Board of Directors of the Company or the Bylaws of the Company from time
to time. The term of Executive's employment shall continue until such time
as the Company gives Executive written notice of its election to terminate
Executive's employment for any reason, or for no reason; and, in the event of
such written notice, Executive's employment shall terminate on the date
specified in such written notice, if any, or on the date of the giving of
such written notice if no effective date of termination is specified. Except
as otherwise provided in this Agreement, if Executive voluntarily terminates
his employment with the Company, he shall not be entitled to any of the
Severance Benefits provided for in Section 3.
2.2 EXECUTIVE'S DUTIES. Executive hereby accepts said employment and
agrees to devote his entire working time and attention and best talents and
abilities exclusively to the services of the Company as the Board may direct
during the term hereof; PROVIDED, HOWEVER, that Executive may engage in and
devote time to other non-competitive activities to the extent that such time
spent is immaterial and does not interfere with Executive's obligations
hereunder.
2.3 REPORTING. During the term hereof, Executive shall report to the
President of the Company.
2.4 COMPENSATION. For his services to the Company pursuant to this
Agreement, Executive shall continue to receive his salary as currently in
effect and shall continue to be entitled to participate in all incentive
compensation plan and other employee benefit plans and programs at levels and
pursuant to such terms as are substantially consistent with the levels and
terms of his current participation in such plans and programs, subject to
periodic review and possible increases as the Board of Directors or the
Compensation Committee thereof may deem appropriate.
3. SEVERANCE COMPENSATION.
3.1 TERMINATION NOT IN CONNECTION WITH A CHANGE OF CONTROL. In
the event (a) that the Company terminates Executive's employment without Just
Cause (excluding termination due to death or permanent disability (as defined
in Section 22(e) of the Internal Revenue Code of 1986, as amended)), or (b)
of a Constructive Discharge (any termination described in clause (a) or (b)
being referred to as a "Severance"), unless
<PAGE>
such Severance occurs within one (1) year prior to a Change of Control (in
which event Section 3.2 below shall govern), then Executive shall be entitled
to the following (collectively, the "Severance Benefits"):
(i) a cash amount equal to fifteen (15) months of salary at
the rate of salary in effect immediately prior to the Severance (or, in the
case of a Constructive Discharge pursuant to clause (i) of the definition
thereof, immediately prior to the reduction in base salary described therein);
(ii) a cash amount equal to (a) Executive's annual incentive
compensation target under the Company's annual cash bonus program with
respect to the fiscal year in which Severance occurs, multiplied by (b) a
fraction the numerator of which is the number of months specified in clause
3.1(i) above (including any greater amount provided pursuant to Section 3.2
below) and the denominator of which is twelve (12);
(iii) Executive's car allowance and continued participation in
all Company-provided employee benefit plans, including, without limitation,
the Company's health insurance plan and 401(k) plan, for the same number of
months as specified in clause (i) of this Section 3.1 (including any greater
amount provided pursuant to Section 3.2 below) (the foregoing participation
to be in addition to Executive's right to elect continuation health coverage
under the "COBRA" provisions of the Internal Revenue code of 1986, as
amended); and
(iv) immediately prior to the time of Severance, Executive's
stock options granted under the 1991 Stock Option Plan shall become
immediately exercisable as to all of the shares covered thereby and Executive
shall be permitted a period of three (3) months (or such longer period as
Executive may have under the governing stock option agreement) in which to
exercise such options (the Company agreeing to take such steps, promptly
following the execution of this Agreement, as may be necessary to effectuate
the intent of this clause (iv), including by executing an amendment to the
stock option agreement or agreements governing Executive's currently
outstanding stock options).
3.2 BENEFITS IN CONNECTION WITH A CHANGE OF CONTROL. In the event
(a) that a Severance occurs within one year prior to a Change of Control, or (b)
a Change of Control occurs, whether or not Executive elects to or is given the
opportunity to continue his employment with the Company, then Executive shall be
entitled to Severance Benefits identical to those provided in Section 3.1 above,
except that the number of months referred to in clauses (i), (ii) and (iii) of
Section 3.1 shall be thirty (30) instead of the figure used or referred to
therein. In the event that Severance Benefits are paid pursuant to clause (b)
of the preceding sentence, then no additional Severance Benefits on
<PAGE>
account of a later Severance or otherwise) shall be payable to Executive
pursuant to Section 3.1 or this Section 3.2.
