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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-16334
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ALLIANCE IMAGING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State of Incorporation) (IRS Employer Identification
Number)
1065 NORTH PACIFICENTER DRIVE, SUITE 200, ANAHEIM, CALIFORNIA 92806
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 688-7100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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, as amended, 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 / / No /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K Section 229.405 of Title 17, Code of Federal Regulations
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 19, 1999 (computed by reference to the last reported sale
price of registrant's common stock on such date): $9,666,913.
Number of shares outstanding of each of the registrant's classes of common
stock as of March 19, 1999: Common Stock, $.01 par value, 4,072,611 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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PART I
ITEM 1. BUSINESS.
GENERAL
Alliance Imaging, Inc. (the "Company") is a leading nationwide provider of
diagnostic imaging and therapeutic services and the largest operator of
state-of-the-art mobile diagnostic imaging systems and related outsourced
radiology services in the United States. Unless the context otherwise requires,
the term "Company" as used in this Form 10-K Annual Report refers to Alliance
Imaging, Inc., and its direct and indirect subsidiaries. The Company's
diagnostic imaging services include magnetic resonance imaging ("MRI"), computed
axial tomography ("CT"), nuclear medicine single photon emission computed
tomography ("SPECT") camera and ultrasound systems. The Company's therapeutic
services include lithotripsy, brachytherapy and microwave thermotherapy systems.
For the year ended December 31, 1998, 87.5% of the Company's revenues were
derived from MRI services.
The Company primarily provides MRI systems and services to hospitals and
other health care providers on a mobile, shared-user basis. The Company also
provides fixed, full-time MRI systems and services, as well as full-service
management of imaging operations for selected hospitals. The Company's MRI
services include the provision of high technology diagnostic imaging systems,
technologists to operate the imaging systems, equipment maintenance and
upgrades, the management of day-to-day operations, educational and marketing
support, patient scheduling, billing and collection services, managed care
contracting and professional liability insurance coverage. The Company's
services enable small to mid-size hospitals to gain access to advanced
diagnostic imaging technology and related value-added services without making a
substantial investment in equipment and personnel.
OPERATIONS
CUSTOMER BASE. The Company believes that many hospitals and other health
care providers require access to MRI services to remain competitive in the
health care marketplace. Regulatory and licensing requirements in many states
may also limit access to MRI systems. In addition, many health care providers
lack sufficient patient volume or financial resources to justify the purchase of
an MRI system. Such providers contract for mobile, shared-user systems or
single-user, full-time systems to gain access to MRI technology and to provide
comprehensive MRI services to their patients. In addition, many health care
providers, regardless of whether their patient utilization levels and financial
resources justify the purchase of an MRI system, prefer to contract with the
Company for full-time or shared-user imaging systems to (i) obtain the use of an
MRI system without any capital investment or financial risk; (ii) retain the
ability to switch system types and avoid technological risk; (iii) obtain MRI
services in jurisdictions in which the use of the Company's services facilitates
the procurement of regulatory approvals; (iv) avoid future uncertainty as to
reimbursement policies; (v) eliminate the need to recruit, train and manage
qualified technologists; (vi) outsource their entire MRI service to obtain
management expertise; or (vii) provide additional imaging services when patient
demand exceeds their in-house capability.
The Company's MRI services, which include imaging systems, technologists and
support services, are provided on both a mobile, shared-user basis and on a
full-time basis to single customers. As of December 31, 1998, the Company
provided imaging systems and related technologists and support services to 1,028
customers (873 for MRI services, 107 for CT services, and 136 for other imaging
and therapeutic modalities; some customers contract for multiple modalities)
consisting primarily of small to mid-sized hospitals (i.e., hospitals with
50-200 beds). The Company believes that many of such hospitals lack the patient
volume or financial resources to justify the purchase of an MRI system. As of
December 31, 1998, the Company provided services and equipment to customers in
44 states.
Typically, the Company's MRI systems are contracted on average for five to
six days a week. The Company believes that as customers become familiar with the
basic or expanded technology and its
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applications, the corresponding MRI system's rate of usage generally increases,
causing the number of scans per day to increase and eventually leading to
requests for additional days of usage.
CONTRACT TERMS. Contract fees are charged on a fee-per-scan, fee-per-day or
fee-per-month basis (with numerous variations within each billing method to
accommodate particular customers' needs). Generally, the Company provides
technologists under contracts billed on a fee-per-scan or fee-per-day basis but
not under contracts billed on a fee-per-month basis. Although a typical contract
offers daily flat-rate options, most customers currently pay on a fee-per-scan
basis. The amount of fees paid on this basis depends upon the type of imaging
system provided, the term of the contract, the types and number of scans
performed as well as the day of the week on which scans are performed. The
contracts typically allow the Company to reduce the number of days of service
provided based upon the customer's scan volume, or to terminate the contract if
the Company is unable to realize a profit on the services provided. The Company
typically enters into exclusive, one to eight year contracts that include
automatic renewal provisions. In addition, the Company's sales representatives
consistently seek to renew and extend contracts prior to expiration.
SYSTEMS. At December 31, 1998, the Company operated 244 MRI systems, 21 CT
systems, 11 nuclear medicine SPECT camera systems, 10 lithotripsy systems and 18
other diagnostic imaging and therapeutic systems. Of the 244 MRI systems, 191
are state-of-the-art, high-field 1.0 or 1.5 Tesla systems and 53 are
state-of-the-art, mid-field 0.5 Tesla systems. These systems are designed to
facilitate hardware and software upgrades. As a result, the Company's systems
should remain at the leading edge of technological developments. Further, of the
244 MRI systems, 229 are housed in mobile coaches and 15 are housed in
relocatable modular buildings on hospital campuses or installed in the hospital
facility. Substantially all of the imaging systems are owned by the Company.
The Company orders substantially all of its imaging systems from major
medical device manufacturers, primarily General Electric Medical Systems,
Siemens Medical Systems and Picker International. Generally, the Company orders
its imaging systems from such major manufacturers while simultaneously
contracting with health care providers for their use, thereby reducing the
Company's system utilization risk. The Company's MRI systems are installed in
specially-designed trailers or relocatable, modular buildings. The trailers and
relocatable modular buildings are designed jointly by the imaging system
manufacturer and the housing manufacturer and are designed to provide image
quality identical to those installed in hospital facilities.
FLEET MANAGEMENT. The Company seeks to maximize cash flow and return on
assets by actively managing its fleet to maximize utilization. The Company
employs logistics management systems and redeploys or trades in older MRI
systems when it purchases new MRI systems. MRI systems are currently scheduled
for as little as one-half day and up to seven days per week at any particular
facility. Generally, technologists and a driver are assigned to each of the
mobile operating systems. Movement of the systems typically occurs at night via
a fleet of Company-owned or leased tractors or via third party vendors. The
drivers move the systems and activate them upon arrival at each imaging site so
that the systems are operational when the Company's technologists arrive on the
following scheduled imaging day.
REGIONAL MANAGEMENT. The Company's eight regional offices market, manage
and staff the operation of its imaging systems. The Company's regional offices
are located in Anaheim and Walnut Creek, California; Pittsburgh, Pennsylvania;
Chicago, Illinois; Colorado Springs, Colorado; Cleveland, Ohio; Berlin,
Connecticut; and Macon, Georgia. Each region has individuals responsible for
sales and operations management.
LICENSING AND JCAHO ACCREDITATION. Hospitals with which the Company has
contracted are subject to a variety of regulations and standards of state
licensing and other authorities and accrediting bodies such as the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"). As an outside
vendor, the Company may be required to comply with such regulations and
standards to enable the
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hospitals with which it has contracted to maintain their permits, approvals and
accreditation. Each of the Company's regions has been awarded accreditation by
the JCAHO for its MRI, CT, lithotripsy and SPECT services.
CUSTOMER SUPPORT
As part of its full service package, the Company provides several levels of
support to a hospital or health care provider. The Company's technologists who
staff the MRI systems regularly work with the hospital radiologists, referring
physicians and nursing staff to perform the scans. The technologists also work
with regional technical advisors who are specialists in MRI technology and
consult on specialized technical problems, hold periodic training sessions for
the technologists, radiologists, referring physicians and health care customers
and provide problem-solving services. These specialists play a central role in
the Company's retention of accounts and building of scan volumes. Management
believes that targeted direct marketing at each hospital with assigned
responsibility for support services is a key element for broadening the
awareness of MRI technology, building scan volume and obtaining contract
renewals.
SALES AND MARKETING
At December 31, 1998, the Company's sales force consisted of 15 members who
identify and contact candidates for the Company's services, each with the
overall management and sales responsibility for a specific region of the
country. Direct marketing plays a primary role in the Company's development of
new customers. The Company also employs 40 marketing representatives who develop
scan volumes at existing and new customer locations by introducing the Company's
services to referring physicians and keeping such physicians apprised of the
Company's service capabilities. In addition, certain of the Company's executive
officers and regional vice presidents spend a portion of their time marketing
the Company's services. The Company believes that having senior managers
involved in sales and contract negotiations enhances its ability to obtain new
and retain existing customers.
MAINTENANCE
For its MRI and CT systems, the Company primarily relies upon the
manufacturer to provide maintenance and service under warranties and service
contracts. These service contracts require the Company to pay fixed monthly fees
or variable fees on a risk-sharing basis.
Timely, effective service is essential to maintaining high utilization rates
on the Company's MRI systems. If the Company experiences greater than
anticipated malfunctions of its equipment or if it is unable to promptly obtain
the service necessary to keep its systems functioning effectively, its business
could be adversely affected.
The Company contracts with the MRI equipment manufacturers for comprehensive
maintenance programs on its systems to minimize downtime (the period of time
equipment is unavailable during scheduled use hours because of malfunctions).
These maintenance contracts commence upon the expiration of the applicable
warranty period. The systems are generally warranted by the systems manufacturer
for a specified period of time, usually one year to eighteen months from the
date of purchase. During the warranty period and maintenance contract term, the
Company receives uptime guarantees (a guarantee that equipment will function for
a specified percentage of scheduled use hours). However, these guarantees are
not expected to substantially compensate the Company for loss of revenue for
downtime.
REIMBURSEMENT
Most of the Company's revenues are derived directly from health care
providers rather than from private insurers, other third party payors or
governmental entities. Consequently, the Company historically has not had
material direct exposure to, or direct connection with, patient billing,
collections or reimbursement by insurance companies, other third parties or
Medicare. However, a small portion of the Company's
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revenues are generated from direct billings to patients or their third party
payors which are recorded net of contractual discounts and other arrangements
for providing services at less than established patient billing rates. Net
revenues from direct patient billing amounted to approximately 12.2% of the
Company's revenue in 1998.
Most private health care insurers, including various Blue Cross and Blue
Shield Plans, reimburse approximately 70% to 100% of the health care provider's
charge for MRI and CT scans. Such insurers may impose limits on reimbursement
for imaging services or deny reimbursement for tests that do not follow
recommended diagnostic procedures. Because patient reimbursement may indirectly
affect the levels of fees the Company can charge its customers by constricting
the health care providers' profit margin, widespread application of restricted
or denied reimbursement schedules could adversely affect the Company's business.
Conversely, at lower reimbursement rates, a health care provider might find it
financially unattractive to own an MRI or CT system, but could benefit from
purchasing the Company's services.
Congress has attempted to restrict rising federal reimbursement costs under
the Medicare program by setting predetermined payment amounts for reimbursement
of inpatient services according to each patient's diagnosis related group
("DRG"). Because a DRG rate compensates a hospital for all services rendered to
a patient, a hospital cannot be separately reimbursed by Medicare for an MRI
scan or other procedure performed on an inpatient. DRG payment rates for
inpatient services became effective in the early 1980's and have been adjusted
downward since then. Currently, those payment rates are not applicable to
outpatient services; instead, Medicare reimbursement for imaging services
furnished in a hospital outpatient setting is subject to alternative, generally
more favorable, payment limits tied to the physician fee schedule described
below. As described below, the Budget Reconciliation Act for 1998 mandates
implementation of a prospective payment system for hospital outpatient services.
Because payments have generally been less restricted in non-hospital
outpatient settings, in prior years there has been rapid growth in MRI systems
at non-hospital free-standing facilities, which provide outpatient services. The
U.S. Department of Health and Human Services ("HHS"), as required by statute,
has issued fee schedules for reimbursing physicians who treat Medicare patients.
Under these fee schedules, physician reimbursement for professional services is
based on a set of values assigned to each service provided by a physician. The
fee schedules also generally apply to reimbursement for technical services (such
as those provided by the Company) except in limited circumstances. There can be
no assurance that Medicare payments will remain comparable to present levels.
The fee schedule assigns relative value units ("RVUs") for various medical
procedures, including MRI scans. The 1994 amendments to the Social Security Act
and the 1997 Balanced Budget Act, required HHS to implement a new system for
RVUs attributable to practice expenses, with the intent of making such RVUs
reflect the relative costs actually incurred in providing various services. The
new RVUs are to be phased in over a four-year period beginning 1999. On November
2, 1998 HHS issued new RVUs, including those for MRI services; the RVUs for MRI
services are not materially different from those previously in effect.
The 1998 Budget Reconciliation Act requires HHS to adopt and implement a
prospective payment system for hospital outpatient services beginning in 1999.
HHS has announced that because of the resources it is devoting to Y2K issues it
will not implement a prospective payment system for hospital outpatient services
until January 1, 2000 or later. On September 8, 1998 it issued proposed
regulations to effectuate prospective payments for hospital outpatient services.
The proposed rates could result in hospitals receiving significantly less
Medicare reimbursement for MRI services performed for Medicare outpatients
compared with reimbursement levels that would have prevailed absent any change
in law. The Company believes that approximately 15-20% of its hospital
customers' MRI revenues are derived from Medicare patients.
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REGULATION
Many aspects of the health care industry in the United States, including the
Company's business, are subject to extensive federal and state government
regulation. Although the Company believes that its operations comply with
applicable regulations, there can be no assurance that subsequent adoption of
laws or interpretations of existing laws will not regulate, restrict or
otherwise adversely affect the Company's business.
The marketing and operation of the Company's MRI and CT systems are subject
to state laws prohibiting the practice of medicine by non-physicians and the
rebate or division of fees between physicians and non-physicians. Management
believes that its operations do not involve the practice of medicine because all
professional medical services relating to its operations, such as the
interpretation of the scans and related diagnoses, are separately provided by
licensed physicians not employed by the Company. Further, the Company believes
that its operations do not violate state laws with respect to the rebate or
division of fees.
The Company is subject to federal and state laws, which govern financial and
other arrangements between health care providers. These include the federal
Medicare and Medicaid anti-kickback statutes which prohibit bribes, kickbacks,
rebates and any other direct or indirect remuneration in return for or to induce
the referral of an individual to a person for the furnishing, directing or
arranging of services, items or equipment for which payment may be made in whole
or in part under the Medicare, Medicaid or other federal health care programs.
Violation of the anti-kickback statute may result in criminal penalties and
exclusion from the Medicare and other federal health care programs. Many states
have enacted similar statutes, which are not necessarily limited to items, and
services paid for under the Medicare or a federally funded health care program.
In recent years, there has been increasing scrutiny by law enforcement
authorities, HHS, the courts and Congress of financial arrangements between
health care providers and potential sources of patient and similar referrals of
business to ensure that such arrangements are not designed as mechanisms to pay
for patient referrals. HHS interprets the anti-kickback statute broadly to apply
to distributions of partnership and corporate profits to investors who refer
federal health care program patients to a corporation or partnership in which
they have an ownership interest, and to payments for service contracts and
equipment leases that are designed to provide direct to indirect remuneration
for patient referrals or similar opportunities to furnish reimbursable items or
services. In July 1991, HHS issued "safe harbor" regulations that set forth
certain provisions which, if met, will assure that health care providers and
other parties who refer patients or other business opportunities, or who provide
reimbursable items or services, will be deemed not to violate the anti-kickback
statute. The Company is also subject to separate laws governing the submission
of false claims. The Company is a party to seven partnerships for the provision
of MRI services. The Company believes that the partnerships are in compliance
with the anti-kickback statute. The Company believes that its other operations
likewise comply with the anti-kickback statutes.
A federal law, commonly known as the "Stark Law", also imposes civil
penalties and exclusions for referrals for "designated health services" by
physicians to certain entities with which they have a financial relationship
subject to certain exceptions. "Designated health services" include, among
others, MRI services. While implementing regulations have been issued relating
to referrals for clinical laboratory services, only proposed, but not final,
regulations have been issued regarding the other designated health services,
including MRI services. In addition, several states in which the Company
operates have enacted or are considering legislation that prohibits "physician
self-referral" arrangements or requires physicians to disclose any financial
interest they may have with a health care provider to their patients to whom
they recommend that provider. Possible sanctions for violating these provisions
include loss of licensure and civil and criminal sanctions. Such state laws vary
from state to state and seldom have been interpreted by the courts or regulatory
agencies. Nonetheless, strict enforcement of these requirements is likely. The
Company believes its operations comply with these federal and state physician
self-referral laws.
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In some states, a certificate of need ("CON") or similar regulatory approval
is required prior to the acquisition of high-cost capital items, including
diagnostic imaging systems or provision of diagnostic imaging services by the
Company or its customers. CON regulations may limit or preclude the Company from
providing diagnostic imaging services or systems. A significant increase in the
number of states regulating the Company's business within the CON or state
licensure framework could adversely affect the Company. Conversely, repeal of
existing CON regulations in jurisdictions where the Company has obtained or
operates under a CON could also adversely affect the Company. This is an area of
continuing legislative activity, and there can be no assurance that the Company
will not be subject to CON and licensing statutes in other states in which it
operates or may operate in the future.
LIABILITY INSURANCE
While the Company's imaging systems are at a customer's facility, they
operate only under the direction of licensed physicians on the customer's staff
who direct the procedures, supervise the Company's technologists and interpret
the results of the examinations. Currently, there are no known biological
hazards associated with MRI. However, there is a risk of harm to a patient who
has a ferrous material or certain types of cardiac pacemakers within his or her
body. Patients are carefully screened to safeguard against this risk. To protect
against possible exposure for professional liability, the Company maintains
professional liability insurance.
COMPETITION
The market for diagnostic imaging services and imaging systems is highly
competitive. In addition to direct competition from other mobile providers, the
Company competes with free-standing imaging centers and health care providers
that have their own diagnostic imaging systems and with equipment manufacturers
that sell or lease imaging systems to health care providers for full-time
installation. Some of the Company's direct competitors which provide contract
MRI services may have access to greater financial resources than the Company. In
addition, some of the Company's customers are capable of providing the same
services to their patients directly, subject only to their decision to acquire a
high-cost diagnostic imaging system, assume the associated financial risk,
employ the necessary technologists and satisfy applicable licensure and CON
requirements, if any. The Company competes against other MRI service providers
on the basis of quality of services, quality and magnetic field strength of
imaging systems, price, availability and reliability.
EMPLOYEES
As of December 31, 1998, the Company had 1,647 employees, of whom
approximately 619 were trained diagnostic imaging technologists, patient
coordinators or other technical support staff. None of the Company's employees
are represented by a labor organization and the Company is not aware of any
activity seeking such organization. The Company considers its relations with its
employees to be satisfactory.
COMPANY HISTORY
The Company's predecessors, an English partnership and an affiliated
California corporation, began operation in 1983 by providing mobile CT services
in southern California. Mobile MRI services commenced in 1985. The Company's
predecessors were merged into Alliance Imaging plc, an English public limited
company, in 1985. The Company was incorporated in Delaware in May 1987 and in
July 1987 acquired all the outstanding stock of Alliance Imaging plc.
The Company's common stock was publicly traded from August 1987 until
November 1988, when the Company was acquired in a going-private transaction. In
November 1991, the Company completed its second initial public offering of
common stock. At a Special Meeting of the Stockholders held on
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December 17, 1997, the Company's stockholders approved the Recapitalization
Merger (as hereinafter defined) pursuant to which affiliates of Apollo
Management, L.P. ("Apollo") acquired control of the Company.
RECENT ACQUISITIONS
On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI"), a
Los Angeles, California based provider of mobile MRI services, CT services and
other outsourced health care services. The MTI acquisition added 68 MRI systems,
3 CT systems, 9 lithotripsy systems, and 3 brachytherapy systems to the
Company's equipment fleet. The purchase price consisted of $58.3 million in cash
plus direct acquisition costs of approximately $2.0 million. In connection with
the acquisition, the Company also refinanced $37.4 million of MTI's outstanding
debt and paid MTI direct transaction costs of $3.5 million.
On May 19, 1998, the Company acquired Medical Diagnostics, Inc. ("MDI"), a
Wilmington, Massachusetts based subsidiary of U.S. Diagnostic, Inc. The MDI
acquisition added 10 MRI systems (8 mobile and 2 fixed site) and 3 nuclear
medicine SPECT camera systems to the Company's equipment fleet. The purchase
price consisted of approximately $31 million in cash and the assumption of
approximately $7.4 million in financing arrangements.