3.3 PAYMENT. The payment of the cash portion of Severance
Benefits shall be made by the Company to Executive in a lump sum within 30
days following Severance or immediately following such Change of Control, as
applicable. In addition, in the event that Executive initially receives
Severance Benefits under Section 3.1 above and thereafter a Change of Control
occurs within the period indicated in Section 3.2 above, the Company shall
make an additional lump sum payment to Executive pursuant to Section 3.2
immediately following such Change of Control.
4. DEFRA LIMITATION. Notwithstanding anything in this Agreement to
the contrary, in the event that the provisions of the Deficit Reduction Act
of 1984 ("DEFRA") relating to "excess parachute payments" shall be applicable
to the Severance Benefits or any other payment or benefit received or to be
received by Executive in connection with a termination of the Executive's
employment with the Company, then the total amount of the Severance Benefits
or other payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest amount such
that that provisions of DEFRA relating to "excess parachute payment" shall no
longer be applicable. Should such a reduction be required, the Executive
shall determine, in the exercise of his sole discretion, which payment or
benefit to reduce or eliminate. In the event of a disagreement between the
Company and Executive as to whether the provisions of DEFRA are applicable or
whether the Severance Benefits or any other payment or benefit constitutes a
"parachute payment", such determination shall be made by an accounting firm
mutually acceptable to Executive and the Company. All costs relating to such
determination shall be borne by the Company. Pending such determination, the
Company shall continue to make all other required payments to Executive at
the time and in the manner provided herein and shall pay the largest portion
of any parachute payments such that the provisions of DEFRA relating to
"excess parachute payments" shall no longer be applicable.
5. NO DUTY OF MITIGATION. The Company acknowledges that it would be
very difficult and generally impracticable to determine the ability of, or
extent to which, Executive could mitigate any lost wages or other damages he
may incur by reason of a Severance or Change of Control or other termination
of employment. The Company has taken this into account in entering into this
Agreement and, accordingly, the Company acknowledges and agrees that
Executive shall have no duty to mitigate any such damages and that Executive
shall be entitled to receive his entire Severance Benefits regardless of any
income which he may receive from other sources following his Severance.
<PAGE>
6. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes required
to be withheld by the Company.
7. OTHER BENEFITS. This Agreement is in lieu of and replaces, with
respect to Executive, any and all other severance plans or policies of the
Company. In particular, this Agreement supersedes and replaces in its
entirety the Original Agreement, effective as of the first date set forth
above. However, neither the provisions of this Agreement nor the Severance
Benefits provided for hereunder shall in any way diminish Executive's rights
as an employee of the Company, whether existing now or hereafter, under any
benefit, incentive, retirement, profit sharing, stock option, stock bonus,
stock purchase plan, or any other plan or arrangement not specifically
related to severance, all of which plans and programs, as provided in Section
2.4 hereof, to remain in place with respect to Executive substantially
consistent with Executive's participation therein as of the date hereof. Any
such other amounts or benefits payable shall be included, as necessary, for
making any of the calculations required under Section 4.
8. EMPLOYMENT STATUS. This Agreement does not impose on the Company
any obligation to retain Executive as an employee, to change the status of
Executive's employment as an employee at will, or to change the Company's
policies regarding termination of employment.
9. SUCCESSORS TO COMPANY. The Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company", as used in
this Agreement, shall mean the Company as hereinbefore defined and any
successor or assignee to the business or assets which by reason hereof
becomes bound by the terms and provisions of this Agreement.
10. ATTORNEY'S FEES. The Company shall pay all legal fees, costs of
litigation, and other expenses incurred in good faith by Executive as a
result of the Company's refusal to provide the Severance Benefits to which
the Executive becomes entitled under this Agreement, or as a result of the
Company's contesting the validity, enforceability or interpretation of this
Agreement; PROVIDED, HOWEVER, that if the Company is the revailing party, it
shall be obligated to pay only its own attorneys' fees and costs, witness
expenses and court costs.
11. RELEASE. In connection with the performance of its obligations
under this Agreement (and conditioned upon its full performance thereof), the
Company may
<PAGE>
require Executive to execute a full release of claims against the Company and
its officers, directors, agents and affiliates covering such matters and in
such form as the Company shall prescribe.
12. TABLE OF CONTENTS; HEADINGS. The headings of the Sections of this
Agreement have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California but without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
14. CONFIDENTIALITY. In view of the fact that Executive's work as an
executive of the Company will bring Executive into close contact with many
confidential affairs of the Company, including matters of a business nature,
such as information about customers (including pricing information), costs,
profits, markets, sales strategic plans for future development and any other
information not readily available to the public, Executive hereby agrees:
14.1 To keep secret all confidential matters of the Company
(including without limitation such matters which the Company notifies
Executive are confidential) learned prior to the date of this Agreement and
in the course of Executive's employment hereunder, and not to disclose them
to anyone outside of the Company, either during or after Executive's
employment with the Company, or both, until such time as the Company gives
its written consent to such disclosure; and
14.2 To deliver promptly to the Company on termination of
Executive's employment by the Company or at any other time the Company may so
request, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company's business which Executive may then
possess or have under Executive's control.
14.3 That as a means reasonably designed to protect certain
confidential information of the Company which would otherwise inherently be
utilized in the following proscribed activities, he will not: (a) for a
period of twelve (12) months following termination of services to the Company
(the date of termination being the "Termination Date"), solicit or make any
other contact with, directly or indirectly, any customer of the Company as of
the Termination Date with respect to the provision of any service to any such
customer that is the same or substantially similar to any service provided to
such customer by the Company on the Termination Date; or (b) for a period
<PAGE>
of six months following the Termination Date, solicit or make any other
contact with, directly or indirectly, any employee of the Company on the
Termination Date (or any person who was employed by the Company at any time
during the three-month period prior to the Termination Date) with respect to
any employment, services or other relationship in connection with any service
that is the same or substantially similar to any service provided by the
Company as of the Termination Date.
14.4 That violation of this Section 14 would cause the Company
irreparable damage for which the Company cannot be reasonably compensated in
damages in an action at law, and therefore in the event of any breach or
threatened breach by Executive of this Section 14, the Company shall be
entitled to make application to a court of competent jurisdiction for
equitable relief by way of injunction or otherwise (without being required to
post a bond). This provision shall not, however, be construed as a waiver of
any of the rights which the Company may have for damages under this Agreement
or otherwise, and all of the Company's rights and remedies shall be
unrestricted and cumulative.
IN WITNESS WHEREOF, this Agreement has been executed as of the first day
set forth above.
ALLIANCE IMAGING, INC.
By:
-------------------------------------
Richard N. Zehner
Its: Chairman, President and Chief Executive Officer
Executive's
Signature:
------------------------------
Name of
Executive: Vincent S. Pino
Title of
Executive: Executive Vice President & Chief Operating Officer
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
as of May 15, 1997 between Alliance Imaging, Inc., a Delaware corporation
(the "Company"), and the executive employee identified on the signature page
hereto (the "Executive") with reference to the following:
A. The Compensation Committee of the Board of Directors of the Company
has previously determined that the execution of employment agreements
(without finite term) with certain of the Company's key executives, including
Executive, that provide, among other things, for severance compensation
benefits under the circumstances described herein, will assist the Company in
attracting and retaining highly qualified individuals to serve as executive
employees of the Company. As a result, the Company and the Executive
previously entered into an Amended and Restated Employment Agreement dated as
of June 6, 1994 (the "Original Agreement").
B. The Compensation Committee of the Board of Directors of the Company
and Executive wish to amend the terms of the Original Agreement in certain
respects, and therefore wish to enter into this Agreement to evidence their
agreement, as so amended, on the terms and conditions of Executive's
employment by the Company.
C. Executive desires to continue to provide executive services to the
Company based in part on the agreements of the Company provided in this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
1.1 "CHANGE OF CONTROL" means the occurrence of any of the
following events:
(i) directly or indirectly, a transfer, sale, lease or other
disposition of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole to any "person" or "group" (as such terms are
used under Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not applicable), excluding any
disposition to or among the Company and/or one or more of its subsidiaries;
(ii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is or
becomes, whether by means of any issuance or direct or indirect transfer of
securities, merger, consolidation,
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liquidation, dissolution or otherwise, the "beneficial owner" (as that term
is used under Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a "person" or "group" shall be deemed to have
"beneficial ownership" of all shares that he or it has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time or otherwise), directly or indirectly through one or more
intermediaries, of 35% or more of the total voting power represented by all
of the voting stock of the Company; or
(iii) any "person" or "group" (as such terms are used under
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
otherwise obtains the right or power (through any arrangement, contract,
proxy or other means) to elect or designate a majority of the members of the
Board of Directors then in office, without regard to whether such right or
power is exercised or invoked and without taking into account the necessity
of a special or annual shareholders meeting or the taking of other procedural
actions to exercise or invoke such right or power.