On November 13, 1998, two wholly owned subsidiaries of the Company acquired
all of the outstanding common stock of CuraCare, Inc. and all of the partnership
interests in American Shared-CuraCare (collectively, "American Shared") both of
which were operating subsidiaries of San Francisco, California based American
Shared Hospital Services ("ASHS"). This acquisition added 28 MRI systems, 14 CT
systems, 1 nuclear medicine SPECT camera system and 8 ultrasound systems to the
Company's equipment fleet. The purchase price included approximately $13.4
million in cash and the assumption of approximately $12.2 million in financing
arrangements, after retiring approximately $13.1 million in outstanding
indebtedness.
ITEM 2. PROPERTIES.
The Company leases an aggregate of approximately 33,600 square feet of space
in two office buildings in Anaheim, California for its executive and principal
administrative offices. The Company also leases a 15,600 square foot operations
warehouse in Orange, California, as well as space for its other regional
offices.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is involved in routine litigation incidental
to the conduct of its business. The Company believes that no litigation pending
against it will have a material adverse effect on its consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was traded on the Nasdaq SmallCap Market under
the symbol SCAN until shortly after the Recapitalization Merger in December,
1997. The Company's Common Stock is currently traded on the over-the-counter
("OTC") bulletin board market. The high and low prices as reported on the Nasdaq
SmallCap Market and OTC bulletin board market are set forth below for the
respective time periods. As of March 11, 1999, there were 21 record holders and
approximately 160 beneficial holders of the Company's Common Stock.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -------------
HIGH LOW HIGH LOW HIGH
----------- ----- ----------- ----- ------
<S> <C> <C> <C> <C> <C>
First Quarter............................................ 191/2 113/4 83/8 53/4 41/8
Second Quarter........................................... 20 16 105/8 65/8 61/8
Third Quarter............................................ 193/4 17 111/8 10 63/8
Fourth Quarter........................................... 25 16 113/16 101/2 515/16
<CAPTION>
LOW
-----
<S> <C>
First Quarter............................................ 27/8
Second Quarter........................................... 313/16
Third Quarter............................................ 37/8
Fourth Quarter........................................... 45/8
</TABLE>
The Company has never paid any cash dividends on its common stock and has no
current plans to do so. The Company intends to retain available cash to provide
for the operation of its business, including capital expenditures, and to fund
future acquisitions. The Company's Amended and Restated Credit Agreement and the
Indenture governing its Senior Subordinated Notes and Senior Subordinated
Floating Rate Notes restrict the payment of cash dividends on the Company's
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data, except as noted herein,
has been taken or derived from the audited consolidated financial statements of
the Company and should be read in conjunction with the full consolidated
financial statements included herein.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues..................................................... $ 199,401 $ 86,474 $ 68,482 $ 58,065 $ 57,875
Costs and expenses:
Operating expenses, excluding depreciation................. 97,187 38,997 32,344 28,342 31,093
Depreciation expense....................................... 26,961 15,993 12,737 12,202 13,424
Selling, general and administrative expenses............... 19,095 8,857 8,130 6,294 6,284
Amortization expense, primarily goodwill................... 8,010 2,426 1,952 1,345 943
Interest expense, net...................................... 35,488 7,808 5,758 5,053 10,758
Transaction related costs.................................. 2,818 -- -- -- --
Recapitalization merger costs.............................. -- 16,350 -- -- --
Asset impairment and other special charges................. -- -- -- -- 13,339
--------- --------- --------- --------- ---------
Total costs and expenses................................... 189,559 90,431 60,921 53,236 75,841
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary gain
(loss)..................................................... 9,842 (3,957) 7,561 4,829 (17,966)
Provision for income taxes................................... 4,973 1,700 1,060 727 1,100
--------- --------- --------- --------- ---------
Income (loss) before extraordinary gain (loss)............... 4,869 (5,657) 6,501 4,102 (19,066)
Extraordinary gain (loss), net of taxes...................... (2,271) 1,849 6,300 -- --
--------- --------- --------- --------- ---------
Net income (loss)............................................ $ 2,598 $ (3,808) $ 12,801 $ 4,102 $ (19,066)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share:
Income (loss) before extraordinary gain (loss)............... $ 0.66 $ (0.41) $ 0.67 $ 0.30 $ ( 2.68)
Extraordinary gain (loss), net of taxes...................... (0.56) 0.17 0.58 -- --
--------- --------- --------- --------- ---------
Net income (loss) per common share........................... $ 0.10 $ (0.24 (1) $ 1.25 $ 0.30 $ (2.68)(4)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share--assuming dilution:
Income (loss) before extraordinary gain (loss)............... $ 0.63 $ (0.41) $ 0.63 $ 0.28 $ (2.68)
Extraordinary gain (loss), net of taxes...................... (0.53) 0.17 0.55 -- --
--------- --------- --------- --------- ---------
Net income (loss) per common share--assuming dilution........ $ 0.10 $ (0.24 (1) $ 1.18 $ 0.28 $ (2.68)(4)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets................................................. $ 456,166 $ 193,655 $ 128,510 $ 103,327 $ 102,527
Long-term debt............................................... 246,247 42,874 68,110(2) 50,049 52,314
Senior subordinated debentures (long-term portion)........... 185,000 185,000 4,592(3) 15,883 16,633
Redeemable preferred stock................................... 16,673 14,487 4,694(3) 16,430 15,500
</TABLE>
- ------------------------------
(1) Includes $1.23 net loss per common share for costs associated with the
Recapitalization Merger.
(2) Long-term debt of $12,872 plus $5,128 used to repurchase senior subordinated
debt and redeemable preferred stock on January 2, 1997 was converted to
preferred stock in March 1997.
(3) The 1996 balance of senior subordinated debentures and redeemable preferred
stock was repurchased by the Company on January 2, 1997 for $5,128.
(4) Includes $1.94 net loss per common share for special charges.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company is a leading nationwide provider of diagnostic imaging and
therapeutic services and the largest operator of state-of-the-art mobile
diagnostic imaging systems and related outsourced radiology services in the
United States. The Company's diagnostic imaging services include MRI, CT, SPECT
camera and ultrasound systems. The Company's therapeutic services include
lithotripsy, brachytherapy, and microwave thermotherapy systems. The Company
primarily provides MRI and CT systems and services to hospitals and other health
care providers on a mobile, shared user basis. The Company also provides
dedicated, full-time MRI systems and services as well as full-service management
of imaging operations for selected hospitals. The Company's MRI services include
the provision of high technology diagnostic imaging systems, technologists to
operate the imaging systems, equipment maintenance and upgrades, the management
of day-to-day operations, educational and marketing support, patient scheduling,
billing and collection services, managed care contracting and professional
liability insurance. The Company's services enable small to mid-size hospitals
to gain access to advanced diagnostic imaging technology and related value-added
services without making a substantial investment in equipment and personnel. The
Company operates a fleet of 244 MRI systems and services 1,028 customers in 44
states as of December 31, 1998.
The Company's revenues are principally a function of the number of systems
in service, scan volumes and fees per scan. The Company generates substantially
all of its revenues under exclusive one to eight-year contracts with hospitals
and health care providers. The Company's contracts typically offer tiered
pricing with lower fees per scan on incremental scans, allowing customers to
benefit from increased scan volumes and the Company to benefit from the
operating leverage associated with increased scan volumes. The Company expects
modest continuing downward pressure on pricing levels as a result of cost
containment measures in the health care industry. However, in many cases higher
scan volumes justify lower prices on incremental scans.
The principal components of the Company's operating costs include salaries
paid to technologists and drivers, annual system maintenance costs, insurance
and transportation costs. Because a majority of these expenses are fixed,
increased revenues as a result of higher scan volumes significantly improve the
Company's profitability while lower scan volumes result in lower profitability.
Since the beginning of 1995, the Company has substantially increased
revenues by adding new customers and increasing scan volumes at existing
customer sites. The Company has also substantially increased revenue through
acquisitions. During the same period, the growth rate of the Company's EBITDA
(income before income taxes, plus depreciation, amortization and net interest
expense), excluding expenses associated with the Recapitalization Merger (as
hereinafter defined), has exceeded the growth rate of revenues as a result of
spreading costs (which are primarily fixed) over a larger revenue base and
implementing cost reduction and containment measures.
The Company has historically focused on maximizing cash flow and return on
invested capital nationwide, deploying new and upgraded systems in high volume
markets and redeploying older, less advanced systems with lower carrying values
in lower volume markets. The Company's ongoing equipment trade-in and upgrade
program has substantially improved the marketability and productivity of its MRI
systems. Because the Company owns substantially all of its MRI systems, it
periodically evaluates its older, less marketable MRI systems to determine if it
is more beneficial to continue to use such systems in lower volume markets which
are profitable but produce less revenue, or to trade in such equipment in
connection with new system purchases. The Company currently maintains one of the
most advanced fleets in the industry.
Revenues from CT services, lithotripsy services, SPECT camera services, and
other imaging services accounted for approximately 7% of the Company's revenues
for the year ended December 31, 1998.
11
<PAGE>
On November 21, 1997, the Company acquired Medical Consultants Imaging Co.
("MCIC"), a Cleveland, Ohio based provider of mobile MRI services, CT services
and other outsourced health care services. The acquisition also included MCIC's
one-half interest in a limited liability company in Michigan. The purchase price
consisted of $12.3 million cash plus the assumption of approximately $5.5
million in financing arrangements. MCIC operated 14 mobile MRI systems and
several other diagnostic imaging systems, primarily in Ohio, Michigan, Indiana
and Pennsylvania.
On December 18, 1997, after obtaining the approval of stockholders, the
Company completed a series of transactions contemplated by an Agreement and Plan
of Merger between Newport Investment LLC (the "Investor") and the Company (the
"Recapitalization Merger") whereby the Company: obtained proceeds from debt
financing aggregating $215.0 million; issued 150,000 shares of non-voting
redeemable Series F preferred stock to the Investor for proceeds of $15.0
million; issued 3,632,222 shares of its common stock in exchange for all of the
outstanding stock of Newport Acquisition Corporation, a subsidiary of the
Investor, and received net proceeds of $40.0 million from cash placed into
Newport Acquisition Corporation by the Investor; and converted all shares of its
common stock held by existing stockholders in excess of 411,358 shares that were
retained by electing existing stockholders into the right to receive $11 in
cash.
As a result of these transactions, the Company experienced an approximate
90% ownership change. The Investor, which was formed and is wholly owned by
certain affiliates of Apollo obtained ownership of approximately 83.6% of the
Company's outstanding common stock, and the Company became highly leveraged.
On March 12, 1998, the Company acquired MTI, which management believes was
the second largest provider of mobile MRI services in the United States, in a
transaction accounted for as a purchase. The Company has included the operations
of MTI in its consolidated financial statements from the date of acquisition.
This acquisition added 68 MRI systems operating in 31 states, 3 CT systems, 9
lithotripsy systems, and 3 brachytherapy systems to the Company's equipment
fleet. The purchase price consisted of $58.3 million for all of the equity
interests in MTI plus direct acquisition costs of approximately $2.0 million. In
connection with the acquisition, the Company also refinanced $37.4 million of
MTI's outstanding debt and paid MTI direct transaction costs of $3.5 million. To
finance these expenditures, the Company increased its existing term loan
facility by $20.0 million to provide total availability of $70.0 million,
established a new $50.0 million term loan facility and borrowed an aggregate of
$90.0 million thereunder, for which the Company incurred debt issuance costs of
approximately $2.8 million. The Company also borrowed $5.4 million under its
revolving loan facility and used $8.5 million of cash on hand at MTI to complete
the financing requirements. The goodwill recorded as a result of this
acquisition was $6.0 million which is being amortized on a straight-line basis
over 20 years. Additionally, the Company assigned $67.2 million of purchase
price to customer contracts and $2.9 million of purchase price to assembled work
force. The amounts are being amortized on a straight-line basis over 20 and four
years respectively. The allocation of the intangible assets acquired was based
on an independent valuation study.
On May 19, 1998, the Company acquired MDI, a subsidiary of U. S. Diagnostic,
Inc. The purchase price consisted of approximately $31.0 million plus the
assumption of approximately $7.4 million in financing arrangements. The Company
borrowed $30.0 million under its revolving loan facility to finance the
transaction. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of MDI have been included in the
Company's consolidated financial statements from the date of acquisition. The
goodwill recorded as a result of this acquisition was $17.2 million which is
being amortized on a straight-line basis over 20 years. Additionally, the
Company assigned $8.3 million of purchase price to customer contracts and $0.4
million of purchase price to assembled work force. The amounts are being
amortized on a straight-line base over 20 and four years respectively. The
allocation of the intangible assets acquired was based on an independent
valuation study.
On November 13, 1998, the Company acquired American Shared. The purchase
price consisted of approximately $13.4 million in cash plus the assumption of
approximately $12.2 million in financing
12
<PAGE>
arrangements. In connection with the acquisition, the Company also refinanced
$13.1 million of American Shared's outstanding debt. The Company borrowed $30.0
million under a new tranche C term loan facility to finance the transaction. The
transaction has been accounted for as a purchase and, accordingly, the results
of operations of American Shared have been included in the Company's
consolidated financial statements from the date of acquisition. The goodwill
recorded as a result of this acquisition was approximately $30.4 million which
is being amortized on a straight-line basis over 20 years. The allocation of the
American Shared purchase price is tentative pending completion of fair value
determinations for the net assets acquired. The allocation may change with the
completion of these determinations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues for 1998 were $199.4 million, an increase of $112.9 million, or
130.6%, over 1997, primarily due to the MTI and MDI acquisitions. The remaining
increase reflects higher scan-based MRI revenue, MRI revenue under fixed fee
contracts and other revenue items (including revenue for other modalities).
Overall, MRI revenue increased $94.9 million, as a result of a 121.3% increase
in total scan volume partially offset by a 0.67% decrease in the average revenue
realized per MRI scan. The average daily scan volume per MRI system increased
15.3% to 8.3 from 7.2 in 1997. Management attributes the non-acquisition 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 continuing positive effect of marketing programs
implemented in early 1997. Management believes the decrease in average revenue
realized per scan is the result of many customers achieving discount price
levels in incremental scan volume; obtaining contracts with customers that have
high scan volumes which justify lower scan prices; and continuing competitive
pressure in the MRI service industry and cost containment efforts by health care
payors. Other revenue increased $18.0 million, or 251.5% partly due to a $6.2
million increase in lithotripsy revenue associated with the MTI acquisition, as
well as a $6.0 million increase in contract management service revenue as a
result of the Company commencing these service arrangements primarily in
connection with the MCIC acquisition. The remainder of the increase in other
revenue was primarily due to an increase in nuclear medicine revenue.
The Company operated 244 MRI systems at December 31, 1998 compared to 121
MRI systems at December 31, 1997. The increase was primarily a result of the MTI
acquisition and to a lesser degree the American Shared and MDI acquisitions.
Operating expenses, excluding depreciation, totaled $97.2 million in 1998,
an increase of $58.2 million, or 149.2% from 1997. Payroll and related employee
expenses increased $18.6 million, or 132.5%, primarily as a result of
acquisitions, an increase in operating staffing levels necessary to support new
units in operation and increased scans per unit. Preventative maintenance and
cryogen expense increased $9.0 million, or 97.7%, due to an increase in the
number of systems in service and the expiration of warranties on an increased
number of MRI systems. Equipment rental expense increased $8.6 million, or
276.5%, resulting from a higher number of leased MRI systems in operation and
the Company's leasing of 25 new tractors during the third quarter of 1997.
Medical supplies expense increased $2.7 million, or 334.5%, primarily as a
result of the increased level of nuclear medicine operations. Expenses
associated with contract management services increased $3.6 million as a result
of the Company commencing these service arrangements primarily in connection
with the MCIC acquisition.
Depreciation expense during 1998 totaled $27.0 million, an increase of $11.0
million, or 68.6% from the 1997 level principally due to a higher amount of
depreciable assets associated with equipment additions and upgrades and
equipment acquired through acquisitions. Amortization expense during 1998
increased $5.6 million, or 230.2%, over 1997 as a result of the acquisitions
made during 1998.
Selling, general and administrative expenses totaled $19.1 million in 1998,
an increase of $10.2 million or 115.6%, from 1997. Payroll and related expenses
increased $5.0 million, or 92.4%, primarily as a result
13
<PAGE>
of increased employee compensation related to increased staffing levels
necessary to support the Company's increased level of operations. Bad debt
expense increased $3.3 million primarily as a result of the growth in revenues
and the application of the Company's more conservative bad debt reserve policy
to the acquired MTI and MDI operations.
The transaction related costs primarily represent a special non-recurring
bonus paid in connection with the MTI acquisition, internal-use software
development costs associated with accounting and billing systems conversions of
the acquired companies, and a provision for bad debt conforming accounting
adjustment made in connection with the American Shared acquisition.
Interest expense of $35.5 million in 1998 was $27.7 million, or 354.5%,
higher than 1997, as a result of higher average outstanding debt balances during
1998 as compared to 1997. This increase was primarily related to debt incurred
in connection with the Recapitalization Merger and the MTI and MDI acquisitions.
An income tax provision of $5.0 million was recorded in 1998, resulting in
an effective tax rate of 50.5%. An income tax provision of $1.7 million was
recorded in 1997, primarily as a result of permanently non-deductible costs for
tax purposes associated with the Recapitalization Merger. At December 31, 1998,
the Company had approximately $104.4 million of net operating losses available
for federal tax purposes to offset future taxable income, subject to certain
limitations.
The Company's income before extraordinary loss was $4.9 million in 1998
compared to loss before extraordinary gain of $5.7 million in 1997, an increase
of $10.6 million, primarily attributable to the non-recurring nature of the 1997
recapitalization merger costs partially offset by increased interest,
depreciation, and amortization costs and transaction related costs. The Company
reported an extraordinary loss of $2.3 million, net of income tax benefit, on
early extinguishment of debt in 1998. The Company reported an extraordinary
gain, net of income taxes, in 1997 of $1.8 million, on early extinguishment of
debt. The earnings per common share calculations reflect preferred dividend
requirements and financing fee accretion of $2.2 million in 1998 and $0.6
million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for 1997 were $86.4 million, an increase of $18.0 million or 26.3%
($1.0 million, or 5.7%, as a result of the MCIC acquisition), over 1996. This
increase reflects a scan-based MRI revenue increase of $15.6 million, or 25.9%,
resulting from a 30.0% increase in total scan volume partially offset by a 3.2%
decrease in the average revenue realized per MRI scan. The average daily scan
volume per MRI system increased 8.4% to 7.24 from 6.68 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 marketing programs
implemented in early 1997. Management believes the decrease in average revenue
realized per scan is the result of many customers achieving discount price
levels in incremental scan volume; obtaining contracts with customers that have
high scan volumes which justify lower scan prices; and, continuing competitive
pressure in the MRI service industry and cost containment efforts by health care
payors. CT revenues increased $1.1 million, or 31.2%, as a result of internal
growth and the fourth quarter 1996 acquisition of a small CT business. Other
revenues increased $1.3 million 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, and the MCIC acquisition.
The Company operated 121 MRI systems at December 31, 1997 compared to 86 MRI
systems at December 31, 1996. The average number of MRI systems operated by the
Company was 95 during 1997, compared to 85 during 1996.
Operating expenses, excluding depreciation, totaled $39.0 million in 1997,
an increase of $6.7 million, or 20.6% from 1996. Payroll and related employee
expenses increased $3.1 million, or 23.3%, primarily as
14
<PAGE>
a result of an increase in operating staffing levels necessary to support new
units in operation and increased scans per unit. Repairs and maintenance expense
increased $0.6 million, or 38.1%, due to an increased number of systems in
service, as well as costs associated with preparing additional sites. Fuel and
other vehicle expenses collectively increased $0.6 million, or 34.0%, primarily
due to addition of new MRI and other mobile systems. Preventative maintenance
and cryogen contract expense increased $0.6 million, or 6.3%, due to the
expiration of the warranties on an increased number of MRI systems. Other
operating expenses (including insurance, site fees, office expenses, equipment
rental, supplies, employee and professional services) increased $1.8 million, or
25.8%, as a result of the increased level of operations.
Depreciation expense during 1997 totaled $16.0 million, an increase of $3.3
million, or 25.6%, from the 1996 level principally due to a higher amount of
depreciable assets associated with equipment additions and upgrades.
Amortization expense during 1997 increased $0.5 million, or 24.3%, over 1996 as
a result of goodwill amortization associated with recent business acquisitions.
Selling, general and administrative expenses totaled $8.9 million in 1997,
an increase of $0.7 million, or 8.9%, from 1996. Employee expenses increased
$0.4 million, or 96.8%, primarily as a result of the Company's recapitalization
effort. Professional services expenses increased $0.1 million, or 20.3%,
primarily due to costs associated with increased investor relations efforts and
merger and acquisition activity. Corporate office expenses increased $0.07
million, or 10.1%, over 1996 as a result of the Company relocating its
administrative office. Other expenses increased by $0.09 million primarily as a
result of expanded marketing programs.
Interest expense of $7.8 million in 1997 was $2.1 million, or 35.6%, higher
than 1996, as a result of higher average outstanding debt balances during 1997
as compared to 1996. This increase was primarily related to the debt incurred in
connection with the Recapitalization Merger and to the financing of several new
imaging systems during 1997.
An income tax provision of $1.7 million was recorded in 1997, primarily as a
result of permanently non-deductible costs for tax purposes associated with the
Recapitalization Merger. At December 31, 1997, the Company had approximately
$36.0 million of net operating losses available for federal tax purposes to
offset future taxable income, subject to certain limitations.