1.2 "CONSTRUCTIVE DISCHARGE" means that Executive elects to
terminate his employment with the Company within 60 days after the occurrence
of any of the following events:
(i) the Company reduces by 10% or more Executive's base
salary and/or incentive compensation target from the higher of that in effect
on the date hereof or immediately prior to such change; or changes the
incentive compensation plan as in effect on the date hereof such that, in the
Executive's reasonable determination, it is significantly more difficult for
the Executive to achieve the incentive compensation target;
(ii) the Company, without Executive's consent, materially
reduces Executive's job authority or responsibility from his authority from
that in effect immediately prior to such change;
(iii)the Company, without Executive's consent, materially
increases, in terms of scope or quantity or required work time, Executive's
job authority or responsibility from that in effect immediately prior to such
change;
(iv) the Company requires Executive to change the location of
his principal office such that Executive will be required to travel more than
20 miles further than Executive is currently traveling to his principal
offices immediately prior to such change;
(v) the Company materially increases the amount of travel
necessitated for Executive to discharge his job authority and responsibility
from the amount of travel historically engaged in by Executive prior to such
change (or, in the case of newly hired employees, the initial six month
period following commencement of employment); or
(vi) the Company otherwise subjects Executive to abusive,
critical or adversarial conditions such that there is a material worsening of
the general quality of Executive's job conditions immediately prior to such
change.
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<PAGE>
1.3 "JUST CAUSE" means that any of the following has occurred with
respect to Executive:
(i) Executive has committed a felony (other than a motor
vehicle moving violation);
(ii) Executive has stolen funds or property from the Company
or otherwise engaged in fraudulent conduct against the Company;
(iii) Executive has engaged in knowing and willful
misconduct, or has been reckless or grossly negligent, in his performance of
duties owed to the Company; or
(iv) Executive has deliberately failed or refused to comply
with a direction of the Board of Directors of the Company that is reasonably
consistent with Executive's current executive employee title, the failure
with which to comply could have a material adverse effect on the Company and
its subsidiaries taken as a whole;
PROVIDED, HOWEVER, that, for any termination of Executive's employment by the
Company for any action or omission described in clause (iii) or (iv) above to
constitute a "Just Cause" dismissal, the Company must have provided Executive
with at least 30 days' prior written notice specifying the actions or
omissions constituting such "Just Cause" and an opportunity to cure such
defects in his performance during such 30-day period.
2. EMPLOYMENT AND COMPENSATION.
2.1 TERM; POSITION. The Company hereby employs Executive as its Senior
Vice President, Chief Financial Officer and Secretary, and Executive shall
have such powers and duties as may be reasonably consistent with that title
and that are reasonably consistent with the powers and duties held and
discharged by Executive prior to the date hereof, in addition to such other
powers and duties as may be prescribed by the Board of Directors of the
Company or the Bylaws of the Company from time to time. The term of
Executive's employment shall continue until such time as the Company gives
Executive written notice of its election to terminate Executive's employment
for any reason, or for no reason; and, in the event of such written notice,
Executive's employment shall terminate on the date specified in such written
notice, if any, or on the date of the giving of such written notice if no
effective date of termination is specified. Except as otherwise provided in
this Agreement, if Executive voluntarily terminates his employment with the
Company, he shall not be entitled to any of the Severance Benefits provided
for in Section 3.
2.2 EXECUTIVE'S DUTIES. Executive hereby accepts said employment and
agrees to devote his entire working time and attention and best talents and
abilities exclusively to the services of the Company as the Board may direct
during the term hereof; PROVIDED, HOWEVER, that Executive may engage in and
devote time to other non-competitive activities to the extent that such time
spent is immaterial and does not interfere with Executive's obligations
hereunder.
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2.3 REPORTING. During the term hereof, Executive shall report to the
Executive Vice President of the Company.
2.4 COMPENSATION. For his services to the Company pursuant to this
Agreement, Executive shall continue to receive his salary as currently in
effect and shall continue to be entitled to participate in all incentive
compensation plan and other employee benefit plans and programs at levels and
pursuant to such terms as are substantially consistent with the levels and
terms of his current participation in such plans and programs, subject to
periodic review and possible increases as the Board of Directors or the
Compensation Committee thereof may deem appropriate.