The Company's loss before extraordinary gain was $5.7 million in 1997,
compared to income before extraordinary gain of $6.5 million in 1996, a decrease
of $12.2 million, primarily attributable to costs associated with the
Recapitalization Merger. The Company reported extraordinary gains, net of income
taxes, in 1997 of $1.8 million on early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $31.5 million, $12.9 million and $21.7 million from
operating activities in 1998, 1997, and 1996, respectively. Capital
expenditures, consisting primarily of new equipment purchases, totaled $68.7
million, $51.8 million, and $34.4 million in 1998, 1997, and 1996, respectively.
In 1998, the Company purchased 39 new MRI systems, including replacement
systems. The Company expects to purchase additional equipment under binding
commitments in 1999 and finance such purchases with the Company's Revolving Loan
Facility.
The Company's primary cash needs consist of capital expenditures and debt
service. The Company incurs capital expenditures for the purposes of (i)
providing routine upgrades of its MRI systems; (ii) replacing or making major
upgrades to older, less advanced systems with new state-of-the-art systems; and
(iii) purchasing new systems. The Company expects capital expenditures to be
approximately $75.0 million in 1999, which primarily reflects the anticipated
purchase of 40 new MRI systems, including replacement systems, many of which
were acquired with American Shared. The Company's decision to purchase a new
system is typically predicated on obtaining new or extending existing customer
contracts, which serve as the basis of demand for the new system.
15
<PAGE>
As a result of the Recapitalization Merger, the Company issued $185.0
million of Notes (consisting of $140.0 million Senior Subordinated Notes due
2005, bearing interest at the rate of 9 5/8% per annum; and $45.0 million
Floating Interest Rate Subordinated Term Securities due 2005, bearing interest
at a rate per annum equal to LIBOR plus 4.19%) which are payable semiannually,
and require no principal repayments until maturity. The Company also entered
into a $125.0 million Credit Agreement consisting of a $50.0 million Term Loan
Facility and a $75.0 million Revolving Loan Facility, and carried over
approximately $12.7 million of other obligations. The Term Loan matures on the
sixth anniversary of the initial borrowing and requires annual principal
repayments of one percent per year during the first five years and the
outstanding principal amount in the sixth year. The Revolving Loan Facility
matures on the fifth anniversary of the initial borrowing and has mandatory
commitment reductions of $40.0 million on the fourth and fifth anniversaries of
the initial borrowing. The Credit Agreement contains restrictive covenants,
which, among other things, limit the incurrence of additional indebtedness,
dividends, transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, liens and encumbrances, and prepayments of other indebtedness.
In addition, the Credit Agreement requires loans to be prepaid with 100% of the
net proceeds of non-ordinary-course asset sales or other dispositions of
property, issuances of debt obligations and certain preferred stock and certain
insurance proceeds, 75% of annual excess cash flow and 50% of the net proceeds
from common equity and certain preferred stock issuances, in each case subject
to limited exceptions. Voluntary prepayments are permitted in whole or in part.
Subsequent amendments to the Credit Agreement are described below.
Also as part of the Recapitalization Merger, the Company issued $15.0
million of Series F Preferred Stock. The Series F Preferred Stock pays dividends
at the rate of 13.5% per annum, payable quarterly in arrears, with such
dividends payable in kind for the first five years from the issue date and
thereafter in cash. The Series F Preferred Stock is mandatorily redeemable for
its liquidation preference plus accrued and unpaid dividends on the 10th
anniversary of the issue date. The Series F Preferred Stock is redeemable at the
option of the Company prior to the 10th anniversary at premiums (expressed as a
percentage of the accreted face value) declining over ten years from 13.5% to
0%. The Company does not currently intend to redeem the Series F Preferred Stock
prior to the mandatory redemption date.
On November 21, 1997, the Company acquired MCIC, a Cleveland, Ohio based
provider of mobile MRI services, CT services and other outsourced health care
services. The acquisition also included MCIC's one-half interest in a limited
liability company in Michigan. The purchase price consisted of $12.3 million
cash plus the assumption of approximately $5.5 million in financing
arrangements. MCIC operated 14 mobile MRI systems and several other diagnostic
imaging systems, primarily in Ohio, Michigan, Indiana and Pennsylvania.
On March 12, 1998, the Company acquired MTI, another nationwide provider of
diagnostic imaging services. The Company funded the MTI acquisition with $20.0
million of existing Term Loan availability under tranche A, $5.4 million of
revolver borrowings, a $20.0 million increase to the Term Loan Facility under
tranche A, and a new $50.0 million Term Loan Facility under tranche B. The
Credit Agreement was amended to provide for the increased Term Facilities.
On May 19, 1998, the Company acquired MDI, a subsidiary of U. S. Diagnostic,
Inc. The Company borrowed $30.0 million under its Revolving Loan Facility to
finance the transaction.
On September 24, 1998, the Company completed a $90.0 million expansion of
its Credit Agreement. The transaction added a new $85.0 million Term Loan
Facility under tranche C and increased the Revolving Loan Facility to $80.0
million ($22.4 million of which was funded at December 31, 1998). The total
amount outstanding under the Term Loan Facility at December 31, 1998 was $203.8
million. The increased Loan Facilities provided funds to complete the American
Shared acquisition and will also provide funds for future acquisitions and
capital expenditures.
On November 13, 1998, the Company acquired American Shared. The purchase
price consisted of approximately $13.4 million plus the assumption of
approximately $12.2 million in financing arrangements.
16
<PAGE>
In connection with the acquisition, the Company also refinanced $13.1 million of
American Shared's outstanding debt. The Company borrowed $30.0 million under the
tranche C Term Loan Facility to finance the transaction.
The Company believes that based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings available under the Revolving Loan
Facility, will be sufficient over the next several years to fund anticipated
capital expenditures and make required payments of principal and interest on its
debt, including payments due on the Notes and obligations under the Credit
Agreement.
The Company's expansion and acquisition strategy may require substantial
capital, and no assurance can be given that the Company will be able to raise
any necessary additional funds through bank financing or the issuance of equity
or debt securities on terms acceptable to the Company, if at all.
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, particularly in the preceding
section entitled "Liquidity and Capital Resources" and elsewhere in this annual
report on Form 10-K, are forward-looking statements. Statements in this annual
report on Form 10-K which address activities, events or developments that the
Company expects or anticipates will or may occur in the future, including such
things as results of operations and financial condition, the consummation of
acquisitions and financing transactions and the effect of such transactions on
the Company's business and the Company's plans and objectives for future
operations and expansion are examples of forward-looking statements. These
forward-looking statements are subject to risks and uncertainties, including
those identified as "Risk Factors" in the Company's Registration Statements on
Forms S-2 (No. 333-33817) and S-4 (No. 333-33787). The foregoing should not be
construed as an exhaustive list of all factors which could cause actual results
to differ materially from those expressed in forward-looking statements made by
the Company. Actual results may materially differ from anticipated results
described in these statements.
YEAR 2000 COMPLIANCE
The following disclosure is a Year 2000 readiness disclosure statement
pursuant to the Year 2000 Readiness and Disclosure Act. The Company has
implemented a process to address its Year 2000 compliance issues. The process
includes: (i) an inventory and assessment of the compliance of essential systems
and equipment of the Company and of Year 2000 mission critical suppliers,
customers, and other third parties, (ii) the remediation of non-compliant
systems and equipment, and (iii) contingency planning. The Company has completed
its inventory of imaging and therapeutic systems and has completed approximately
80% of its inventory of information systems. The Company has identified its
mission critical suppliers, customers and other third parties and is in the
process of communicating with them about their Year 2000 readiness plans and
progress. During 1998, the Company purchased Year 2000 compliant financial
reporting software which has been successfully implemented. As a result, the
Company does not believe that its financial reporting, wholesale billing, or
accounts receivable functions will be adversely affected by Year 2000 concerns.
The cost of this software was approximately $1.0 million, including
installation.
The Company has also been working closely with the original equipment
manufacturers ("OEM") of its imaging and therapeutic systems to address Year
2000 concerns. Approximately 98% of the Company's MRI and CT systems will be
made compliant on a timely basis by the OEMs pursuant to the Company's existing
maintenance contracts. The Company can not currently estimate the additional
costs that will be incurred to address Year 2000 concerns. The Company's
analysis of its Year 2000 efforts are ongoing and its overall plan and cost
estimations will continue to evolve, as new information becomes available.
The failure of the Company, its mission critical suppliers, customers or
third parties to be fully Year 2000 compliant for essential systems and
equipment by January 1, 2000 could result in interruptions in normal business
work operations. The Company's potential risks include: (i) the inability to
deliver
17
<PAGE>
imaging and therapeutic services, (ii) the delayed receipt of payments from
clients or fiscal intermediaries, (iii) the failure of security systems,
elevators, heating systems and other operational systems in the Company's
offices and (iv) the inability to receive critical equipment from vendors. Each
of these events could have a material adverse effect on the Company's business,
results of operations and financial condition.
Contingency plans for Year 2000 related issues continue to be developed and
include, but are not limited to, identification of alternate suppliers,
alternate equipment and manual systems. However, any contingency plan
implemented by the Company may not succeed or may not be adequate to meet the
Company's needs without materially affecting the Company's business, results of
operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For long-term debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected (contractual) maturity dates. All amounts are
in United States dollars. Under its current policies, the Company does not use
interest rate derivative instruments to manage exposure to interest rate
changes.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------------------------------------------------------------
DECEMBER 31, 1998 1999 2000 2001 2002 2003 THEREAFTER TOTAL
- ----------------------------------- --------- --------- --------- --------- --------- ----------- ---------
FAIR
VALUE
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Long-term debt
Fixed rate....................... $ 18,742 $ 13,545 $ 8,706 $ 5,547 $ 68,305 $ 267,750 $ 382,595 $ 397,430
Weighted average interest rate... 9.00% 9.11% 9.15% 8.50% 7.71% 8.69% 8.55% 7.75%
Variable rate.................... $ -- $ -- $ -- $ 22,394 $ -- $ 45,000 67,394 $ 67,394
Weighted average interest rate... -- -- -- 7.49% -- 9.29% 8.69% 8.69%
</TABLE>
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<S> <C>
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and 1997.......................... 20
Consolidated Statements of Operations for the years ended December 31, 1998, 1997
and 1996......................................................................... 21
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996......................................................................... 22-24
Consolidated Statements of Preferred Stock, Common Stock, Additional Paid-In
Capital (Deficit) and Accumulated Deficit for the years ended December 31, 1998,
1997 and 1996 25
Notes to Consolidated Financial Statements......................................... 26-39
Report of Independent Auditors....................................................... 40
Quarterly Financial Data............................................................. 41
</TABLE>
19
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments......................................................... $ 1,681 $ 10,798
Accounts receivable, net of allowance for doubtful accounts of $8,259 in 1998 and $750
in 1997............................................................................... 41,634 12,628
Deferred income taxes (NOTE 8).......................................................... 3,679 2,478
Prepaid expenses........................................................................ 3,134 1,285
Other receivables....................................................................... 552 472
---------- ----------
Total current assets...................................................................... 50,680 27,661
Equipment, at cost (NOTE 4)............................................................... 273,074 169,468
Less accumulated depreciation............................................................. (78,811) (57,255)
---------- ----------
194,263 112,213
Goodwill, net of accumulated amortization of $14,382 in 1998 and $9,971 in 1997 (NOTE
3)...................................................................................... 109,667 36,149
Other intangibles, net of accumulated amortization of $3,599 in 1998 (NOTE 3)............. 75,528 --
Deferred financing costs.................................................................. 12,867 13,641
Deposits and other assets................................................................. 13,161 3,991
---------- ----------
Total assets.............................................................................. $ 456,166 $ 193,655
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 4,688 $ 6,677
Accrued compensation and related expenses............................................... 6,733 5,982
Other accrued liabilities............................................................... 21,190 8,021
Current portion of long-term debt (NOTE 4).............................................. 18,742 6,351
---------- ----------
Total current liabilities................................................................. 51,353 27,031
Long-term debt, net of current portion (NOTE 4)........................................... 431,247 227,874
Other liabilities......................................................................... 713 86
Deferred income taxes (NOTE 8)............................................................ 38,390 6,865
---------- ----------
Total liabilities......................................................................... 521,703 261,856
Commitments and Contingencies(NOTE 6)
Redeemable preferred stock, Series F, $.01 par value; 300,000 shares authorized; shares
issued and outstanding--150,000 in 1998 and 1997(redemption value - $17,211 in 1998 and
$15,084 in 1997) (NOTE 5)............................................................... 16,673 14,487
Common stock, $.01 par value; 10,000,000 shares authorized; shares issued and
outstanding--4,072,611 in 1998 and 4,054,111 in 1997 (NOTE 5)........................... 41 41
Additional paid-in deficit................................................................ (59,672) (59,738)
Accumulated deficit....................................................................... (22,579) (22,991)
---------- ----------
Total liabilities and stockholders' equity................................................ $ 456,166 $ 193,655
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues..................................................................... $ 199,401 $ 86,474 $ 68,482
Costs and expenses:
Operating expenses, excluding depreciation................................. 97,187 38,997 32,344
Depreciation expense....................................................... 26,961 15,993 12,737
Selling, general and administrative expenses............................... 19,095 8,857 8,130
Amortization expense, primarily goodwill................................... 8,010 2,426 1,952
Interest expense, net of interest income of $485 in 1998, $592 in 1997 and
$502 in 1996............................................................. 35,488 7,808 5,758
Transaction related costs.................................................. 2,818 -- --
Recapitalization merger costs (NOTE 1)..................................... -- 16,350 --
---------- ---------- ----------
Total costs and expenses..................................................... 189,559 90,431 60,921
Income (loss) before income taxes and extraordinary gain (loss).............. 9,842 (3,957) 7,561
Provision for income taxes (NOTE 8).......................................... 4,973 1,700 1,060
---------- ---------- ----------
Income (loss) before extraordinary gain (loss)............................... 4,869 (5,657) 6,501
Extraordinary gain (loss), net of taxes...................................... (2,271) 1,849 6,300
---------- ---------- ----------
Net income (loss)............................................................ 2,598 (3,808) 12,801
Less: Preferred stock dividends and financing fee accretion.................. 2,186 626 943
Add: Excess of carrying amount of preferred stock repurchased over
consideration paid......................................................... -- 1,906 1,764
---------- ---------- ----------
Income (loss) applicable to common stock..................................... $ 412 $ (2,528) $ 13,622
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share:
Income (loss) before extraordinary gain (loss)............................... $ 0.66 $ (0.41) $ 0.67
Extraordinary gain (loss), net of taxes...................................... (0.56) 0.17 0.58
---------- ---------- ----------
Net income (loss) per common share........................................... $ 0.10 $ (0.24) $ 1.25
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share--assuming dilution:
Income (loss) before extraordinary gain (loss)............................... $ 0.63 $ (0.41) $ 0.63
Extraordinary gain (loss), net of taxes...................................... (0.53) 0.17 0.55
---------- ---------- ----------
Net income (loss) per common share--assuming dilution........................ $ 0.10 $ (0.24) $ 1.18
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................................... $ 2,598 $ (3,808) $ 12,801
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary (gain) loss................................................ 2,271 (1,849) (6,300)
Depreciation and amortization............................................ 34,971 18,419 14,689
Amortization of deferred financing costs................................. 2,088 131 411
Distributions in excess of equity in (undistributed) income of
investee............................................................... (417) 271 (91)
Increase (decrease) in deferred income taxes............................. 5,481 (444) 1,041
Gain on sale of equipment................................................ (267) -- --
Gain on sale of investment............................................... -- -- (750)
Changes in operating assets and liabilities:
Accounts receivable, net................................................. (8,122) (1,960) (2,474)
Prepaid expenses......................................................... 1,090 (221) (306)
Other receivables........................................................ 926 211 (49)
Other assets............................................................. (2,300) 18 (72)
Accounts payable, accrued compensation and other accrued liabilities..... (2,737) 4,105 2,115
Other liabilities........................................................ (4,129) (2,009) 716
----------- ----------- -----------
Net cash provided by operating activities.................................. 31,453 12,864 21,731
INVESTING ACTIVITIES
Equipment purchases........................................................ (63,124) (45,122) (26,510)
(Increase) decrease in deposits on equipment............................... (7,482) (1,106) 264
Purchase of contracts and related assets of Mobile M.R. Venture, Ltd....... -- -- (455)
Purchase of common stock of Royal Medical Health Services, Inc., net of
cash acquired............................................................ -- -- (1,844)
Purchase of common stock of Sun MRI Services, Inc., net of cash acquired... -- -- (269)
Purchase of contracts and related assets of West Coast Mobile Imaging...... -- -- (90)
Purchase of common stock of Mobile Technology Inc., net of cash acquired... (94,147) -- --
Purchase of common stock of Medical Diagnostics, Inc., net of cash
acquired................................................................. (31,158) -- --
Purchase of all equity interests in two operating subsidiaries of American
Shared Hospital Services................................................. (29,845) -- --
Purchase of MRI contracts and related assets of Pacific Medical Imaging,
Inc...................................................................... -- (756) --
Purchase of partnership interests of Medical Consultants Imaging Company,
net of cash acquired..................................................... -- (11,436) --
Proceeds from sale of equipment............................................ 2,008 -- --
Proceeds from sale of investment........................................... -- -- 968
----------- ----------- -----------
Net cash used in investing activities...................................... (223,748) (58,420) (27,936)
</TABLE>
22
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Payment of preferred stock dividends....................................... -- (810) (1,594)
Repurchase of senior subordinated debentures............................... -- (2,286) (5,714)
Partial prepayment of senior notes......................................... -- -- (3,537)
Repurchase of Series A preferred stock..................................... -- (2,523) (6,307)
Principal payments on long-term debt....................................... (13,429) (19,777) (13,630)
Proceeds from long-term debt............................................... -- 36,027 23,889
Proceeds from senior bridge loan........................................... -- 5,128 12,872
Proceeds from senior subordinated notes and term loan...................... -- 215,000 --
Payments on revolving loan facility........................................ (53,576) -- --
Proceeds from term loan facility........................................... 175,000 -- --
Proceeds from revolving loan facility...................................... 75,970 -- --
Prepayment of senior notes and certain equipment debt...................... -- (73,341) --
Repurchase of common stock and common stock warrants....................... -- (153,339) --
Issuance of common stock................................................... -- 39,954 --
Issuance of Series F preferred stock....................................... -- 14,400 --
Increase in deferred financing costs....................................... (853) (13,721) (76)
Proceeds from exercise of employee stock options........................... 66 775 41
----------- ----------- -----------
Net cash provided by financing activities.................................. 183,178 45,487 5,944
Net decrease in cash and short-term investments............................ (9,117) (69) (261)
Cash and short-term investments, beginning of year......................... 10,798 10,867 11,128
----------- ----------- -----------
Cash and short-term investments, end of year............................... $ 1,681 $ 10,798 $ 10,867
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.............................................................. $ 32,744 $ 7,677 $ 5,562
Income taxes paid.......................................................... 313 623 378
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Net book value of assets exchanged......................................... $ 454 $ 1,434 $ 3,521
Preferred stock dividend accrued and financing fee accretion............... 2,186 97 266
Excess of carrying amount of preferred stock repurchased over consideration
paid..................................................................... -- 1,906 1,764
Conversion of senior bridge loan into Series D 4% convertible preferred
stock.................................................................... -- 18,000 --
Conversion of Series C 5% convertible preferred stock into common stock.... -- 388 --
Conversion of Series D 4% convertible preferred stock into common stock.... -- 18,000 --
</TABLE>
23
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
During the 1998 first quarter, the Company purchased all of the equity
interests of MTI for cash consideration of approximately $103,893. In connection
with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 125,720
Cash paid for equity interests............................................. (103,893)
---------
Liabilities assumed........................................................ $ 21,827
---------
---------
</TABLE>
During the 1998 second quarter, the Company purchased all of the common
stock of MDI for cash consideration of approximately $31,166. In connection with
the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 40,076
Cash paid for common stock................................................. (31,166)
---------
Liabilities assumed........................................................ $ 8,910
---------
---------
</TABLE>
During the 1998 fourth quarter, the Company purchased all of the equity
interests in two operating subsidiaries of American Shared Hospital Services for
cash consideration of approximately $29,967. In connection with the acquisition,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 46,706
Cash paid for equity interests............................................. (29,967)
---------
Liabilities assumed........................................................ $ 16,739
---------
---------
</TABLE>
During the 1997 fourth quarter, the Company purchased the partnership
interests of Medical Consultants Imaging Co. for cash consideration of
approximately $12,323. In connection with the acquisition, liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 19,916
Cash paid for partnership interests........................................ (12,323)
---------
Liabilities assumed........................................................ $ 7,593
---------
---------
</TABLE>
During the 1996 second quarter, the Company purchased all of the common
stock of Royal Medical Health Services, Inc., and related assets for cash
consideration of approximately $1,914. In connection with the acquisition,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 8,601
Cash paid for common stock................................................. (1,914)
---------
Liabilities assumed........................................................ $ 6,687
---------
---------
</TABLE>
As additional consideration for the above purchase, the Company issued
convertible preferred stock in the amount of $388 and common stock warrants
valued at $212.
During the 1996 third quarter, the Company purchased all of the common stock
of Sun MRI Services, Inc. for cash consideration of approximately $391. In
connection with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.............................................. $ 1,602
Cash paid for common stock................................................. (391)
---------
Liabilities assumed........................................................ $ 1,211
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF PREFERRED STOCK, COMMON STOCK,
ADDITIONAL PAID-IN CAPITAL (DEFICIT) AND ACCUMULATED DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A AND F SERIES C AND D
REDEEMABLE CONVERTIBLE ADDITIONAL
PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN
------------------ ---------------- ------------------- CAPITAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT (DEFICIT) DEFICIT
-------- -------- ------- ------- ----------- ------ ---------- -----------
Balance at December 31, 1995................. 155,000 $ 16,430 -- $ -- 10,836,171 $108 $ 31,908 $(30,412)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Payment of 1995 preferred stock dividends.... -- (930) -- -- -- -- -- --
Exercise of common stock options............. -- -- -- -- 77,217 1 39 --
Issuance of common stock warrants in
connection with senior and subordinated
debt amendment............................. -- -- -- -- -- -- 259 --
Issuance of common stock warrants in
connection with transfer and amendment of
senior notes............................... -- -- -- -- -- -- 222 --
Issuance of Series C preferred stock in
connection with acquisition of Royal
Medical Health Services, Inc............... -- -- 3,876 388 -- -- -- --
Issuance of common stock warrants in
connection with acquisition of Royal
Medical Health Services, Inc............... -- -- -- -- -- -- 212 --
Preferred stock dividends accrued............ -- 930 -- -- -- -- -- (930)
Payment of 1996 preferred stock dividends.... -- (664) -- -- -- -- -- --
Repurchase of Series A preferred stock....... (110,714) (11,072) -- -- -- -- 1,764 --
Net income for year ended December 31,
1996....................................... -- -- -- -- -- -- -- 12,801
-------- -------- ------- ------- ----------- ------ ---------- -----------
Balance at December 31, 1996................. 44,286 4,694 3,876 388 10,913,388 109 34,404 (18,541)
Exercise of common stock options............. -- -- -- -- 554,539 6 768 --
Repurchase of Series A redeemable preferred
stock...................................... (44,286) (4,694) -- -- -- -- 1,906 --
Transaction costs associated with conversion
of senior bridge loan into Series D
preferred stock............................ -- -- -- -- -- -- (160) --
Conversion of senior bridge loan into Series
D preferred stock.......................... -- -- 18,000 18,000 -- -- -- --
Series C preferred stock dividend............ -- -- -- -- -- -- -- (13)
Series D preferred stock dividend............ -- -- -- -- -- -- -- (528)
Conversion of Series C preferred stock into
common stock............................... -- -- (3,876) (388 ) 80,206 1 400 (14)
Conversion of Series D preferred stock into
common stock............................... -- -- (18,000) (18,000) 3,000,000 30 17,970 --
Conversion of Newport Acquisition Corp.
common stock into Alliance common stock.... -- -- -- -- 3,632,222 36 39,918 --
Issuance of Series F redeemable preferred
stock...................................... 150,000 14,400 -- -- -- -- -- --
Series F preferred stock dividend accrued and
accretion.................................. -- 87 -- -- -- -- -- (87)
Repurchase of common stock................... -- -- -- -- (14,126,244) (141) (155,247) --
Payment to retire common stock warrants...... -- -- -- -- -- -- (2,097) --
Tax benefit of disqualified stock option
dispositions and warrants.................. -- -- -- -- -- -- 2,400 --
Net loss for the year ended December 31,
1997....................................... -- -- -- -- -- -- -- (3,808)
-------- -------- ------- ------- ----------- ------ ---------- -----------
Balance at December 31, 1997................. 150,000 14,487 -- -- 4,054,111 41 (59,738) (22,991)
Exercise of common stock options............. -- -- -- 18,500 -- 66 --
Series F preferred stock dividend accrued and
accretion.................................. -- 2,186 -- -- -- -- -- (2,186)
Net income for year ended December 31,
1998....................................... -- -- -- -- -- -- -- 2,598
-------- -------- ------- ------- ----------- ------ ---------- -----------
150,000 $ 16,673 -- $ -- 4,072,611 $ 41 $(59,672) $(22,579)
-------- -------- ------- ------- ----------- ------ ---------- -----------
-------- -------- ------- ------- ----------- ------ ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF THE COMPANY--Alliance Imaging, Inc. (the "Company") operates in a
single industry segment, the provision of outsourced high technology diagnostic
imaging and therapeutic systems and related technical support services, as well
as management and information services, to hospitals and other health care
providers. Diagnostic imaging services are provided on both a mobile,
shared-user basis as well as on a full-time basis to single customers. The
Company operates entirely within the United States and is one of the largest
providers of magnetic resonance imaging ("MRI") and computed tomography ("CT")
services in the country. The equipment used by the Company is sophisticated and
subject to accelerated obsolescence in the event of significant technological
change.
BASIS OF FINANCIAL STATEMENT PRESENTATION--The accompanying consolidated
financial statements include the accounts of Alliance Imaging, Inc. and its
consolidated subsidiaries. Significant intercompany transactions have been
eliminated. The Company owns 49% of a partnership as a general and limited
partner and a 50% interest in two limited liability companies. These entities
provide services similar to the Company's activities and are accounted for under
the equity method.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECAPITALIZATION MERGER--On December 18, 1997, after obtaining the approval of
stockholders, the Company completed a series of transactions contemplated by an
Agreement and Plan of Merger between Newport Investment LLC (the "Investor") and
the Company (the "Recapitalization Merger") whereby the Company: obtained
proceeds from debt financing aggregating $215,000; issued 150,000 shares of non-
voting redeemable Series F preferred stock to the Investor for proceeds of
$15,000; issued 3,632,222 shares of its common stock in exchange for all of the
outstanding stock of Newport Acquisition Corporation, a subsidiary of the
Investor, and received net proceeds of $40,000 from cash placed into Newport
Acquisition Corporation by the Investor; and converted all shares of its common
stock held by existing stockholders in excess of 411,358 shares that were
retained by electing existing stockholders into the right to receive $11 in
cash. The Company used the cash proceeds from these transactions to fund: the
purchase of its common stock from existing stockholders--$162,500; repayment of
existing debt, net of $1,100 net discount on prepayment of debt--$73,900;
transaction costs charged to expense--$16,400; deferred debt financing fees and
redeemable preferred stock financing fees of $14,300; and an increase in the
Company's cash balance of $2,900.
As a result of these transactions, the Company experienced an approximate
90% ownership change. The Investor, which was formed and is wholly owned by
certain affiliates of Apollo Management, L.P., ("Apollo") obtained ownership of
approximately 83.6% of the Company's outstanding common stock, and the Company
became highly leveraged. The Company paid $3,200 to Apollo for professional
services rendered in connection with the Recapitalization Merger. The
Recapitalization Merger and related transactions have been treated as a
leveraged recapitalization in which the issuance and retirement of debt have
been accounted for as financing transactions, the sales and purchases of the
Company's stock have been accounted for as capital transactions at amounts
received from or paid to stockholders, and no changes were made to the carrying
values of the Company's assets and liabilities that were not directly impacted
by the transactions.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS--The Company considers short-term investments
with original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE--The Company provides shared and single-user diagnostic
imaging equipment and technical support services to the health care industry and
directly to patients on an outpatient basis. Substantially all of the Company's
accounts receivable are due from hospitals, other health care providers and
health insurance providers located throughout the United States. Services are
generally provided pursuant to long-term contracts with hospitals and other
health care providers or directly to patients, and generally collateral is not
required. Receivables generally are collected within industry norms for third-
party payors. Credit losses are provided for in the consolidated financial
statements and losses experienced have been within management's estimates.
EQUIPMENT--Equipment is stated at cost and is generally depreciated using the
straight-line method over an initial estimated life of three to eight years to
an estimated residual value, generally between five and twenty percent of
original cost. If the Company continues to operate the equipment beyond its
initial estimated life, the residual value is then depreciated to a nominal
salvage value over three years.
Routine maintenance and repairs are charged to expense as incurred. Major
repairs and purchased software and hardware upgrades, which extend the life or
add value to the equipment, are capitalized and depreciated over the remaining
useful life.
With the exception of a small amount of office furniture and equipment and
leasehold improvements, substantially all of the property owned by the Company
relates to diagnostic imaging equipment, tractors and trailers used in the
business.
GOODWILL--The Company amortizes goodwill using the straight-line method over a
period of one to twenty-five years. For acquired entities, the amortization
period selected is primarily based upon the estimated life of the customer
contracts, including expected renewals, and other related assets acquired, not
to exceed twenty years. The Company reviews its long-lived assets and related
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The recoverability
test is performed at the lowest level at which undiscounted net cash flows can
be directly attributable to long-lived assets.
REVENUE RECOGNITION--The majority of the Company's revenues are derived directly
from health care providers. To a lesser extent, revenues are generated from
direct billings to patients or their medical payors which are recorded net of
contractual discounts and other arrangements for providing services at less than
established patient billing rates. Net revenues from direct patient billing
amounted to approximately 12%, 7% and 8% of revenues in the years ended December
31, 1998, 1997 and 1996, respectively. No single customer accounted for 3% or
more of consolidated revenues in each of the three years in the period ended
December 31, 1998. All revenues are recognized at the time the service is
performed.
INCOME TAXES--The Company calculates deferred taxes and related income tax
expense using the liability method. This method determines deferred taxes by
applying the current tax rate to the cumulative temporary differences between
recorded carrying amounts and the corresponding tax basis of assets and
liabilities. A valuation allowance is established for deferred tax assets unless
their realization is considered
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
more likely than not. The Company's provision for income taxes is the sum of the
change in the balance of deferred taxes between the beginning and the end of the
period plus income taxes currently payable.
INVESTMENT TAX CREDITS--The Company accounts for investment tax credits under
the flow through method.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
LONG-TERM DEBT: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental rates for similar types of borrowing arrangements.
REDEEMABLE PREFERRED STOCK: As more fully discussed in Note 5, the Company
issued its Series F redeemable preferred stock in exchange for $15,000 cash on
December 18, 1997, in connection with the Recapitalization Merger. Although it
was not practicable to reevaluate the estimated fair value of the Series F
redeemable preferred stock as of December 31, 1998 and 1997 because of a lack of
a quoted market price and the inability to estimate fair value without incurring
excessive costs, the Company believes the carrying amounts as of December 31,
1998 and 1997 of $16,673 and $14,487, which represent the original fair value of
the preferred stock (less a $600 financing fee) increased for the 1998 and 1997
cumulative dividends and financing fee accretion, reasonably approximate its
fair value at those dates.
Accordingly, the carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and short-term investments........................ $ 1,681 $ 1,681 $ 10,798 $ 10,798
Long-term debt......................................... 449,989 464,824 234,225 233,539
Redeemable preferred stock--Series F................... 16,673 16,673 14,487 14,487
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE--The following table sets forth the computation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary gain (loss).......................... $ 4,869 $ (5,657) $ 6,501
Preferred stock dividends and financing fee accretion................... (2,186) (626) (943)
Excess of carrying amount of preferred stock repurchased over
consideration paid.................................................... -- 1,906 1,764
--------- --------- ---------
Numerator for basic and diluted earnings per share--income available to
common stockholders before extraordinary gain (loss).................. $ 2,683 $ (4,377) $ 7,322
--------- --------- ---------
--------- --------- ---------
Denominator:
Denominator for basic earnings per share--weighted-average shares....... 4,067 10,743 10,864
Effect of dilutive securities:
Employee stock options and common stock warrants........................ 171 -- 630
--------- --------- ---------
Denominator for diluted earnings per share--adjusted weighted-average
shares................................................................ 4,238 10,743 11,494
--------- --------- ---------
--------- --------- ---------
Basic earnings (loss) per share before extraordinary gain (loss)........ $ 0.66 $ (0.41) $ 0.67
--------- --------- ---------
--------- --------- ---------
Diluted earnings (loss) per share before extraordinary gain (loss)...... $ 0.63 $ (0.41) $ 0.63
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS--Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
years ended December 31, 1998 , 1997 and 1996, the Company did not have any
components of other comprehensive income as defined in FAS 130.
3. ACQUISITIONS
On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI"),
which management believes was the second largest provider of mobile MRI services
in the United States, in a transaction accounted for as a purchase. The Company
has included the operations of MTI in its consolidated financial statements from
the date of acquisition. The purchase price consisted of $58,300 for all of the
equity interests in MTI plus direct acquisition costs of approximately $2,000.
In connection with the acquisition, the Company also refinanced $37,400 of MTI's
outstanding debt and paid MTI direct transaction costs of $3,500. The goodwill
recorded as a result of this acquisition was $5,979 which is being amortized on
a straight-line basis over 20 years. Additionally, the Company assigned $67,200
of purchase price to customer contracts and $2,870 of purchase price to
assembled work force. The amounts are being amortized on a straight-line basis
over 20 and four years respectively. The allocation of the intangible assets
acquired was based on an independent valuation study.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
On May 19, 1998, the Company acquired Medical Diagnostics, Inc. ("MDI"), a
subsidiary of U. S. Diagnostic, Inc. The purchase price consisted of
approximately $31,000 plus the assumption of approximately $7,400 in financing
arrangements. The transaction has been accounted for as a purchase and,
accordingly, the results of operations of MDI have been included in the
Company's consolidated financial statements from the date of acquisition. The
goodwill recorded as a result of this acquisition was $17,212 which is being
amortized on a straight-line basis over 20 years. Additionally, the Company
assigned $8,300 of purchase price to customer contracts and $350 of purchase
price to assembled work force. The amounts are being amortized on a
straight-line basis over 20 and four years respectively. The allocation of the
intangible assets acquired was based on an independent valuation study.
On November 13, 1998, two wholly owned subsidiaries of the Company acquired
all of the outstanding common stock of CuraCare, Inc. and all of the partnership
interests in American Shared-CuraCare (collectively, "American Shared"). The
purchase price consisted of approximately $13,377 plus the assumption of
approximately $12,241 in financing arrangements. In connection with the
acquisition, the Company also refinanced $13,130 of American Shared's
outstanding debt. The transaction has been accounted for as a purchase and,
accordingly, the results of operations of American Shared have been included in
the Company's consolidated financial statements from the date of acquisition.
The goodwill recorded as a result of this acquisition was approximately $30,445
which is being amortized on a straight-line basis over 20 years. The allocation
of the American Shared purchase price is tentative pending completion of fair
value determinations for the net assets acquired. The allocation may change with
the completion of these determinations.
On November 21, 1997, the Company acquired Medical Consultants Imaging Co.
("MCIC"), a Cleveland, Ohio based provider of mobile MRI services, CT services
and other outsourced health care services. The acquisition also included MCIC's
one-half interest in a limited liability company in Michigan. The purchase price
consisted of approximately $12,300 in cash (of which $2,000 has been placed in
escrow and is subject to certain reductions) plus the assumption of
approximately $5,500 in financing arrangements. The acquisition has been
accounted for as a purchase and, accordingly, the results of operations of MCIC
have been included in the Company's consolidated financial statements from the
date of acquisition. The goodwill recorded as a result of this acquisition was
$10,932, which is being amortized on a straight-line basis over 20 years.
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. ("Royal") of Pittsburgh, Pennsylvania. Like
the Company, Royal is a provider of comprehensive MRI services. The Company
issued 3,876 shares of Series C convertible preferred stock valued at $388,
common stock warrants valued at $212, and paid $1,914 in cash as consideration
for the acquisition of Royal and certain related assets. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations of
Royal have been included in the Company's consolidated financial statements from
the date of acquisition.
The unaudited pro forma information below presents combined results of
operations as if the MTI, MDI and American Shared acquisitions had occurred at
the beginning of 1998 and 1997, and as if the MCIC acquisition had occurred at
the beginning of 1997 and 1996 and the Royal acquisition had occurred at the
beginning of 1996. The unaudited pro forma information is not necessarily
indicative of the results
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
of operations of the combined company had the acquisitions actually occurred at
the beginning of the periods presented, nor is it necessarily indicative of
future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Revenues............................................................. $ 253,548 $ 214,391 $ 87,514
Income (loss) before extraordinary gain (loss)....................... 4,409 (8,637) 6,500
Net income (loss).................................................... 2,138 (6,788) 12,800
Earnings (loss) per share:
Basic.............................................................. $ (0.01) $ (0.69) $ 1.25
Diluted............................................................ (0.01) (0.69) 1.19
</TABLE>
4. INDEBTEDNESS
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Term loan facility, due in quarterly installments through December 2004,
interest payable as defined (SEE BELOW)....................................... $ 203,800 $ 30,000
Senior subordinated notes, due December 2005, interest at 9.625%, payable
semi-annually (SEE BELOW)..................................................... 140,000 140,000
Subordinated term securities, due December 2005, interest at LIBOR (as defined)
plus 4.19%, payable semi-annually (SEE BELOW)................................. 45,000 45,000
Obligations to lending institutions, secured by equipment, due in monthly
installments through May 2003 with weighted average interest rates of 9.28%
and 9.97% at December 31, 1998 and 1997 respectively.......................... 38,795 19,225
Revolving loan facility, due December 2002, interest payable as defined (SEE
BELOW)........................................................................ 22,394 --
---------- ----------
449,989 234,225
Less current portion............................................................ 18,742 6,351
---------- ----------
$ 431,247 $ 227,874
---------- ----------
---------- ----------
</TABLE>
In connection with the Recapitalization Merger, the Company issued $140,000
of 9.625% senior subordinated notes and $45,000 of floating interest rate
subordinated term securities (collectively, the "Notes"). The Notes mature on
December 15, 2005 and are unsecured obligations of the Company ranking
subordinate in right of payment to all senior debt. Interest on the Notes is
payable semi-annually in cash on each June 15 and December 15 commencing on June
15, 1998. The interest rate on the floating interest rate subordinated term
securities was 9.2881% and 10.09625% at December 31, 1998 and 1997,
respectively.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. INDEBTEDNESS (CONTINUED)
The Notes are unconditionally guaranteed, on a senior subordinated basis,
jointly and severally, by all significant direct and indirect consolidated
subsidiaries of the Company, which consist of Royal Medical Health Services,
Inc., Alliance Imaging of Central Georgia, Inc., Alliance Imaging of Ohio, Inc.,
Alliance Imaging of Michigan, Inc., Mobile Technology Inc., Medical Diagnostics,
Inc., Central Massachusetts MRI Services, Inc., Western Massachusetts Magnetic
Resonance Services, Inc., Embarcadero Holding Corp. I, Embarcadero Holding Corp.
II and Curacare, Inc. (collectively, the "Subsidiary Guarantors"). Separate
financial statements of the Subsidiary Guarantors are not included herein
because such guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Subsidiary Guarantors and the Company are
substantially equivalent to the net assets, earnings and equity of the Company
on a consolidated basis. Accordingly, management has determined that separate
financial statements and other disclosures concerning the Subsidiary Guarantors
would not provide material information to users of its financial statements.
Combined summarized financial information for the Subsidiary Guarantors is set
forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets........................................................ $ 4,611 $ 111
Noncurrent assets..................................................... 87,386 19,937
---------- ----------
Total assets........................................................ $ 91,997 $ 20,048
---------- ----------
---------- ----------
Current liabilities................................................... $ 4,919 $ 1,102
Noncurrent liabilities................................................ 90,669 14,893
Equity................................................................ (3,591) 4,053
---------- ----------
Total liabilities and equity........................................ $ 91,997 $ 20,048
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues..................................................... $ 22,436 $ 8,465 $ 7,142
Costs and expenses........................................... 28,008 6,880 5,676
--------- --------- ---------
Operating margin............................................. (5,572) 1,585 1,466
(Benefit) provision for income taxes......................... (2,269) 625 205
--------- --------- ---------
Net income (loss).......................................... $ (3,303) $ 960 $ 1,261
--------- --------- ---------
--------- --------- ---------
</TABLE>
The total assets, revenues and income before extraordinary items of the
Company's non-guarantor subsidiaries on an individual and combined basis are
less than 3% and therefore considered inconsequential.
In addition to the Notes, in December 1997 the Company also entered into a
Credit Agreement with a bank consisting of a $50,000 term loan facility and a
$75,000 revolving loan facility. On March 12, 1998, the Company increased its
term loan facility by $70,000 by increasing its existing tranche A term loan
facility by $20,000 and establishing a new $50,000 tranche B term loan facility.
In connection with this transaction, the Company recorded an extraordinary loss
of $800, net of income tax benefit, on early extinguishment of
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. INDEBTEDNESS (CONTINUED)
debt. On September 24, 1998, the Company completed a $90,000 expansion of its
Credit Agreement. The transaction added a new $85,000 tranche C term loan
facility and increased the revolving loan facility to $80,000. In connection
with this transaction, the Company recorded an extraordinary loss of $1,471, net
of income tax benefit, on early extinguishment of debt. Interest under the term
loan facility and revolving loan facility is variable based on the Company's
leverage ratio and changes in specified published rates and the bank's prime
lending rate. The weighted average interest rate on the term loan facility was
7.68% and 8.41% at December 31, 1998 and 1997, respectively. The revolving loan
facility balance was $22,394 and zero at December 31, 1998 and 1997,
respectively. The weighted average interest rate on the revolving loan facility
was 7.47% at December 31, 1998.