3. SEVERANCE COMPENSATION.
3.1 TERMINATION NOT IN CONNECTION WITH A CHANGE OF CONTROL. In
the event (a) that the Company terminates Executive's employment without Just
Cause (excluding termination due to death or permanent disability (as defined
in Section 22(e) of the Internal Revenue Code of 1986, as amended)), or (b)
of a Constructive Discharge (any termination described in clause (a) or (b)
being referred to as a "Severance"), unless such Severance occurs within one
(1) year prior to a Change of Control (in which event Section 3.2 below shall
govern), then Executive shall be entitled to the following (collectively, the
"Severance Benefits"):
(i) a cash amount equal to twelve (12) months of salary at
the rate of salary in effect immediately prior to the Severance (or, in the
case of a Constructive Discharge pursuant to clause (i) of the definition
thereof, immediately prior to the reduction in base salary described therein);
(ii) a cash amount equal to (a) Executive's annual incentive
compensation target under the Company's annual cash bonus program with respect
to the fiscal year in which Severance occurs, multiplied by (b) a fraction the
numerator of which is the number of month specified in clause 3.1(i) above
(including any greater amount provided pursuant to Section 3.2 below) and the
denominator of which is twelve (12);
(iii) Executive's car allowance and continued participation in
all Company-provided employee benefit plans, including, without limitation,
the Company's health insurance plan and 401(k) plan, for the same number of
months as specified in clause (i) of this Section 3.1 (including any greater
amount provided pursuant to Section 3.2 below) (the foregoing participation
to be in addition to Executive's right to elect continuation health coverage
under the "COBRA" provisions of the Internal Revenue code of 1986, as
amended); and
(iv) immediately prior to the time of Severance, Executive's
stock options granted under the 1991 Stock Option Plan shall become immediately
exercisable as to all of the shares covered thereby and Executive shall be
permitted a period of three (3)
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months (or such longer period as Executive may have under the governing
stock option agreement) in which to exercise such options (the Company
agreeing to take such steps, promptly following the execution of this
Agreement, as may be necessary to effectuate the intent of this clause (iv),
including by executing an amendment to the stock option agreement or
agreements governing Executive's currently outstanding stock options).
3.2 BENEFITS IN CONNECTION WITH A CHANGE OF CONTROL. In the event
(a) that a Severance occurs within one year prior to a Change of Control, or
(b) a Change of Control occurs, whether or not Executive elects to or is
given the opportunity to continue his employment with the Company, then
Executive shall be entitled to Severance Benefits identical to those provided
in Section 3.1 above, except that the number of months referred to in clauses
(i), (ii) and (iii) of Section 3.1 shall be twenty-four (24) instead of the
figure used or referred to therein. In the event that Severance Benefits are
paid pursuant to clause (b) of the preceding sentence, then no additional
Severance Benefits (on account of a later Severance or otherwise) shall be
payable to Executive pursuant to Section 3.1 or this Section 3.2.
3.3 PAYMENT. The payment of the cash portion of Severance
Benefits shall be made by the Company to Executive in a lump sum within 30
days following Severance or immediately following a Change of Control, as
applicable. In addition, in the event that Executive initially receives
Severance Benefits under Section 3.1 above and thereafter a Change of Control
occurs within the period indicated in Section 3.2 above, the Company shall
make an additional lump sum payment to Executive pursuant to Section 3.2
immediately following such Change of Control.
4. DEFRA LIMITATION. Notwithstanding anything in this Agreement to
the contrary, in the event that the provisions of the Deficit Reduction Act
of 1984 ("DEFRA") relating to "excess parachute payments" shall be applicable
to the Severance Benefits or any other payment or benefit received or to be
received by Executive in connection with a termination of the Executive's
employment with the Company, then the total amount of the Severance Benefits
or other payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest amount such
that that provisions of DEFRA relating to "excess parachute payment" shall no
longer be applicable. Should such a reduction be required, the Executive
shall determine, in the exercise of his sole discretion, which payment or
benefit to reduce or eliminate. In the event of a disagreement between the
Company and Executive as to whether the provisions of DEFRA are applicable or
whether the Severance Benefits or any other payment or benefit constitutes a
"parachute payment", such determination shall be made by an accounting firm
mutually acceptable to Executive and the Company. All costs relating to such
determination shall be borne by the Company. Pending such determination, the
Company shall continue to make all other required payments to Executive at
the time and in the manner provided herein and shall pay the largest portion
of any parachute payments such that the provisions of DEFRA relating to
"excess parachute payments" shall no longer be applicable.
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<PAGE>
5. NO DUTY OF MITIGATION. The Company acknowledges that it would be
very difficult and generally impracticable to determine the ability of, or
extent to which, Executive could mitigate any lost wages or other damages he
may incur by reason of a Severance or Change of Control or other termination
of employment. The Company has taken this into account in entering into this
Agreement and, accordingly, the Company acknowledges and agrees that
Executive shall have no duty to mitigate any such damages and that Executive
shall be entitled to receive his entire Severance Benefits regardless of any
income which he may receive from other sources following his Severance.
6. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes required
to be withheld by the Company.
7. OTHER BENEFITS. This Agreement is in lieu of and replaces, with
respect to Executive, any and all other severance plans or policies of the
Company. In particular, this Agreement supersedes and replaces in its
entirety the Original Agreement, effective as of the first date set forth
above. However, neither the provisions of this Agreement nor the Severance
Benefits provided for hereunder shall in any way diminish Executive's rights
as an employee of the Company, whether existing now or hereafter, under any
benefit, incentive, retirement, profit sharing, stock option, stock bonus,
stock purchase plan, or any other plan or arrangement not specifically
related to severance, all of which plans and programs, as provided in Section
2.4 hereof, to remain in place with respect to Executive substantially
consistent with Executive's participation therein as of the date hereof. Any
such other amounts or benefits payable shall be included, as necessary, for
making any of the calculations required under Section 4.
8. EMPLOYMENT STATUS. This Agreement does not impose on the Company
any obligation to retain Executive as an employee, to change the status of
Executive's employment as an employee at will, or to change the Company's
policies regarding termination of employment.
9. SUCCESSORS TO COMPANY. The Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company", as used in
this Agreement, shall mean the Company as hereinbefore defined and any
successor or assignee to the business or assets which by reason hereof
becomes bound by the terms and provisions of this Agreement.
10. ATTORNEY'S FEES. The Company shall pay all legal fees, costs of
litigation, and other expenses incurred in good faith by Executive as a result
of the Company's refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability or
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<PAGE>
interpretation of this Agreement; PROVIDED, HOWEVER, that if the Company is
the prevailing party, it shall be obligated to pay only its own attorneys'
fees and costs, witness expenses and court costs.
11. RELEASE. In connection with the performance of its obligations
under this Agreement (and conditioned upon its full performance thereof), the
Company may require Executive to execute a full release of claims against the
Company and its officers, directors, agents and affiliates covering such
matters and in such form as the Company shall prescribe.
12. TABLE OF CONTENTS; HEADINGS. The headings of the Sections of this
Agreement have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California but without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
14. CONFIDENTIALITY. In view of the fact that Executive's work as an
executive of the Company will bring Executive into close contact with many
confidential affairs of the Company, including matters of a business nature,
such as information about customers (including pricing information), costs,
profits, markets, sales strategic plans for future development and any other
information not readily available to the public, Executive hereby agrees:
14.1 To keep secret all confidential matters of the Company
(including without limitation such matters which the Company notifies
Executive are confidential) learned prior to the date of this Agreement and
in the course of Executive's employment hereunder, and not to disclose them
to anyone outside of the Company, either during or after Executive's
employment with the Company, or both, until such time as the Company gives
its written consent to such disclosure; and
14.2 To deliver promptly to the Company on termination of
Executive's employment by the Company or at any other time the Company may so
request, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Company's business which Executive may then
possess or have under Executive's control.
14.3 That as a means reasonably designed to protect certain
confidential information of the Company which would otherwise inherently be
utilized in the following proscribed activities, he will not: (a) for a period
of twelve (12) months following termination of services to the Company (the date
of termination being the "Termination Date"), solicit or make any other contact
with, directly or indirectly, any customer of the Company as of the Termination
Date with respect to the provision of any service to any such customer that is
the same or substantially similar to any service provided to such customer by
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<PAGE>
the Company on the Termination Date; or (b) for a period of six months
following the Termination Date, solicit or make any other contact with,
directly or indirectly, any employee of the Company on the Termination Date
(or any person who was employed by the Company at any time during the
three-month period prior to the Termination Date) with respect to any
employment, services or other relationship in connection with any service
that is the same or substantially similar to any service provided by the
Company as of the Termination Date.
14.4 That violation of this Section 14 would cause the Company
irreparable damage for which the Company cannot be reasonably compensated in
damages in an action at law, and therefore in the event of any breach or
threatened breach by Executive of this Section 14, the Company shall be
entitled to make application to a court of competent jurisdiction for
equitable relief by way of injunction or otherwise (without being required to
post a bond). This provision shall not, however, be construed as a waiver of
any of the rights which the Company may have for damages under this Agreement
or otherwise, and all of the Company's rights and remedies shall be
unrestricted and cumulative.