In addition to a variable per annum fee in respect of outstanding letters of
credit, the Company also pays a commitment fee equal to 1/2 of 1% per annum on
the undrawn portion available under the Credit Agreement subject to decreases in
certain circumstances. Certain mandatory prepayments are required from proceeds
of various transactions and are allocated first to the term loan facility.
Voluntary prepayments are permitted subject to certain limitations.
The term loan facility, the revolving loan facility, and the obligations to
lending institutions are collateralized by all of the Company's equipment at
December 31, 1998 and 1997.
The maturities of long-term debt as of December 31, 1998 is due as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999.......................................................... $ 18,742
2000.......................................................... 13,545
2001.......................................................... 8,706
2002.......................................................... 27,941
2003.......................................................... 68,305
Thereafter........................................................ 312,750
---------
$ 449,989
---------
---------
</TABLE>
Of the Company's total indebtedness at December 31, 1998, $388,067 is an
obligation of the Company and $61,922 is an obligation of the Company's
consolidated subsidiaries.
5. PREFERRED AND COMMON STOCK
PREFERRED STOCK--The Company is authorized to issue 500,000 shares of preferred
stock, undesignated as to series. The Board of Directors has the authority to
establish the voting powers, designations, preferences and other special rights
for each series of preferred stock issued.
In connection with the Recapitalization Merger (SEE NOTE 1), the Company
authorized 300,000 shares of a new Series F redeemable preferred stock on
December 18, 1997. The stock was recorded at $14,400 (liquidation value of
$15,000 less a financing fee of $600). The financing fee is being accreted on a
straight-line basis over the ten-year term of the stock. The holders of the
Series F redeemable preferred stock are entitled to receive cumulative dividends
at the rate of 13.5% per annum of the stated liquidation value. Unpaid dividends
accumulate and are payable quarterly by the Company in kind for the first five
years after issuance, and thereafter in cash.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. PREFERRED AND COMMON STOCK (CONTINUED)
In the event of liquidation, dissolution or winding up of the Company, the
holders of Series F redeemable 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. The Series
F redeemable preferred stock is redeemable at the option of the Company at
stated redemption premiums from the date of issuance through December 31, 2007.
The Company is required to redeem all outstanding shares of Series F redeemable
preferred stock at 100% of liquidation value on December 31, 2007 out of funds
legally available. No sinking fund has been or will be established for the
retirement or redemption of the shares of Series F redeemable preferred stock.
Series F preferred stock is not convertible into shares of any other class or
series of capital stock.
The holders of shares of preferred stock are not entitled to any voting
rights with respect to any matters voted upon by the common stockholders.
However, a majority of preferred stockholders (with each series voting as a
single class) must approve certain corporate transactions including the
authorization of additional classes or series of stock ranking prior to their
stock, any increase in the number of authorized shares of their preferred stock
series, any amendment to the terms of such preferred stock series and similar
actions.
STOCK OPTIONS AND AWARDS--The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company's 1991 Stock Option Plan provides that up to 2,000,000 shares
may be granted to management and key employees. Options are granted at their
fair market value at the date of grant. All options granted have 10 year terms
and vest and become fully exercisable at the end of 3 to 4 years of continued
employment. In connection with the Recapitalization Merger, the Company adopted
a new employee stock option plan pursuant to which options with respect to a
total of 454,545 shares of the Company's common stock will be available for
grant. Options are granted at their fair value at the date of grant. All options
have 10 year terms. Fifty percent of the options vest in equal increments over
four years and fifty percent vest over seven and one-half years (subject to
acceleration if certain per-share equity targets are achieved). The
weighted-average remaining contractual life of options outstanding as of
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. PREFERRED AND COMMON STOCK (CONTINUED)
December 31, 1998 and 1997, is 8.89 and 9.74 years, respectively. The following
table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995................................ 541,000 $ 0.5369
Granted....................................................... 489,200 3.5625
Exercised..................................................... (77,217) 0.5151
Canceled...................................................... (2,000) 1.6875
---------- --------
Outstanding at December 31, 1996................................ 950,983 2.0926
Granted....................................................... 580,000 8.3222
Exercised..................................................... (554,539) 1.3952
Redeemed for cash............................................. (684,975) 4.7704
Canceled...................................................... (2,000) 0.4375
---------- --------
Outstanding at December 31, 1997................................ 289,469 9.5857
Granted....................................................... 223,545 12.0210
Exercised..................................................... (18,500) 3.5625
Canceled...................................................... (3,000) 16.5000
---------- --------
491,514 $ 10.8778
---------- --------
---------- --------
</TABLE>
At December 31, 1998, 30,000 of these options were exercisable at $3.5625;
10,969 were exercisable at $6.5625; 412,045 were exercisable at $11.00; and
38,500 were exercisable at $16.50.
In addition, the Company had options on 40,000 shares of common stock
outstanding at December 31, 1996 at exercise prices of $1.125 to $8.25 and
granted options on an additional 100,000 shares of common stock in 1997 at
exercise prices of $6.5625 to $7.875 per share. These stock options were granted
to Company directors outside of the 1991 Stock Option Plan and were all redeemed
for cash in connection with the Recapitalization Merger (SEE NOTE 1).
FAS 123 requires presentation of pro forma information regarding net income
and earnings per share determined as if the Company has accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that Statement. The fair value for these options was estimated
as of the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1998, 1997 and 1996, respectively:
risk-free interest rates of 5.23%, 6.31% and 5.72%; no dividend yield;
volatility factors of the expected market price of the Company's common stock of
.83, .41 and .43; and a weighted-average expected life of the options of 5.75, 7
and 7 years. The weighted-average fair value of options granted during 1998,
1997 and 1996 is $8.50, $4.60 and $1.93, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. PREFERRED AND COMMON STOCK (CONTINUED)
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' expected vesting period. The
Company's pro forma information for the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss)..................................... $ 2,283 $ (641) $ 12,577
Pro forma earnings per share.................................... 0.02 0.06 1.23
Pro forma earnings per share--assuming dilution................. 0.02 0.06 1.17
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has contracts with its equipment vendors for comprehensive
maintenance and cryogen coverage for its MRI and CT systems. The contracts are
between one and five years and extend through December 2002, but may be canceled
by the Company under certain circumstances. Contract payments are approximately
$21,400 per year. At December 31, 1998, the Company had binding equipment
purchase commitments totaling approximately $39,200. The Company leases office
and warehouse space and certain equipment under non-cancelable operating leases.
The office and warehouse leases generally call for minimum monthly payments plus
maintenance and inflationary increases. The future minimum payments under such
leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999........................................................... $ 10,803
2000........................................................... 6,847
2001........................................................... 3,807
2002........................................................... 2,307
2003........................................................... 1,695
Thereafter......................................................... 804
---------
$ 26,263
---------
---------
</TABLE>
The Company's total rental expense, which includes short-term equipment
rentals, for the years ended December 31, 1998, 1997 and 1996 was $14,749,
$3,669 and $3,380, respectively.
The Company from time to time is involved in routine litigation incidental
to the conduct of its business. The Company believes that no litigation pending
against it will have a material adverse effect on its consolidated financial
position or results of operations.
7. 401(K) SAVINGS PLAN
The Company established a 401(k) Savings Plan ("the Plan") in January 1990.
Effective August 1, 1998, the Plan was amended and restated in its entirety.
Currently, all employees who are over 21 years of age are eligible to
participate after attaining six months of service. Employees may contribute
between 1% and 15% of their annual compensation. The Company matches 50 cents
for every dollar of employee
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. 401(K) SAVINGS PLAN (CONTINUED)
contributions up to 5% of their annual compensation, subject to the limitations
imposed by the Internal Revenue Code. The Company may also make discretionary
contributions depending on profitability. The Company incurred and charged to
expense $608, $207 and $157 during 1998, 1997 and 1996, respectively, related to
the plan.
8. INCOME TAXES
The provision for income taxes shown in the consolidated statements of
operations consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal..................................................... $ (2,008) $ 3,529 $ 2,958
State....................................................... 48 (105) 735
--------- --------- ---------
(1,960) 3,424 3,693
Utilization of net operating loss carryovers.................. -- -- (2,649)
--------- --------- ---------
(1,960) 3,424 1,044
Deferred:
Federal..................................................... 4,028 (1,460) --
State....................................................... 1,453 1,016 731
--------- --------- ---------
5,481 (444) 731
--------- --------- ---------
$ 3,521 $ 2,980 $ 1,775
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes applicable to income before extraordinary
gain (loss) and attributed to the extraordinary gain (loss) is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Provision for taxes on income before extraordinary gain
(loss):
Current..................................................... $ (508) $ 2,144 $ 329
Deferred.................................................... 5,481 (444) 731
--------- --------- ---------
Total provision for taxes on income before extraordinary gain
(loss)...................................................... 4,973 1,700 1,060
(Benefit) provision for taxes on extraordinary gain (loss).... (1,452) 1,280 715
--------- --------- ---------
$ 3,521 $ 2,980 $ 1,775
--------- --------- ---------
--------- --------- ---------
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
(liabilities) at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Equipment basis differences..................................................... $ (33,696) $ (17,774)
Cancellation of indebtedness.................................................... (3,000) (3,000)
Acquired customer contracts..................................................... (28,413) --
Acquired workforce in place..................................................... (1,012) --
---------- ----------
Total deferred tax liabilities................................................ (66,121) (20,774)
DEFERRED TAX ASSETS:
Net operating losses............................................................ 40,082 13,743
Accounts receivable............................................................. 1,673 292
Basis differences associated with other assets.................................. 3,491 3,458
Accruals not currently deductible for tax....................................... 2,290 --
Basis differences associated with acquired investments.......................... 684 --
Deferred financing costs........................................................ 1,303 --
Other........................................................................... -- 16
---------- ----------
Total deferred tax assets..................................................... 49,523 17,509
Valuation allowance............................................................. (18,113) (1,122)
---------- ----------
Net deferred tax assets....................................................... 31,410 16,387
---------- ----------
Net deferred taxes.............................................................. (34,711) (4,387)
Current deferred tax asset...................................................... 3,679 2,478
---------- ----------
Noncurrent deferred tax liability............................................... $ (38,390) $ (6,865)
---------- ----------
---------- ----------
</TABLE>
A reconciliation of the expected total provision for income taxes, computed
using the federal statutory rate on income before extraordinary gain (loss), is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed expected provision (benefit)..................................... $ 3,445 $ (1,385) $ 2,646
State income taxes, net of federal benefit................................ 1,072 407 572
Amortization of goodwill.................................................. 875 650 487
Nondeductible Recapitalization expenses................................... -- 3,053 --
Warrants.................................................................. -- (189) --
Alternative minimum tax................................................... -- -- 182
Increase (decrease) in valuation allowance on federal deferred tax
assets.................................................................. -- (873) (2,798)
Release of contingency reserve............................................ (500) -- --
Other..................................................................... 81 37 (29)
--------- --------- ---------
$ 4,973 $ 1,700 $ 1,060
--------- --------- ---------
--------- --------- ---------
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INCOME TAXES (CONTINUED)
In 1998, tax authorities concluded an examination of the Company's income
taxes for 1994. As a result of the conclusion of this examination, the Company
released approximately $500 of its contingency reserves for income taxes.
In 1998, the Company acquired MTI, which had federal net operating loss
carryforwards of approximately $49,000. These loss carryforwards expire in years
2006 through 2011. Their utilization is subject to substantial limitations under
the Internal Revenue Code. The Company also has other net operating loss
carryforwards of approximately $55,428 and $38,336 for federal and state income
tax purposes, respectively. These loss carryforwards expire in years 2003
through 2018.
The Company maintains a valuation allowance to reduce certain deferred tax
assets to amounts that are in management's estimation more likely than not to be
realized. This allowance primarily relates to the deferred tax assets
established for net operating loss carryforwards. The 1998 increase in the
valuation allowance of approximately $16,991 relates to the net operating loss
carryforwards of MTI. Any reductions in the valuation allowance resulting from
realization of the MTI net operating loss carryforwards will result in a
reduction of goodwill.
9. RELATED PARTY TRANSACTIONS
The Company paid $3,200 to Apollo in 1997 in connection with the
Recapitalization Merger.
In 1998, the Company paid Apollo an annual management fee of $500 and
expects to continue to receive financial advisory services from Apollo on an
ongoing basis, with compensation to be determined. In addition, the Company paid
to Apollo a fee of $1,000 and $460 as consideration for services rendered in
structuring and negotiating the acquisition of MTI and American Shared,
respectively, and also reimbursed Apollo for expenses of approximately $275
associated with these acquisitions.
Apollo holds a controlling interest in SMT Health Services, Inc. ("SMT"), a
provider of mobile MRI services in the Mid-Atlantic region of the United States.
During 1998, a subsidiary of the Company purchased an MRI system from SMT for
$350 and a subsidiary of the Company sold an MRI system to SMT for $520. From
time to time during 1998, the Company rented MRI systems from SMT for an
aggregate of $60 and SMT rented MRI systems from the Company for an aggregate
$165. In addition, SMT assigned certain of its customer contracts to the Company
and received an aggregate assignment fee of $556 related to these contracts.
39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Imaging, Inc.
We have audited the accompanying consolidated balance sheets of Alliance
Imaging, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, cash flows, and preferred stock, common stock,
additional paid-in capital (deficit) and accumulated deficit for each of the
three years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Alliance Imaging, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
March 5, 1999
40
<PAGE>
ALLIANCE IMAGING, INC.
QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Summarized quarterly unaudited financial data for the years ended December
31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 31,241 $ 51,243 $ 56,229 $ 60,688
Income (loss) before income taxes and extraordinary loss..... (333) 4,427 4,765 983
Extraordinary loss, net of taxes............................. (1,312) -- (959) --
Net income (loss)............................................ (1,645) 2,300 1,395 548
Income (loss) before extraordinary loss per common share..... $ (0.21) $ 0.43 $ 0.44 $ (0.01)
Income (loss) before extraordinary loss per common
share--assuming dilution................................... $ (0.21) $ 0.41 $ 0.42 $ (0.01)
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 19,106 $ 20,805 $ 22,374 $ 24,189
Income (loss) before income taxes and extraordinary gains.... 2,539 3,701 3,991 (14,188)
Extraordinary gains, net of taxes............................ 1,332 -- -- 517
Net income (loss)............................................ 3,036 2,411 2,636 (11,891)
Income (loss) before extraordinary gain per common share..... $ 0.33 $ 0.20 $ 0.22 $ (1.25)
Income (loss) before extraordinary gain per common
share--assuming dilution................................... $ 0.30 $ 0.16 $ 0.17 $ (1.25)
</TABLE>
The earnings (loss) per share amounts for the four quarters do not sum to
the annual earnings (loss) per share amounts as a result of the significant
decline in shares outstanding that occurred late in the fourth quarter in
connection with the Recapitalization Merger.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is information regarding the Company's board of directors
and executive officers, including their principal occupations for the past five
years, certain other directorships held by them, and their ages as of March 15,
1999. There are no family relationships among any of the directors or executive
officers.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION
- ----------------------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Richard N. Zehner(1)........................... 46 Chairman, Chief Executive Officer and Director
Vincent S. Pino................................ 50 President and Director
Kenneth S. Ord................................. 52 Executive Vice President and Chief Financial Officer
Terry A. Andrues............................... 47 Executive Vice President
Cheryl A. Ford................................. 43 Executive Vice President
Raymond M. Almieri............................. 44 Senior Vice President
Neil M. Cullinan, Ph.D......................... 57 Senior Vice President
Jay A. Mericle................................. 44 Senior Vice President
Russell D. Phillips, Jr........................ 36 General Counsel and Secretary
Michael W. Grismer............................. 37 Vice President, Controller and Assistant Secretary
Robert H. Falk................................. 60 Director
Michael S. Gross(1)(2)......................... 37 Director
Joshua J. Harris(1)(2)(3)...................... 34 Director
Anthony R. Ignaczak(3)......................... 34 Director
Robert A. Katz................................. 32 Director
Mark D. Klein(3)............................... 37 Director
Michael D. Weiner.............................. 46 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Richard N. Zehner has been the Chairman and Chief Executive Officer of the
Company since November 1998. Mr. Zehner was a founder of the Company, and also
served as President from 1983 through February 1998. He has served as a director
of the Company since 1987.
Vincent S. Pino has been President of the Company since February 1998. Prior
to that time he served as Executive Vice President and Chief Operating Officer
of the Company since December 1991 and August 1993, respectively. He has been a
director of the Company since 1987. From November 1988 to August 1993, he was
Chief Financial Officer of the Company. Mr. Pino is also a director of Insignia
Solutions.
Kenneth S. Ord joined the Company in January 1998 as Senior Vice President,
Chief Financial Officer and Secretary and in November 1998 became Executive Vice
President and Chief Financial Officer. From February 1997 to September 1997 he
served as Executive Vice President and Chief Financial Officer of Talbert
Medical Management Corporation and from February 1994 to February 1997 he served
as Senior Vice President and Chief Financial Officer of FHP International
Corporation. From 1982 to 1994 he was employed by Kelly Services, Inc. most
recently as Vice President of Finance, Controller and Treasurer.
Terry A. Andrues was Vice President of Customer Support from 1988 to 1991;
Senior Vice President from 1991 to November 1998; then became an Executive Vice
President of the Company in November 1998. From 1987 to 1988, Mr. Andrues acted
as a marketing representative of the Company.
Cheryl A. Ford became Senior Vice President of the Company in February 1995
and an Executive Vice President of the Company in November 1998. She joined the
Company as Vice President in
42
<PAGE>
October 1993. From 1987 to October 1993, she was employed by MTI in various
capacities, including most recently as Vice President - Eastern Region.
Raymond M. Almieri became a Senior Vice President of the Company in March
1998 in connection with the acquisition of MTI. From 1988 to 1998, Mr. Almieri
was employed by MTI in various capacities most recently as Senior Vice President
- -West from 1992 to 1998. From 1985 to 1988, he had been employed by the Company
as National Operations Manager.
Neil M. Cullinan, Ph.D., served since 1987 as the President of Atlantic/Gulf
Imaging, Inc., which was acquired by the Company in March 1992. He was employed
as Senior Vice President of the Company in connection with this acquisition.
Jay A. Mericle has acted as Senior Vice President of the Company since 1988
and technical marketing manager of the Company since 1986.
Russell D. Phillips, Jr. joined the Company in March 1998 as General Counsel
and became Secretary of the Company in April 1998. From May 1997 to September
1997 he served as Chief Legal Officer of Talbert Medical Management Corporation
and from June 1992 to April 1997 he served as Corporate Counsel to FHP
International Corporation. Prior to 1992, Mr. Phillips was an associate with the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP.
Michael W. Grismer joined the Company as Controller and Assistant Secretary
in July 1995 and became a Vice President of the Company in July 1998. He served
as Controller of Wynn Oil Company from 1993 through 1995, and was employed by
Ernst & Young LLP and its predecessor from 1983 through 1993, most recently as
Senior Manager since 1991.
Robert H. Falk was named as a director of the Company in December 1997 in
connection with the Recapitalization Merger. Mr. Falk has been an officer of
certain affiliates of Apollo since 1992. Prior to 1992, Mr. Falk was a partner
in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Falk is also a
director of Converse, Inc., Florsheim Group Inc. and Samsonite Corporation.
Michael S. Gross was named as a director of the Company in December 1997 in
connection with the Recapitalization Merger. Mr. Gross is a founding principal
of Apollo and has served as an officer of certain affiliates of Apollo since
1990. Mr. Gross is also a director of Allied Waste Industries, Inc., Breuners
Home Furnishings, Inc., Converse Inc., Florsheim Group Inc., Saks Incorporated
and United Rentals, Inc.
Joshua J. Harris was named as a director of the Company in December 1997 in
connection with the Recapitalization Merger. Mr. Harris is a principal of Apollo
and has served as an officer of certain affiliates of Apollo since 1990. Mr.
Harris is also a director of Converse Inc., Florsheim Group Inc., NRT
Incorporated and Quality Distribution Inc.
Anthony R. Ignaczak was named as a director of the Company in February 1998.
Mr. Ignaczak has been a partner at Quad-C, Inc. since May 1993. Prior to 1993,
Mr. Ignaczak was an Associate with the Merchant Banking Group at Merrill Lynch,
and a member of the Mergers and Acquisitions department of Drexel, Burnham,
Lambert Incorporated. Mr. Ignaczak is also a director of Stimsonsite
Corporation.
Robert A. Katz was named as a director of the Company in February 1998. Mr.
Katz has been a principal of Apollo since 1990. Prior to 1990, Mr. Katz was a
member of the Mergers and Acquisitions department of Drexel, Burnham, Lambert
Incorporated. Mr. Katz is also a director of Salant Corporation, Aris
Industries, Inc. and Vail Resorts, Inc.
Mark D. Klein was named as a director of the Company in February 1998. Mr.
Klein has served as the President of Newbrook Capital Management, Inc. since
1994. From 1991 to 1994, Mr. Klein was a Senior Portfolio Manager for Smith
Barney Shearson.
Michael D. Weiner was named as a director of the Company in December 1997 in
connection with the Recapitalization Merger. Mr. Weiner has been an officer of
certain affiliates of Apollo since 1992. Prior to
43
<PAGE>
1992, Mr. Weiner was a partner in the law firm of Morgan, Lewis & Bockius LLP.
Mr. Weiner is also a director of Converse Inc., Continental Graphics Holdings,
Inc., Florsheim Group Inc., NRT Incorporated, Quality Distribution, Inc. and WMC
Finance Co.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As a result of the Company's Common Stock being delisted under the
Securities Exchange Act of 1934 (the "34 Act"), the Company's officers and
directors and persons who own more than 10% of the Company's Common Stock have
not been required to file reports under Section 16(a) of the 34 Act.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years indicated the annual and
long-term compensation of the Company's Chief Executive Officer and the other
five most highly compensated executive officers whose total cash compensation
exceeded $100,000 during the fiscal year ended December 31, 1998 (the "Named
Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------------
-------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING STOCK LTIP
PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2) OPTIONS/SAR'S(3) PAYOUTS
- -------------------------------- ----------- --------- --------- --------------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Zehner .............. 1998 $ 350,000 727,738(5) -- 25,000 31,250
Chief Executive Officer, 1997 316,211 472,500 -- 220,000 543,750
Chairman of the Board and 1996 296,000 419,025 -- 155,000 --
Director
Vincent S. Pino ................ 1998 275,000 537,435(5) -- 20,000 25,000
President and Director 1997 223,835 222,000 -- 190,000 435,000
1996 208,000 192,140 -- 125,025 --
Kenneth S. Ord(6) .............. 1998 247,981 179,875 -- 45,000 --
Executive Vice President and 1997 -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- --
Terry A. Andrues ............... 1998 145,000 70,035 -- 13,500 12,500
Executive Vice President 1997 135,000 81,761 -- 25,000 217,500
1996 126,000 73,392 -- 33,050
Cheryl A. Ford ................. 1998 145,000 70,035 -- 13,500 12,500
Executive Vice President 1997 135,000 93,371 -- 25,000 217,500
1996 126,000 63,675 -- 33,050 --
Jay A. Mericle ................. 1998 145,000 70,035 -- 13,500 12,500
Senior Vice President 1997 135,000 95,537 -- 25,000 217,500
1996 126,000 70,691 -- 33,050 --
<CAPTION>
ALL OTHER
PRINCIPAL POSITION COMPENSATION(4)
- -------------------------------- -----------------
<S> <C>
Richard N. Zehner .............. 749,247
Chief Executive Officer, 221,596
Chairman of the Board and 15,596
Director
Vincent S. Pino ................ 430,622
President and Director 153,596
3,596
Kenneth S. Ord(6) .............. 320
Executive Vice President and --
Chief Financial Officer --
Terry A. Andrues ............... 3,595
Executive Vice President 3,456
3,411
Cheryl A. Ford ................. 3,595
Executive Vice President 3,455
3,411
Jay A. Mericle ................. 3,595
Senior Vice President 3,455
3,436
</TABLE>
- ------------------------------
(1) Rows specified "1998," "1997" and "1996" represent fiscal years ended
December 31, 1998, 1997 and 1996, respectively.
(2) With respect to each Named Officer for each fiscal year, excludes
perquisites, which did not exceed the lesser of $50,000 or 10% of Named
Officer's salary and bonus for the fiscal year.
(3) Stock options were granted under the Company's 1991 Stock Option Plan and
its 1997 Stock Option Plan.
(4) Includes $736,525 and $426,900 in change in control payments which were paid
to Messrs. Zehner and Pino, respectively, pursuant to their prior employment
agreements, and 401(k) matching contributions (for 1998, 1997 and 1996,
respectively: Mr. Zehner - $3,330, $3,164 and $3,164; Mr. Pino - $3,330,
$3,164 and $3,164; Mr. Andrues - $3,330, $3,164, and $3,139; Ms. Ford -
$3,330, $3,164 and $3,164; and Mr. Mericle - $3,330, $3,164 and $3,146); the
balance for each Named Officer represents life insurance premiums paid by
the Company.
(5) Includes $350,000 and $300,000 in bonus payments paid to Messrs. Zehner and
Pino, respectively, upon the closing of the MTI acquisition.
(6) Mr. Ord joined the Company on January 18, 1998 as Senior Vice President,
Chief Financial Officer and Secretary.
44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during the 1998
fiscal year to the Named Officers. No stock appreciation rights have ever been
granted to the Named Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PERCENTAGE OF PRICE APPRECIATION FOR
OPTIONS/SARS OPTION TERM(3)
NUMBER OF SHARES GRANTED TO EXERCISE OR BASE ----------------------
UNDERLYING EMPLOYEES IN PRICE PER SHARE EXPIRATION 0%
NAME OPTIONS/SARS(1) FISCAL YEAR ($/SH)(2) DATE -- 5%
- ------------------------------------ ----------------- ----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Zehner................... 25,000 11.3% $ 11.00 12/18/07 $ 0 $ 172,946
Vincent S. Pino..................... 20,000 9.0% 11.00 12/18/07 0 138,357
Kenneth S. Ord...................... 45,000 20.4% 11.00 01/19/08 0 311,303
Terry A. Andrues.................... 13,500 6.1% 11.00 01/02/08 0 93,391
Cheryl A. Ford...................... 13,500 6.1% 11.00 01/02/08 0 93,391
Jay A. Mericle...................... 13,500 6.1% 11.00 01/02/08 0 93,391
<CAPTION>
NAME 10%
- ------------------------------------ ---------
<S> <C>
Richard N. Zehner................... $ 438,279
Vincent S. Pino..................... 350,623
Kenneth S. Ord...................... 788,903
Terry A. Andrues.................... 236,671
Cheryl A. Ford...................... 236,671
Jay A. Mericle...................... 236,671
</TABLE>
- ------------------------------
(1) Fifty percent of the options granted under the 1997 Stock Option Plan will
vest in equal increments over four years. The other fifty percent will vest
after seven and one half years (subject to acceleration if the Company
achieves certain per-share equity targets).
(2) Options granted pursuant to the 1997 Stock Option Plan to the Named Officers
were granted at an exercise price equal to the cash amount paid for shares
of the Company's Common Stock in the Recapitalization Merger.
(3) Valuations based upon the assumed rates of stock price appreciation are
based upon appreciation over a ten-year period from the $11.00 exercise
price of the options. The 5% and 10% assumed annual rates of appreciation
related to the options granted would result in the price of the Company's
Common Stock increasing to $17.92 and $28.53 per share, respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table presents information with respect to options exercised
by each of the Named Officers in 1998, as well as the unexercised options to
purchase the Company's Common Stock granted under the 1991 Plan and the 1997
Stock Option Plan to the Named Officers and held by them as of December 31,
1998. The value of unexercised in-the-money options as of fiscal year end is
based upon last reported sales price of the Company Common Stock on December 28,
1998 of $24.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SAR'S AT IN-THE MONEY OPTIONS/SARS
SHARES YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME AND PRINCIPAL POSITION EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- --------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Zehner ................... -- $ -- 47,219 108,750 $ 662,522 $ 1,413,750
Chief Executive Officer and
Chairman of the Board
Vincent S. Pino ..................... 3,500 44,844 32,500 97,500 422,500 1,267,500
President
Kenneth S. Ord ...................... -- -- 11,250 33,750 146,250 438,750
Executive Vice President and Chief
Financial Officer
Terry A. Andrues .................... 15,000 194,063 3,375 10,125 43,875 131,625
Executive Vice President
Cheryl A. Ford ...................... -- -- 18,375 10,125 238,875 131,625
Executive Vice President
Jay A. Mericle ...................... -- -- 18,375 10,125 238,875 131,625
Senior Vice President
</TABLE>
45
<PAGE>
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
The Company instituted a long-term executive incentive plan ("LTIP") in 1995
to provide future awards in cash or equivalent amounts of Common Stock to key
executives. The objective of the plan was to advance the long-term interests of
the Company and its stockholders by providing substantial incentive to meet or
exceed certain cash-flow goals necessary to ensure that the Company would be
able to service its long-term obligations on a continuing basis, and that it
would be able to pay certain preferred stock dividends in cash, thereby avoiding
the substantial dilution to existing common stockholders if such dividends were
paid in common stock equivalents. As of January 2, 1997, the Company had retired
all of its Series A 6% Redeemable Preferred Stock (the "Series A Preferred
Stock"), thereby fully satisfying the second objective of the LTIP. The final
objective of the LTIP (the Company's actual earnings before depreciation,
amortization, interest, taxes and equipment charges, ("EBDIT") objective for
1998) was met in 1998 and final payments have been made pursuant to the LTIP.
All amounts previously earned under the LTIP were paid in cash at the time of
the Recapitalization Merger.
The following awards under the plan were earned by the Named Officers in
1998:
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAY-OUTS UNDER NON-STOCK
NUMBER PERFORMANCE OR
SHARES, OTHER PERIOD UNTIL PRICE-BASED PLAN(1)
UNITS OR MATURATION OR ---------------------------------------------
NAME OTHER RIGHTS PAY-OUT THRESHOLD TARGET MAXIMUM
- -------------------------------------------------- ------------ ------------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Richard N. Zehner................................. $ 31,250 N/A $ 0 $ 0 $ 0
Vincent S. Pino................................... 25,000 N/A 0 0 0
Kenneth S. Ord.................................... 0 N/A 0 0 0
Terry A. Andrues.................................. 12,500 N/A 0 0 0
Cheryl A. Ford.................................... 12,500 N/A 0 0 0
Jay A. Mericle.................................... 12,500 N/A 0 0 0
</TABLE>
401(K) PLAN
The Company established a tax deferred savings plan (the "401(k) Plan") in
January 1990. The 401(k) Plan covers all employees who were hired before January
1, 1990 or who were subsequently employed by the Company for at least six
months. Employees contributed from 1% to 15% of their compensation to the 401(k)
Plan on a pre-tax basis, subject to statutory limitations. For up to 7% of an
employee's compensation, the Company contributed up to $0.333 for each $1.00 of
the employee's contribution. Effective August 1, 1998, the 401(k) Plan was
amended and restated in its entirety. Currently, all employees who are over 21
years of age are eligible to participate after attaining six months of service.
Employees may contribute between 1% and 15% of their annual compensation. The
Company matches 50 cents for every dollar of employee contributions up to 5% of
their compensation, subject to statutory limitations. The rates of pre-tax and
matching contributions may be reduced with respect to highly compensated
employees, as defined in the Code, so that the 401(k) Plan will comply with
Sections 401(k) and 401(m) of the Code. Pre-tax and matching contributions are
allocated to each employee's individual account, which are invested in selected
fixed income or stock managed accounts according to the directions of the
employee. An employee's pre-tax contributions are fully vested and
nonforfeitable at all times. Matching contributions vest over four years of
service. An employee may forfeit unvested amounts upon termination of
employment, unless the termination is because of death, disability or
retirement.
Matching contributions made by the Company pursuant to the 401(k) Plan to
the Named Officers for the 1998, 1997 and 1996 fiscal years are included under
"All Other Compensation" in the Summary Compensation Table.
46
<PAGE>
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into employment agreements with Messrs. Zehner, Pino
and Ord. Base compensation under these employment agreements for the year ending
December 31, 1999 has been set at $350,000 per year for Mr. Zehner, $298,000 per
year for Mr. Pino and $270,000 per year for Mr. Ord, subject in each case to
increase by the Board of Directors. In addition, Messrs. Zehner, Pino and Ord
are entitled to receive an annual cash bonus based upon the Company's
achievement of certain operating and/ or financial goals, with an annual target
bonus amount equal to a specified percentage of their then current annual base
salary (75% in the case of Mr. Zehner, 60% in the case of Mr. Pino and 50% in
the case of Mr. Ord). Such bonus plan will be adopted and administered by the
compensation committee of the Board of Directors.
The Agreements have a term of two years, with automatic extensions for
additional three month periods if neither party gives notice that the term will
not be so extended. The Company may terminate Mr. Zehner's, Mr. Pino's or Mr.
Ord's employment at any time and for any reason and Mr. Zehner, Mr. Pino and Mr.
Ord may resign at any time and for any reason.
The employment agreements for Messrs. Zehner and Pino were amended in
February 1998, to provide for, among other items, the payment of one-time lump
sum bonuses of $350,000 and $300,000, respectively, upon the closing of the
acquisition by the Company of MTI or another acquisition with an enterprise
valuation of $25,000,000 or more.
The Company is also a party with Messrs. Andrues and Mericle and Ms. Ford to
written employment agreements. Each employment agreement remains in effect until
notice of termination is given by either party. Each contract provides that the
Named Officer will continue to receive his or her base salary and be entitled to
earn bonuses and participate in all benefit plans and programs at levels and
pursuant to terms that are substantially consistent with current levels and
terms, subject to periodic review and possible increases by the Board of
Directors or the Compensation Committee. In addition, each contract provides
that if the Named Officer is terminated by the Company other than for Just Cause
(as defined in the agreement) or if the Named Officer terminates his or her
employment as a result of a Constructive Discharge (as defined in the agreement)
(in either event, a "Severance"), then the Named Officer will be entitled to a
cash severance benefit equal to a specified number of months of salary at his or
her then current rate of salary, acceleration of the vesting of stock options
and certain other benefits identified in the contract. If such Severance were to
occur within one year prior to or following a Change of Control (as defined in
the agreement), then each employment agreement provides for an increased cash
severance benefit.
INDEPENDENT DIRECTOR COMPENSATION
The independent directors of the Company (i.e., non-employee and non-Apollo
affiliated directors) receive a $1,000 monthly retainer; $500 for each Board or
committee meeting attended; and reimbursement of travel expenses.
47
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Company's voting Common Stock as of March 15, 1999, for each
person known to the Company to beneficially own more than 5% of such stock, each
director and each of the Named Officers and all executive officers and directors
of the Company as a group. Unless otherwise specified, the address of each such
person is 1065 North PacifiCenter Drive, Suite 200, Anaheim, CA 92806.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE
NAME OF BENEFICIAL OWNER OWNED OF CLASS
- ---------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Newport Investment LLC(1) ........................................................ 3,389,324 83.2%
c/o Apollo Advisors II, L.P.
2 Manhattanville Road
Purchase, New York 10577
Third Point Management Company L.L.C.(2) ......................................... 212,761 5.2%
277 Park Avenue, 26th Floor
New York, NY 10072
Richard N. Zehner(3).............................................................. 57,750 1.4%
Vincent S. Pino(3)................................................................ 36,000 *
Kenneth S. Ord(3)................................................................. 11,250 *
Terry A. Andrues(3)............................................................... 18,375 *
Cheryl A. Ford(3)................................................................. 18,375 *
Jay A. Mericle(3)................................................................. 18,375 *
Robert H. Falk(4)................................................................. 0 0.0%
Michael S. Gross(4)............................................................... 0 0.0%
Joshua J. Harris(4)............................................................... 0 0.0%
Anthony R. Ignaczak............................................................... 2,500 *
Robert A. Katz(4)................................................................. 0 0.0%
Mark D. Klein..................................................................... 0 0.0%
Michael D. Weiner(4).............................................................. 0 0.0%
All executive officers and directors as a group (17 persons)...................... 166,386 4.0%
</TABLE>
- ------------------------
* Less than 1.0%
(1) Newport Investment LLC, a Delaware limited liability company (the
"Investor") was formed and is wholly owned by Apollo Investment Fund III,
L.P., a Delaware limited partnership ("AIF III"), Apollo Overseas III, L.P.,
a Delaware limited partnership ("Overseas Partners"), and Apollo (U.K.)
Partners III, L.P., a limited partnership organized under the laws of
England ("UK Partners" and collectively with AIF III and Overseas, the
"Apollo Entities"). Each of the Apollo Entities is principally engaged in
the business of investing in securities. Apollo Advisors II, L.P., a
Delaware limited partnership ("Advisors"), is the general partner of AIF III
and the managing general partner of Overseas Partners and UK Partners.
Apollo Capital Management II, Inc., a Delaware corporation ("Apollo
Capital") is the general partner of Advisors. Apollo serves as manager of
Apollo Capital and manages Apollo Capital's day-to-day operations. AIF III
Management, Inc. a Delaware corporation ("AIM"), is the general partner of
Apollo. Apollo, the shareholders of Apollo Capital and AIM, and all officers
and directors of each Apollo Entity and each of its affiliates disclaims any
beneficial ownership of the common stock of the Company owned by the
Investor.
48
<PAGE>
(2) Based upon a Schedule 13(G) filed with the Securities and Exchange
Commission on November 13, 1998.
(3) Includes shares that the following Named Officers and Directors presently
have the right to acquire by exercise of options: Mr. Zehner, 47,219 shares;
Mr. Pino, 32,500 shares; Mr. Ord, 11,250 shares; Mr. Andrues, 3,375 shares;
Ms. Ford, 18,375 shares; and Mr. Mericle, 18,375 shares.
(4) This individual is associated with Apollo. This individual disclaims
beneficial ownership of all shares of common stock of the Company held by
the Investor.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company pays Apollo an annual management fee of $500,000 and expects to
continue to receive financial advisory services from Apollo on an ongoing basis,
with compensation to be determined. In addition, the Company paid to Apollo a
fee of $1,000,000 and $460,000 as consideration for services rendered in
structuring and negotiating the acquisition of MTI and American Shared,
respectively, and also reimbursed Apollo for expenses of approximately $275,000
associated with these acquisitions.
Apollo holds a controlling interest in SMT Health Services Inc. ("SMT"), a
provider of mobile MRI services in the Mid-Atlantic region of the United States.
During the 1998 fiscal year, a subsidiary of the Company purchased an MRI system
from SMT for $350,000 and a subsidiary of the Company sold an MRI system to SMT
for $519,805. From time to time during the 1998 fiscal year, the Company rented
MRI systems from SMT for an aggregate of $59,500 and SMT rented MRI systems from
the Company for an aggregate $164,500. In addition, SMT assigned certain of its
customer contracts to the Company and received an aggregate assignment fee of
$555,700 related to these contracts.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A listing of the Consolidated Financial Statements, related notes and Report
of Independent Auditors is set forth in Item 8 of this report on Form 10-K.
2. Financial Statement Schedules:
The following Financial Statement Schedule for the years ended December 31,
1998, 1997 and 1996 is set forth on page 54 of this report on Form 10-K:
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is
not present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
Consolidated Financial Statements and related notes for the year ended
December 31, 1998.
49
<PAGE>
3. INDEX TO EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. NOTE DESCRIPTION
- ------------- ----- ----------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 (6) Agreement and Plan of Merger dated as of July 23, 1997 between the Company and Newport
Investment, LLC (the "Recapitalization Merger Agreement").
2.2 (7) Amendment No. 1 dated as of August 13, 1997 to the Recapitalization Merger Agreement.
2.3 (7) Amendment No. 2 dated as of October 13, 1997 to the Recapitalization Merger Agreement.
2.4 (7) Amendment No. 3 dated as of November 10, 1997 to the Recapitalization Merger Agreement.
2.5 (7) Guaranty Letter dated July 22, 1997, from AIF III to the Company.
3.1 (9) Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 (13) Certificate of Amendment of Certificate of Incorporation, dated July 30, 1998.
3.3 (14) Certificate of Designations, Powers, Preferences and Rights of Series F Preferred Stock, dated
December 18, 1997.
3.4 (13) Certificate of Amendment of Certificate Designations, Powers, Preferences and Rights of Series
F Preferred Stock, dated July 30, 1998.
3.5 (9) By Laws of the Company, as amended.
4.1 (9) Form of Indenture for the 9 5/8% Senior Subordinated Notes due 2005 and the Senior
Subordinated Floating Rate Notes due 2005 (including the Forms of Notes as Exhibits A and B
thereto) between the Company and IBJ Schroder Bank & Trust Company, as trustee.
4.2 (14) First Supplemental Indenture between the Company, various subsidiaries of the Company and IBJ
Shroder, dated January 30, 1998.
4.3 (14) Second Supplemental Indenture between the Company, various subsidiaries of the Company and IBJ
Shroder, dated March 12, 1998.
4.4 (14) Third Supplemental Indenture between the Company, various subsidiaries of the Company and IBJ
Shroder, dated May 19, 1998.
4.5 (14) Fourth Supplemental Indenture between the Company, various subsidiaries of the Company and IBJ
Shroder, dated November 13, 1998.
4.6 (9) Form of Guarantee of the Notes.
10.1 (1) Form of Indemnification Agreement between the Company and its directors and/or officers.
10.2 (4) Amended and Restated 1991 Stock Option Plan of the Company, including forms of agreement used
thereunder.
10.3 (12) 1997 Stock Option Plan of the Company, including form of option agreement used thereunder.
10.4 (5) Amended and Restated Long-Term Executive Incentive Plan dated as of July 22, 1997.
10.5 (9) Employment Agreement dated as of July 23, 1997 between the Company and Richard N. Zehner.
10.6 (9) Agreement Not to Compete dated as of July 23, 1997 among Newport Investment, LLC, the Company,
Richard N. Zehner and Vincent S. Pino.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NOTE DESCRIPTION
- ------------- ----- ----------------------------------------------------------------------------------------------
<C> <C> <S>
10.7 (11) Amendment to Employment Agreement dated as of July 23, 1997 between the Company and Richard N.