IN WITNESS WHEREOF, this Agreement has been executed as of the first day
set forth above.
ALLIANCE IMAGING, INC.
By:
-------------------------------------
Richard N. Zehner
Its: Chairman, President and Chief Executive Officer
Executive's
Signature:
------------------------------
Name of
Executive: Terrence M. White
Title of
Executive: Senior Vice President, Chief Financial
Officer & Secretary
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<PAGE>
AMENDED AND RESTATED
ALLIANCE IMAGING, INC.
LONG-TERM EXECUTIVE INCENTIVE PLAN
PREFACE
- -------
In order to provide the executive management team of Alliance Imaging, Inc. with
the opportunity for incentive compensation based upon meeting or exceeding
certain financial targets on which the December 31, 1994 restructuring of the
Company's balance sheet was based, the Compensation Committee of the Board of
Directors implemented the Long-Term Executive Incentive Plan effective as of
January 1, 1995. The Compensation Committee has amended and restated this plan
(LTIP) as of July 22, 1997.
The plan is structured to motivate the plan participants to exceed the minimum
cash flow targets agreed to by the lenders as sufficient to service their debt.
If management is able to exceed these cash flow thresholds, long-term incentives
would be earned. Additional incentive opportunity will be earned if the Company
is able to pay the Series A Preferred Stock dividends in cash, which would avoid
significant dilution to existing stockholders.
LONG-TERM EXECUTIVE INCENTIVE PLAN (LTIP)
- -----------------------------------------
- - EBDIT COMPONENT
- -----------------
The LTIP is based upon the Earnings Before Depreciation, Amortization, Interest,
Taxes and Equipment Charges under any asset management or similar arrangements
that the Company may have from time to time (EBDIT) in the financial model
presented to and accepted by the Company's lenders and Board of Directors, which
was utilized in the Company's December 31, 1994 balance sheet restructuring.
The EBDIT target utilized in the LTIP includes any charges related to the LTIP
(i.e., such target must be achieved after accrual of related LTIP charges).
For each fiscal year, the amount by which actual EBDIT exceeds the EBDIT Target
(as presented in the 1994 Debt Restructuring Model and shown in the following
table) is accrued into the incentive plan pool, up to a maximum of $225,000 in
each fiscal year, assuming the amounts are earned ratably during the four year
period. To the extent that the amounts are not earned ratably during the
period, the cumulative amount earned will be accrued in the year of cumulative
achievement. The first $125,000 (or such lesser amount) accrued each fiscal
year is deemed earned in recognition for achieving that year's goal. If the
cumulative EBDIT Target for 1995 through 1998 is met or exceeded, an additional
total amount of $400,000 is deemed earned in recognition of achievement of the
four-year goal.
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
000's 1995 1996 1997 1998 Total
- ------ ------- ------- ------- ------- -------
EBDIT - Per Debt Restructuring Model $19,770 $19,870 $19,575 $19,278 $78,493
------- ------- ------- ------- -------
</TABLE>
- - DIVIDEND COMPONENT
- --------------------
Additional incentive is earned for each year in which the Company is able to pay
Series A Preferred Stock dividends in cash rather than in common stock. If the
Company is able to pay such dividends in cash in any fiscal year, either by
generating sufficient EBDIT as described in the Company's loan agreements or by
raising funds through the sale of common stock at or above $4.00 per share net
proceeds to the Company, then the Fiscal Year Dividend Incentive Target of
$200,000 will be accrued into the incentive plan pool. If only a portion of
such dividends are paid in cash in any fiscal year, the incentive amount earned
shall be computed as follows:
Amount of dividends paid in cash
-------------------------------- X $200,000 = Fiscal Year Award Earned
Total dividends payable
For fiscal years 1995 through 1997, if Series A Preferred Stock dividends are
paid in cash using the proceeds from the sale of common stock at less than $4.00
per share net, then the annual incentive amount earned shall be reduced, as
follows: If the net proceeds from such sale of common stock are $2.50 per share
or less, no Dividend Incentive will be payable with respect to that portion of
the Series A Preferred Stock cash dividend payment. For net proceeds between
$2.50 and $4.00 per common share, a percentage of the Dividend Incentive will be
payable. Such percentage will be determined by dividing the amount by which the
net proceeds per common share exceed $2.50, by $1.50 (i.e., the difference
between $4.00 and $2.50 net proceeds per common share). For example, if the net
proceeds are $3.25 per common share, 50% of the Dividend Incentive would be
earned, computed as follows:
($3.25 - $2.50)
----------------------------------- = 50%
$1.50
After 1997, Series A Preferred Stock dividends may be paid in common stock at
the then current market value, as defined. Accordingly, for fiscal 1998, Series
A Preferred Stock dividends paid in common stock shall be deemed a sale of
common stock and any Dividend Incentive shall be computed as described above.