Zehner.
10.8 (14) Amendment to Employment Agreement dated as of December 31, 1997 between the Company and
Richard N. Zehner.
10.9 (14) Second Amendment to Employment Agreement dated as of February 5, 1998 between the Company and
Richard N. Zehner.
10.10 (9) Employment Agreement dated as of July 23, 1997 between the Company and Vincent S. Pino.
10.11 (11) Amendment to Employment Agreement dated as of July 23, 1997 between the Company and Vincent S.
Pino.
10.12 (14) Amendment to Employment Agreement dated as of December 31, 1997 between the Company and
Vincent S. Pino.
10.13 (14) Second Amendment to Employment Agreement dated as of February 5, 1998 between the Company and
Vincent S. Pino.
10.14 (12) Employment Agreement dated as of January 19, 1998 between the Company and Kenneth S. Ord.
10.15 (12) Agreement Not to Compete dated as of January 19, 1998 between the Company and Kenneth S. Ord.
10.16 (2) Employment Agreement dated as of September 9, 1993 between the Company and Terry A. Andrues.
10.17 (2) Employment Agreement dated as of June 6, 1994 between the Company and Cheryl A. Ford.
10.18 (2) Employment Agreement dated as of September 9, 1993 between the Company and Jay A. Mericle.
10.19 (2) Employment Agreement dated as of June 6, 1994 between the Company and Neil M. Cullinan.
10.20 (14) Agreement Not to Compete dated as of April 29, 1998 between the Company and Raymond M.
Almieri.
10.21 (14) Employment Agreement dated as of April 29, 1998 between the Company and Raymond M. Almieri.
10.22 (14) Employment Agreement dated as of April 29, 1998 between the Company and Russell D. Phillips,
Jr.
10.23 (14) Agreement Not to Compete dated as of April 29, 1998 between the Company and Russell D.
Phillips, Jr.
10.24 (3) Employment Agreement dated as of July 7, 1995 between the Company and Michael W. Grismer.
10.25 (8) Acquisition Agreement dated as of October 17, 1997 among Medical Consultants Imaging Corp.,
Bondcat Corp., Chip-Cat Corp., Medical Consultants Scanning Systems, Inc., Alliance Imaging
of Ohio, Inc., Alliance Imaging of Michigan, Inc., and Alliance Imaging, Inc.
10.26 (10) Agreement and Plan of Merger dated as of January 13, 1998 relating to the acquisition of
Mobile Technology Inc.
10.27 (12) Securities Purchase Agreement dated as of March 12, 1998 relating to the acquisition of
American Shared-CuraCare and CuraCare, Inc.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. NOTE DESCRIPTION
- ------------- ----- ----------------------------------------------------------------------------------------------
<C> <C> <S>
10.28 (12) Stock Purchase Agreement dated as of March 30, 1998 among the Company, US Diagnostic, Inc. and
Medical Diagnostics, Inc.
10.29 (13) Amended and Restated Credit Agreement dated September 24, 1998.
21.0 (14) List of Subsidiaries.
23 (14) Consent of Ernst & Young LLP.
27.1 (14) Financial Data Schedule.
</TABLE>
- ------------------------
(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 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.
(3) 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.
(4) 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 Shareholders held May 16, 1996.
(5) Incorporated by reference to indicated exhibits filed in response to Item
6, "Exhibits" of the Company's Quarterly report on Form 10-Q for the
quarter ended June 30, 1997.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 5, "Exhibits" of the Company's Form 8-K Current Report
dated August 1, 1997.
(7) Incorporated by reference to the indicated exhibits filed in response to
Item 21, "Exhibits" of the Company's Registration Statement on Form S-4,
No. 333-33787, initially filed on August 15, 1997.
(8) Incorporated by reference to the indicated exhibits filed in response to
Item 6, "Exhibits" of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(9) Incorporated by reference to exhibits filed with the Company Registration
Statement on Form S-2, No. 333-33817.
(10) Incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated January 13, 1998.
(11) 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 ending December 31, 1997.
(12) Incorporated by reference to exhibits filed in response to Item 6,
"Exhibits" of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
(13) Incorporated by reference to exhibits filed in response to Item 6,
"Exhibits" of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
(14) Filed herewith.
(b) Reports on Form 8-K in the fourth quarter of 1998:
On November 30, 1998, the Company filed a Report on Form 8-K reporting
the consummation of the acquisition by two of its wholly owned
subsidiaries of American Shared-CuraCare and CuraCare, Inc.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
ALLIANCE IMAGING, INC.
By /s/ RICHARD N. ZEHNER
-----------------------------------------
Richard N. Zehner,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
March 30, 1999
</TABLE>
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 March 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board of
/s/ RICHARD N. ZEHNER Directors, Executive
- ------------------------------ Officer (Principal
Richard N. Zehner Chief Executive Officer)
/s/ VINCENT S. PINO
- ------------------------------ President and Director
Vincent S. Pino
Executive Vice President
/s/ KENNETH S. ORD and Chief Financial
- ------------------------------ Officer (Principal
Kenneth S. Ord Financial Officer)
/s/ MICHAEL W. GRISMER Vice President and
- ------------------------------ Controller (Principal
Michael W. Grismer Accounting Officer)
/s/ ROBERT H. FALK
- ------------------------------ Director
Robert H. Falk
/s/ MICHAEL S. GROSS
- ------------------------------ Director
Michael S. Gross
/s/ JOSHUA J. HARRIS
- ------------------------------ Director
Joshua J. Harris
- ------------------------------ Director
Anthony R. Ignaczak
- ------------------------------ Director
Robert A. Katz
/s/ MARK D. KLEIN
- ------------------------------ Director
Mark D. Klein
/s/ MICHAEL D. WEINER
- ------------------------------ Director
Michael D. Weiner
</TABLE>
53
<PAGE>
ALLIANCE IMAGING, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO FROM ACQUIRED (BAD DEBT END OF
PERIOD EXPENSE COMPANIES WRITE-OFFS) PERIOD
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for Doubtful Accounts................. $ 750 $ 4,509 $ 5,096 $ (2,096) $ 8,259
----- ----------- ------ ----------- -----------
----- ----------- ------ ----------- -----------
Year ended December 31, 1997
Allowance for Doubtful Accounts................. $ 513 $ 256 $ -- $ (19) $ 750
----- ----------- ------ ----------- -----------
----- ----------- ------ ----------- -----------
Year ended December 31, 1996
Allowance for Doubtful Accounts................. $ 367 $ 567 $ -- $ (421) $ 513
----- ----------- ------ ----------- -----------
----- ----------- ------ ----------- -----------
</TABLE>
54
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES
AND RIGHTS OF SERIES F PREFERRED STOCK
$.01 PAR VALUE PER SHARE
OF
ALLIANCE IMAGING, INC.
A DELAWARE CORPORATION
---------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
---------------
Alliance Imaging, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was duly
adopted by the Board of Directors of the Corporation as required by Section
151 of the Delaware General Corporation Law at a meeting duly called and held
on December 18, 1997.
RESOLVED, that one series of the class of authorized preferred
stock, $.01 par value, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating, optional or
other special rights of the shares of such series, and qualifications,
limitations or restrictions thereof, are hereby fixed as follows:
1. NUMBER OF SHARES AND DESIGNATIONS.
Three Hundred Thousand (300,000) of the shares of the Corporation's
preferred stock, $.01 par value, are hereby designated the "Series F
Preferred Stock." One Hundred Fifty Thousand (150,000) of such shares of
Series F Preferred Stock shall be issued as of the date hereof, and the
balance of such shares shall be authorized and reserved for issuance pursuant
to Section 4 hereof.
2. VOTING RIGHTS
Except as otherwise required by law, this Certificate of Designation
or the Amended and Restated Certificate of Incorporation, holders of Series F
Preferred Stock shall not be entitled to voting rights.
3. CONVERSION RIGHTS
The holders of the Series F Preferred Stock shall not have any
conversion rights.
<PAGE>
4. DISTRIBUTIONS
The holders of shares of Series F Preferred Stock shall be entitled
to receive when and as declared by the Board of Directors of the Corporation,
out of funds legally available therefor, cumulative dividends on the shares
of the Series F Preferred Stock, at the rate of 13.5% per annum on the
Liquidation Value (as defined herein), payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year. Dividends on the
Series F Preferred Stock shall be payable in kind for the first five years
after issuance, and thereafter in cash. Dividends on the Series F Preferred
Stock shall be payable in preference to and in priority over dividends on any
other class or series of capital stock of the Corporation, including the
common stock of the Corporation (the "Common Stock"). Dividends shall be
fully cumulative.
Except as set forth in this Certificate of Designation, or to the
extent approval is provided in writing by the holders of two-thirds of the
outstanding shares of Series F Preferred Stock (voting as a separate class),
the Corporation shall not, and shall not permit any Subsidiary (as defined
herein) to, declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital or make any distribution of assets to its stockholders,
except that the Corporation may: (i) permit any wholly-owned Subsidiary to
declare and make payment of cash and stock dividends, return capital and make
distributions of assets solely to the Corporation or another wholly-owned
Subsidiary; (ii) effect a stock split of, or declare or pay any dividend on,
the Common Stock consisting solely of shares of Common Stock; (iii) comply
with any specific provision of the terms of any subsequently designated
series of Preferred Stock approved by the holders of the Series F Preferred
Stock as provided for herein; or (iv) redeem or repurchase any stock of any
director, officer, employee, consultant or other person or entity, pursuant
to a stock repurchase agreement or stock restriction agreement approved by
the board of directors under which the Corporation has the right or
obligation to repurchase (in the event of death, termination of employment or
of the consulting arrangement, or other similar discontinuation of a business
relationship) vested shares at no more than their fair market value and
unvested shares at no more than their initial issuance price. Unless
otherwise specified herein, "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Corporation or any of
its other Subsidiaries (as herein defined) directly or indirectly owns at the
time at least fifty percent (50%) of the outstanding voting shares or similar
interests.
5. LIQUIDATION, DISSOLUTION OR WINDING UP
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series F Preferred Stock in liquidation
preference, and subject to the liquidation rights and preferences of any
class or series of Preferred Stock designated in the future to be senior to,
or on a parity with, the Series F Preferred Stock with respect to liquidation
preference, the holders of each share of Series F Preferred Stock shall be
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings ("Available Assets"), an
amount in respect of each share of Series F Preferred Stock equal to One
Hundred Dollars ($100) plus accrued but unpaid dividends (the "Liquidation
Value"); PROVIDED
2
<PAGE>
that such amount shall be subject to equitable adjustment for any stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock.
If, upon liquidation, dissolution or winding up of the Corporation,
the Available Assets shall be insufficient to pay the holders of Series F
Preferred Stock and of any other series of Preferred Stock on parity with the
Series F Preferred Stock with respect to liquidation preference the full
amounts to which they otherwise would be entitled, the holders of Series F
Preferred Stock and such other series of Preferred Stock shall share ratably
in any distribution of Available Assets pro rata in proportion to the
respective liquidation preference amounts which would otherwise be payable
upon liquidation with respect to the outstanding shares of the Series F
Preferred Stock and such other series of Preferred Stock if all liquidation
preference dollar amounts with respect to such shares were paid in full.
6. TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR SALE OF
ASSETS.
Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a party, and any sale of all or
substantially all of the assets or stock of the Corporation, shall be
regarded, at the option of the holders of two-thirds of the outstanding
shares of Series F Preferred Stock, as a liquidation, dissolution or winding
up of the affairs of the Corporation for purposes of this Section 6.
The provisions of this Section 6 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state
of incorporation of the Corporation, (ii) a merger of the Corporation with or
into a wholly-owned Subsidiary of the Corporation that is incorporated in the
United States of America, or (iii) a merger, reorganization, consolidation or
other combination in which the Corporation is the surviving corporation and
operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation after which the shareholders of the Corporation
will own less than 50% of the capital stock of the Corporation.
7. REDEMPTION
The Series F Preferred Stock shall be redeemable at the option of
the Corporation at the applicable premium to Liquidation Value set forth
below:
<TABLE>
<S> <C> <C>
On or before December 31, 1998 113.500%
From January 1, 1999 to December 31, 1999 112.000
January 1, 2000 to December 31, 2000 110.500
January 1, 2001 to December 31, 2001 109.000
January 1, 2002 to December 31, 2002 107.500
January 1, 2003 to December 31, 2003 106.000
January 1, 2004 to December 31, 2004 104.500
January 1, 2005 to December 31, 2005 103.000
January 1, 2006 to December 31, 2006 101.000
January 1, 2007 to December 31, 2007 100.000
</TABLE>
3
<PAGE>
The Corporation shall redeem all outstanding shares of Series F
Preferred Stock on December 31, 2007, out of funds legally available therefor.
8. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION
(i) The Corporation shall not take any corporate action or amend its
Certificate of Incorporation without the approval by vote or
written consent of the holders of at least two-thirds of the then
outstanding shares of Series F Preferred Stock, voting as a
single class, each share of Series F Preferred Stock to be
entitled to one vote in each instance, if such corporate action
or amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit
of any shares of Series F Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not
take any corporate action without the approval by the holders of
at least two-thirds of the then outstanding shares of Series F
Preferred Stock, voting as a single class, if such corporate
action would amend the Certificate of Incorporation of the
Corporation in a way that would change any of the rights,
preferences, privileges of or limitations provided for herein for
the benefit of any shares of Series F Preferred Stock.
9. NOTICES OF RECORD DATE. In the event of:
(i) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividends or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right,
(ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or
any transfer of all or substantially all of the assets of the
Corporation to any other corporation, or any other entity or
person, or
(iii) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed
to each holder of Preferred Stock a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right and a description of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (iii) the time, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed
by first class mail, postage prepaid, at least ten (10) days prior to the
date specified in such notice on which action is being taken.
4
<PAGE>
IN WITNESS WHEREOF, the officers named below, acting for and on
behalf of Alliance Imaging, Inc., have hereunto subscribed their names on
this 18th day of December, 1997.
ALLIANCE IMAGING, INC.
By: /s/ Terrence M. White
----------------------------------
Name: Terrence M. White
Title: Secretary
5
<PAGE>
ALLIANCE IMAGING, INC.,
as Issuer,
The GUARANTORS Named Herein,
as Guarantors,
MTI ACQUISITION CORP.,
as Guarantor,
and
IBJ SCHRODER BANK & TRUST COMPANY
-------------------------------
First Supplemental Indenture
Dated as of January 30, 1998
To Indenture
of Alliance Imaging, Inc.
Dated as of December 18, 1997
for 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of January 30, 1998,
among ALLIANCE IMAGING, INC., a Delaware corporation (the "Company"), each of
the Guarantors named herein, as Guarantors, MTI Acquisition Corp. (the "New
Guarantor Subsidiary"), a subsidiary of the Company, and IBJ Schroder Bank
and Trust Company, a New York banking corporation, as trustee (hereinafter,
the "Trustee"), under the Indenture (referred to hereinafter) pursuant to
which the Company issued its 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005 (collectively,
the "Securities").
WITNESSETH:
WHEREAS, the Company, the Guarantors named therein, and the Trustee
executed and delivered a certain Indenture, dated as of December 18, 1997,
providing for the issuance of up to an aggregate principal amount of
$285,000,000 of the Securities;
WHEREAS, the Company by appropriate action has determined that it is
desirable to amend certain provisions of the Indenture; and
WHEREAS, Section 4.18 of the Indenture provides that under certain
circumstances the Company is required to cause the New Guarantor Subsidiary
to execute and deliver to the Trustee a supplemental indenture pursuant to
which the New Guarantor Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Securities and the Indenture on the terms set
forth in the Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
New Guarantor Subsidiary, the Company, the Guarantors named herein and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
ARTICLE I
AMENDMENT
1.1 The New Guarantor Subsidiary hereby, jointly and severally with
all other Guarantors, unconditionally and irrevocably guarantees, on a senior
subordinated basis, the Company's obligations under the Indenture and the
Securities on the terms and subject to the conditions set forth in Article
Eleven of the Indenture.
1.2 Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This First Supplemental
Indenture shall form a part of the Indenture for all purposes, and every
holder of Securities heretofore or hereafter authenticated and delivered
shall be bound hereby.
2
<PAGE>
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 For all purposes of this First Supplemental Indenture, except as
otherwise defined or unless the context otherwise requires, capitalized terms
used herein and not defined herein shall have the meaning specified in the
Indenture.
2.2 THIS FIRST SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
2.3 All provisions in this First Supplemental Indenture respecting
the Company shall bind or inure to the benefit of (as the case may be) the
Company, its successors or assigns.
2.4 The recitals contained herein shall be taken as the statements
of the Company and the Guarantors and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the
validity of this First Supplemental Indenture.
2.5 This First Supplemental Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first above written.
ALLIANCE IMAGING, INC.
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
ALLIANCE IMAGING OF OHIO, INC.,
as Guarantor
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
ALLIANCE IMAGING OF MICHIGAN, INC.,
as Guarantor
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
ROYAL MEDICAL HEALTH SERVICES, INC.,
as Guarantor
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
4
<PAGE>
ALLIANCE IMAGING OF CENTRAL GEORGIA, INC.,
as Guarantor
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
MTI ACQUISITION CORP.
By: /s/ TERRENCE M. WHITE
----------------------------------------
Name: Terrence M. White
Title: Senior Vice President
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ TERENCE RAWLINS
----------------------------------------
Name: Terence Rawlins
Title: Assistant Vice President
5
<PAGE>
ALLIANCE IMAGING, INC.,
as Issuer,
The GUARANTORS Named Herein,
as Guarantors,
MOBILE TECHNOLOGY INC.,
as Guarantor,
and
IBJ SCHRODER BANK & TRUST COMPANY
-------------------------------
Second Supplemental Indenture
Dated as of March 12, 1998
To Indenture
of Alliance Imaging, Inc.
Dated as of December 18, 1997
for 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005
<PAGE>
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of March 12, 1998,
among ALLIANCE IMAGING, INC., a Delaware corporation (the "Company"), each of
the Guarantors named herein, as Guarantors, Mobile Technology Inc. (the
"Successor Guarantor"), a subsidiary of the Company, and IBJ Schroder Bank
and Trust Company, a New York banking corporation, as trustee (hereinafter,
the "Trustee"), under the Indenture (referred to hereinafter) pursuant to
which the Company issued its 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005 (collectively,
the "Securities").
WITNESSETH:
WHEREAS, the Company, the Guarantors named therein, and the Trustee
executed and delivered a certain Indenture, dated as of December 18, 1997, as
amended by First Supplemental Indenture, dated as of January 30, 1998,
providing for the issuance of up to an aggregate principal amount of
$285,000,000 of the Securities;
WHEREAS, the Company by appropriate action has determined that it is
desirable to amend certain provisions of the Indenture; and
WHEREAS, pursuant to an Agreement and Plan of Merger between MTI
Acquisition Corp. (the "Predecessor Guarantor") and the Successor Guarantor,
the Predecessor Guarantor is merging with and into the Successor Guarantor;
and
WHEREAS, Section 4.18 of the Indenture provides that under certain
circumstances the Company is required to cause the Successor Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Successor Guarantor shall unconditionally guarantee all of the Company's
obligations under the Securities and the Indenture on the terms set forth in
the Indenture; and
WHEREAS, Section 5.02(b) of the Indenture provides that under
certain circumstances the Company is required to cause the Successor
Guarantor to execute and deliver to the Trustee a supplemental indenture
pursuant to which the Successor Guarantor shall assume all of the Predecessor
Guarantor's obligations under the Securities and the Indenture on the terms
set forth in the Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Successor Guarantor, the Company, the Guarantors named herein and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders
of the Securities as follows:
2
<PAGE>
ARTICLE I
AMENDMENT
1.1 The Successor Guarantor hereby, jointly and severally with all
other Guarantors, unconditionally and irrevocably guarantees, on a senior
subordinated basis, the Company's obligations under the Indenture and the
Securities on the terms and subject to the conditions set forth in Article
Eleven of the Indenture.
1.2 The Successor Guarantor, the Company, the Guarantors named
herein and the Trustee hereby release the Predecessor Guarantor from all
obligations under the Securities and the Indenture.
1.3 Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Second Supplemental
Indenture shall form a part of the Indenture for all purposes, and every
holder of Securities heretofore or hereafter authenticated and delivered
shall be bound hereby.
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 For all purposes of this Second Supplemental Indenture, except
as otherwise defined or unless the context otherwise requires, capitalized
terms used herein and not defined herein shall have the meaning specified in
the Indenture.
2.2 THIS SECOND SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
2.3 All provisions in this Second Supplemental Indenture respecting
the Company shall bind or inure to the benefit of (as the case may be) the
Company, its successors or assigns.
2.4 The recitals contained herein shall be taken as the statements
of the Company and the Guarantors and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the
validity of this Second Supplemental Indenture.
2.5 This Second Supplemental Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed as of the date first above written.
ALLIANCE IMAGING, INC.
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ALLIANCE IMAGING OF OHIO, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ALLIANCE IMAGING OF MICHIGAN, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ROYAL MEDICAL HEALTH SERVICES, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
4
<PAGE>
ALLIANCE IMAGING OF CENTRAL GEORGIA, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
MOBILE TECHNOLOGY INC.