If all cumulative 1995 through 1998 Series A Preferred dividends are paid in
cash by generating sufficient EBDIT or utilizing funds from the sale or issuance
of Common Stock at not less than $4.00 per share net, an additional Cumulative
Dividend Incentive of $600,000 will be accrued into the incentive pool.
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PARTICIPANTS
- ------------
The current seven annual incentive plan participants are eligible to participate
in the Long-Term Incentive Plan and are the President and Chief Executive
Officer, Executive Vice President and Chief Operating Officer, Senior Vice
President and Chief Financial Officer, and four Senior Vice Presidents in charge
of regional operations. Any changes in participants or their shares must be
approved by the Compensation Committee. Participant shares are: President and
Chief Executive Officer - 25%, Executive Vice President and Chief Operating
Officer - 20%, Senior Vice President and Chief Financial Officer - 15% and
specified Regional Vice Presidents - 40% in total, not to exceed 10% for any
individual Regional Vice President. (In the event the participation percentages
total less than 100%, the unallocated amount will remain with the Company.)
PAYMENT
- -------
Any amounts earned under this incentive plan will be calculated and paid by
March 31, 1999. Payment shall be made in cash.
VESTING
- -------
A participant must be actively employed by the Company on the payment date to
receive any payment under this plan. Exceptions are involuntary termination
without cause, voluntary termination for "good reason" or "constructive
discharge" as defined in the participant's employment agreement, death or
disability, in which case the participant receives a pro rata share of total
plan achievement. Newly authorized participants, if any, receive a pro rata
share of the pool at their designated percentage from the date of approval for
participation to the end of fiscal 1998. Voluntary terminations (other than
voluntary termination for "good reason" or "constructive discharge" as defined
in the participant's employment agreement) and terminations with cause result in
forfeiture of all rights to any payment under this plan. Any undistributed
amounts in the pool as a result of such terminations revert to the Company.
CHANGE OF CONTROL
- -----------------
In the event of a transaction that results in a change of control of the Company
as defined in the participant's employment agreement in effect on July 21, 1997,
LTIP earnings to the date of the closing will be calculated and paid in cash to
the executive at the closing. Following the closing, the participant will
continue to participate in the plan and is eligible to earn his/her remaining,
unearned and unpaid share of the pool, subject to the terms and other conditions
of the plan.
Cumulative EBDIT versus cumulative target, and cash payment of dividends from
EBDIT and qualifying sales of common stock, are calculated pro rata for the
period the plan was in existence. For example, if the Company is sold as of
December 31, 1996
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<PAGE>
and cumulative EBDIT earnings are equal to the cumulative target for the first
two years, then 50% of the $400,000 cumulative incentive will be earned prior
to the closing of the sale. The same methodology would be used in determining
the Fiscal Year and the Cumulative Dividend Targets earned.
ADMINISTRATION
- --------------
This plan is administered and interpreted at the sole discretion of the
Compensation Committee of the Board of Directors and all participants agree to
be bound by their decisions.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,817
<SECURITIES> 0
<RECEIVABLES> 9,207
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,077
<PP&E> 138,729
<DEPRECIATION> 48,953
<TOTAL-ASSETS> 143,270
<CURRENT-LIABILITIES> 33,934
<BONDS> 60,930
0
18,388
<COMMON> 109
<OTHER-SE> 22,871
<TOTAL-LIABILITY-AND-EQUITY> 143,270
<SALES> 0
<TOTAL-REVENUES> 39,911
<CGS> 0
<TOTAL-COSTS> 17,815
<OTHER-EXPENSES> 12,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,557
<INCOME-PRETAX> 6,240
<INCOME-TAX> 2,125
<INCOME-CONTINUING> 4,115
<DISCONTINUED> 0
<EXTRAORDINARY> 1,332
<CHANGES> 0
<NET-INCOME> 5,447
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