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ TERENCE RAWLINS
----------------------------------------
Name: Terence Rawlins
Title: Assistant Vice President
5
<PAGE>
ALLIANCE IMAGING, INC.,
as Issuer,
The GUARANTORS Named Herein,
as Guarantors,
MEDICAL DIAGNOSTICS, INC.,
as Guarantor,
CENTRAL MASSACHUSETTS MRI SERVICES, INC.,
as Guarantor,
WESTERN MASSACHUSETTS MAGNETIC RESONANCE SERVICES, INC.,
as Guarantor,
and
IBJ SCHRODER BANK & TRUST COMPANY
-------------------------------
Third Supplemental Indenture
Dated as of May 19, 1998
To Indenture
of Alliance Imaging, Inc.
Dated as of December 18, 1997
for 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005
<PAGE>
THIS THIRD SUPPLEMENTAL INDENTURE, dated as of May 19, 1998, among
ALLIANCE IMAGING, INC., a Delaware corporation (the "Company"), each of the
Guarantors named herein, as Guarantors, Medical Diagnostics, Inc., Central
Massachusetts MRI Services, Inc. and Western Massachusetts Magnetic Resonance
Services, Inc. (the "Successor Guarantors"), subsidiaries of the Company, and
IBJ Schroder Bank and Trust Company, a New York banking corporation, as
trustee (hereinafter, the "Trustee"), under the Indenture (referred to
hereinafter) pursuant to which the Company issued its 9 5/8% Senior
Subordinated Notes due 2005 and Floating Interest Rate Subordinated Term
Securities due 2005 (collectively, the "Securities").
WITNESSETH:
WHEREAS, the Company, the Guarantors named therein, and the Trustee
executed and delivered a certain Indenture, dated as of December 18, 1997, as
amended by First Supplemental Indenture, dated as of January 30, 1998, and by
Second Supplemental Indenture, dated as of March 12, 1998, providing for the
issuance of up to an aggregate principal amount of $285,000,000 of the
Securities;
WHEREAS, the Company by appropriate action has determined that it is
desirable to amend certain provisions of the Indenture; and
WHEREAS, Section 4.18 of the Indenture provides that under certain
circumstances the Company is required to cause the Successor Guarantors to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Successor Guarantors shall unconditionally guarantee all of the Company's
obligations under the Securities and the Indenture on the terms set forth in
the Indenture; and
WHEREAS, Section 5.02(b) of the Indenture provides that under
certain circumstances the Company is required to cause the Successor
Guarantors to execute and deliver to the Trustee a supplemental indenture
pursuant to which the Successor Guarantor shall assume all of the Predecessor
Guarantor's obligations under the Securities and the Indenture on the terms
set forth in the Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Successor Guarantors, the Company, the Guarantors named herein and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
2
<PAGE>
ARTICLE I
AMENDMENT
1.1 The Successor Guarantors hereby, jointly and severally with all
other Guarantors, unconditionally and irrevocably guarantee, on a senior
subordinated basis, the Company's obligations under the Indenture and the
Securities on the terms and subject to the conditions set forth in Article
Eleven of the Indenture.
1.2 Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Third Supplemental
Indenture shall form a part of the Indenture for all purposes, and every
holder of Securities heretofore or hereafter authenticated and delivered
shall be bound hereby.
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 For all purposes of this Third Supplemental Indenture, except as
otherwise defined or unless the context otherwise requires, capitalized terms
used herein and not defined herein shall have the meaning specified in the
Indenture.
2.2 THIS THIRD SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
2.3 All provisions in this Third Supplemental Indenture respecting
the Company shall bind or inure to the benefit of (as the case may be) the
Company, its successors or assigns.
2.4 The recitals contained herein shall be taken as the statements
of the Company and the Guarantors and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the
validity of this Third Supplemental Indenture.
2.5 This Third Supplemental Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the date first above written.
ALLIANCE IMAGING, INC.
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ALLIANCE IMAGING OF OHIO, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ALLIANCE IMAGING OF MICHIGAN, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
ROYAL MEDICAL HEALTH SERVICES, INC.,
as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
4
<PAGE>
ALLIANCE IMAGING OF CENTRAL
GEORGIA, INC., as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
MOBILE TECHNOLOGY INC., as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
MEDICAL DIAGNOSTICS, INC., as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
CENTRAL MASSACHUSETTS MRI SERVICES,
INC., as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
5
<PAGE>
WESTERN MASSACHUSETTS MAGNETIC RESONANCE
SERVICES, INC., as Guarantor
By: /s/ KENNETH S. ORD
----------------------------------------
Name: Kenneth S. Ord
Title: Senior Vice President and CFO
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ TERENCE RAWLINS
----------------------------------------
Name: Terence Rawlins
Title: Assistant Vice President
6
<PAGE>
ALLIANCE IMAGING, INC.,
as Issuer,
The GUARANTORS Named Herein,
as Guarantors,
EMBARCADERO HOLDING CORP. I,
EMBARCADERO HOLDING CORP. II,
CURACARE, INC.,
as Guarantors,
and
IBJ SCHRODER BANK & TRUST COMPANY
_______________________________
Fourth Supplemental Indenture
Dated as of November 13, 1998
To Indenture
of Alliance Imaging, Inc.
Dated as of December 18, 1997
for 9 5/8% Senior Subordinated Notes due 2005 and
Floating Interest Rate Subordinated Term Securities due 2005
<PAGE>
THIS FOURTH SUPPLEMENTAL INDENTURE, dated as of November 13, 1998, among
ALLIANCE IMAGING, INC., a Delaware corporation (the "Company"), each of the
Guarantors named herein, as Guarantors, EMBARCADERO HOLDING CORP. I,
EMBARCADERO HOLDING CORP. II, and CURACARE, INC. (together, the "Successor
Guarantors"), are subsidiaries of the Company, and IBJ Schroder Bank and
Trust Company, a New York banking corporation, as trustee (hereinafter, the
"Trustee"), under the Indenture (referred to hereinafter) pursuant to which
the Company issued its 9 5/8% Senior Subordinated Notes due 2005 and Floating
Interest Rate Subordinated Term Securities due 2005 (collectively, the
"Securities").
WITNESSETH:
WHEREAS, the Company, the Guarantors named therein, and the Trustee
executed and delivered a certain Indenture, dated as of December 18, 1997, as
amended by First Supplemental Indenture, dated as of January 30, 1998, and by
Second Supplemental Indenture, dated as of March 12, 1998, providing for the
issuance of up to an aggregate principal amount of $285,000,000 of the
Securities;
WHEREAS, the Company by appropriate action has determined that it is
desirable to amend certain provisions of the Indenture; and
WHEREAS, pursuant to a Securities Purchase Agreement dated March 12,
1998, Embarcadero Holding Corp. I is acquiring the capital stock of CuraCare,
Inc., a Delaware corporation, and Embarcadero Holding Corp. I together with
Embarcadero Holding Corp. II are acquiring the partnership interests in
American-Shared CuraCare, a California partnership; and
WHEREAS, Section 4.18 of the Indenture provides that under certain
circumstances the Company is required to cause the Successor Guarantors to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Successor Guarantors shall unconditionally guarantee all of the Company's
obligations under the Securities and the Indenture on the terms set forth in
the Indenture; and
WHEREAS, Section 5.02(b) of the Indenture provides that under certain
circumstances the Company is required to cause the Successor Guarantors to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Successor Guarantor shall assume all of the obligations under the
Securities and the Indenture on the terms set forth in the Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Successor Guarantors, the Company, the Guarantors named herein and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
2
<PAGE>
ARTICLE I
AMENDMENT
1.1 The Successor Guarantors hereby, jointly and severally with
all other Guarantors, unconditionally and irrevocably guarantee, on a senior
subordinated basis, the Company's obligations under the Indenture and the
Securities on the terms and subject to the conditions set forth in Article
Eleven of the Indenture.
1.2 Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. This Fourth Supplemental
Indenture shall form a part of the Indenture for all purposes, and every
holder of Securities heretofore or hereafter authenticated and delivered
shall be bound hereby.
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 For all purposes of this Fourth Supplemental Indenture, except
as otherwise defined or unless the context otherwise requires, capitalized
terms used herein and not defined herein shall have the meaning specified in
the Indenture.
2.2 THIS THIRD SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
2.3 All provisions in this Fourth Supplemental Indenture respecting
the Company shall bind or inure to the benefit of (as the case may be) the
Company, its successors or assigns.
2.4 The recitals contained herein shall be taken as the statements
of the Company and the Guarantors and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the
validity of this Fourth Supplemental Indenture.
2.5 This Fourth Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed as of the date first above written.
ALLIANCE IMAGING, INC.
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
ALLIANCE IMAGING OF OHIO, INC.,
as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
ALLIANCE IMAGING OF MICHIGAN, INC.,
as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
ROYAL MEDICAL HEALTH SERVICES, INC.,
as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
[SIGNATURES CONTINUED ON NEXT PAGE]
4
<PAGE>
ALLIANCE IMAGING OF CENTRAL GEORGIA,
INC., as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
MOBILE TECHNOLOGY INC., as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
MEDICAL DIAGNOSTICS, INC., as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
CENTRAL MASSACHUSETTS MRI SERVICES,
INC., as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE>
WESTERN MASSACHUSETTS MAGNETIC
RESONANCE SERVICES, INC., as Guarantor
By: /s/ RUSSELL D. PHILLIPS
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
EMBARCADERO HOLDING CORP. I, as Guarantor
By: /s/ Russell D. Phillips
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
EMBARCADERO HOLDING CORP. II, as
Guarantor
By: /s/ Russell D. Phillips
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
CURACARE, INC., as Guarantor
By: /s/ Russell D. Phillips
----------------------------------------
Name: Russell D. Phillips
Title: Secretary
[SIGNATURES CONTINUED ON NEXT PAGE]
6
<PAGE>
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ TERENCE RAWLINS
----------------------------------------
Name: Terence Rawlins
Title: Assistant Vice President
7
<PAGE>
ALLIANCE IMAGING, INC.
1065 North PacifiCenter Drive, Suite 200
Anaheim, California 92806
As of December 31, 1997
Richard N. Zehner
9881 Orchard Lane
Villa Park, California 92861
Re: EMPLOYMENT AGREEMENT
Dear Rick:
This letter confirms our agreement to amend the Employment Agreement
dated as of July 23, 1997 (the "AGREEMENT"), between you and Alliance
Imaging, Inc., a Delaware corporation (the "COMPANY") in the following
respects: Section 6(b) of the Agreement is amended to increase the "$644,000"
amount referred to therein to "$736,525" and to change the "January 2, 1998"
date referred to therein to "March 20, 1998."
Notwithstanding anything to the contrary contained herein, the
Company's obligations hereunder shall be conditioned upon the Company
obtaining the requisite consents under the Credit Agreement dated as of
December 18, 1997 among the Company, Bankers Trust Company, as Agent, and the
various lending institutions party thereto.
Except as expressly provided herein, the Agreement shall remain in
full force and effect, enforceable in accordance with its terms.
If this letter correctly sets forth our agreement, please so
indicate by executing in the space provided below.
Alliance Imaging, Inc.
By: /s/ Vincent S. Pino
-------------------------------------------
Name: Vincent S. Pino
Title: Executive Vice President
Agreed as of the date first above written:
/s/ Richard N. Zehner
- -------------------------------------------
Richard N. Zehner
<PAGE>
AMENDMENT dated as of February 5,
1998, between ALLIANCE IMAGING, INC.
(the "CORPORATION") and RICHARD N. ZEHNER
(the "EXECUTIVE").
RECITALS
WHEREAS, the Corporation and Executive are parties to an Employment
Agreement dated as of July 23, 1997 (as thereafter amended as of December 31,
1997 and as of February 5, 1998, the "EMPLOYMENT AGREEMENT"), pursuant to
which, among other things, the Corporation agreed to grant to the Executive
options to acquire common stock of the Corporation (the "EXISTING OPTIONS");
WHEREAS, the parties' agreed the Executive should be granted Options
subject to forfeiture if Joseph Cilurzo became employed by the Corporation
after the consummation of the acquisition by the Corporation of Mobile
Technology, Inc.;
WHEREAS, the Amendment dated as of an even date herewith incorrectly
sets forth the parties' agreement by reducing the number of Options to be
granted to the Executive without any qualification;
WHEREAS, the Options are subject to the Alliance Imaging, Inc. 1997
Stock Option Plan (the "Plan") and a Stock Option Agreement dated as of
December 18, 1997 (the "OPTION AGREEMENT" and together with the Employment
Agreement, the "AGREEMENTS"); and
WHEREAS, the Corporation and the Executive desire to further amend
the Agreements as hereinafter described.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements of the parties set forth herein, the parties do hereby
agree as follows (capitalized terms used but not defined herein have the
meanings ascribed to them in the Option Agreement, or if not defined therein,
in the Plan):
ARTICLE I
AMENDMENTS
1.1 GRANT OF ADDITIONAL OPTIONS.
(a) Section 2 of the Option Agreement is hereby amended by adding a
new sentence to the end thereof, which shall read as follows: "The
Corporation hereby grants to the Executive an additional 25,000 Options, 50%
of which shall be Tranche A Options, 25% of which shall be Tranche B Options
and 25% of which shall be Tranche C Options (collectively, the "NEW
OPTIONS")."
(b) The Option Agreement is hereby amended by amending the term
"OPTION" each time it appears therein to mean the Existing Options and the
New Options.
<PAGE>
1.2 FORFEITURE OF OPTIONS.
The Option Agreement is hereby amended by adding a new Section 15,
which shall read in its entirety as follows:
"15. FORFEITURE OF NEW OPTIONS.
The Corporation may from time to time, in its sole discretion,
request that the Executive forfeit up to all of the New Options on the
terms and conditions set forth in this Section 15.
(a) The Compensation Committee of the Board of Directors of
the Corporation shall determine the number of Options to be granted to
one or more new employees of the Corporation or its subsidiaries (the
"AGGREGATE FORFEITURE NUMBER"), and shall deliver a notice to the
Executive to such effect.
(b) Immediately upon delivery of the notice referred to in
Section 15(a), the Executive shall be deemed to have forfeited New
Options (the "FORFEITED OPTIONS") as follows:
(i) The Executive shall forfeit a number of New
Options equal to the Aggregate Forfeiture Number, multiplied
by a fraction, the numerator of which is the number of New
Options held by the Executive and the denominator of which is
the number of options granted on the date hereof to and held
by Richard N. Zehner and Vincent S. Pino.
(ii) 50% of the Forfeited Options shall be Tranche A
Options, 25% of the Forfeited Options shall be Tranche B
Options and 25% of the Forfeited Options shall be Tranche C
Options.
(iii) Simultaneously with the delivery of the notice
referred to in Section 15(a), the Corporation (as directed by
the Compensation Committee of the Board of Directors) shall
cause to be issued to the Executive a number of replacement
options ("NON-PLAN OPTIONS") which will contain the same terms
and conditions as the New Options (including the continuation
of the same vesting schedule as the New Options) except that
the exercise price of the Non-Plan Options shall be equal to
(A) $11 plus (B) the absolute value of the difference between
the Fair Market Value of a Share on the date that the
Executive exercises the Non-Plan Option and the exercise price
of the option granted to another employee pursuant to Section
15(a) hereof which grant caused the issuance to the Executive
of such Non-Plan Option.
(iv) Promptly after receipt of the notice referred to
in Section 15(a), the Executive will deliver to the
Corporation its Option and the Corporation will cancel the
Option and reissue (A) a new option to the Executive for the
aggregate number of Options held by the Executive less the
number of Options forfeited by the Executive and (B) a
Non-Plan Option for a number of Shares equal to the number of
Options forfeited by the Executive.
<PAGE>
1.3 RIGHT OF REPURCHASE.
The Option Agreement is hereby amended by adding a new Section 16,
which shall read in its entirety as follows:
"The Executive agrees that if he desires to exercise any New
Option which is a Vested Option, he will first offer the
Corporation the right to repurchase such Option for cash in an
amount equal to the Fair Market Value of each Share subject to
such Option less the exercise price thereof."
ARTICLE II
MISCELLANEOUS
2.1 NO OTHER CHANGES.
Except as expressly set forth in this Amendment, the Agreements
shall remain in full force and effect, enforceable in accordance with their
respective terms.
* * * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first above written.
ALLIANCE IMAGING, INC.
By: /S/ KENNETH S. ORD
--------------------------------------
Name: Kenneth S. Ord
Title: Executive Vice President and CFO
/s/ RICHARD N. ZEHNER
-----------------------------------------
Executive: Richard N. Zehner
<PAGE>
ALLIANCE IMAGING, INC.
1065 North PacifiCenter Drive, Suite 200
Anaheim, California 92806
As of December 31, 1997
Vincent S. Pino
31441 Island Drive
Evergreen, Colorado 80439
Re: EMPLOYMENT AGREEMENT
Dear Vince:
This letter confirms our agreement to amend the Employment Agreement
dated as of July 23, 1997 (the "AGREEMENT"), between you and Alliance
Imaging, Inc., a Delaware corporation (the "COMPANY") in the following
respects: Section 6(b) of the Agreement is amended to decrease the "$165,000"
amount referred to therein to "$150,000," to increase the "$335,000" amount
referred to therein to "$426,900" and to change the "January 2, 1998" date
referred to therein to "March 20, 1998."
Notwithstanding anything to the contrary contained herein, the
Company's obligations hereunder shall be conditioned upon the Company
obtaining the requisite consents under the Credit Agreement dated as of
December 18, 1997 among the Company, Bankers Trust Company, as Agent, and the
various lending institutions party thereto.
Except as expressly provided herein, the Agreement shall remain in
full force and effect, enforceable in accordance with its terms.
If this letter correctly sets forth our agreement, please so
indicate by executing in the space provided below.
Alliance Imaging, Inc.
By: /s/ Richard N. Zehner
--------------------------------------
Name: Richard N. Zehner
Title: Chief Executive Officer
Agreed as of the date first above written:
/s/ Vincent S. Pino
- --------------------------------------
Vincent S. Pino
<PAGE>
AMENDMENT dated as of February 5, 1998,
between ALLIANCE IMAGING, INC. (the "CORPORATION")
and VINCENT S. PINO (the "EXECUTIVE").
RECITALS
WHEREAS, the Corporation and Executive are parties to an Employment
Agreement dated as of July 23, 1997 (as thereafter amended as of December 31,
1997 and as of February 5, 1998, the "EMPLOYMENT AGREEMENT"), pursuant to
which, among other things, the Corporation agreed to grant to the Executive
options to acquire common stock of the Corporation (the "EXISTING OPTIONS");
WHEREAS, the parties' agreed the Executive should be granted
Options subject to forfeiture if Joseph Cilurzo became employed by the
Corporation after the consummation of the acquisition by the Corporation of
Mobile Technology, Inc.;
WHEREAS, the Amendment dated as of an even date herewith
incorrectly sets forth the parties' agreement by reducing the number of
Options to be granted to the Executive without any qualification;
WHEREAS, the Options are subject to the Alliance Imaging, Inc. 1997
Stock Option Plan (the "PLAN") and a Stock Option Agreement dated as of
December 18, 1997 (the "OPTION AGREEMENT" and together with the Employment
Agreement, the "AGREEMENTS"); and
WHEREAS, the Corporation and the Executive desire to further amend
the Agreements as hereinafter described.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements of the parties set forth herein, the parties do hereby
agree as follows (capitalized terms used but not defined herein have the
meanings ascribed to them in the Option Agreement, or if not defined therein,
in the Plan):
ARTICLE I
AMENDMENTS
1.1 GRANT OF ADDITIONAL OPTIONS.
(a) Section 2 of the Option Agreement is hereby amended by adding
a new sentence to the end thereof, which shall read as follows: "The
Corporation hereby grants to the Executive an additional 20,000 Options, 50%
of which shall be Tranche A Options, 25% of which shall be Tranche B Options
and 25% of which shall be Tranche C Options (collectively, the "NEW
OPTIONS")."
(b) The Option Agreement is hereby amended by amending the term
"OPTION" each time it appears therein to mean the Existing Options and the
New Options.
<PAGE>
1.2 FORFEITURE OF OPTIONS.
The Option Agreement is hereby amended by adding a new Section 15, which
shall read in its entirety as follows:
"15. FORFEITURE OF NEW OPTIONS.
The Corporation may from time to time, in its sole discretion,
request that the Executive forfeit up to all of the New Options on the
terms and conditions set forth in this Section 15.
(a) The Compensation Committee of the Board of Directors of the
Corporation shall determine the number of Options to be granted to one or
more new employees of the Corporation or its subsidiaries (the "AGGREGATE
FORFEITURE NUMBER"), and shall deliver a notice to the Executive to such
effect.
(b) Immediately upon delivery of the notice referred to in
Section 15(a), the Executive shall be deemed to have forfeited New Options
(the "FORFEITED OPTIONS") as follows:
(i) The Executive shall forfeit a number of New Options equal
to the Aggregate Forfeiture Number, multiplied by a fraction, the
numerator of which is the number of New Options held by the Executive
and the denominator of which is the number of options granted on the
date hereof to and held by Richard N. Zehner and Vincent S. Pino.
(ii) 50% of the Forfeited Options shall be Tranche A Options, 25%
of the Forfeited Options shall be Tranche B Options and 25% of the
Forfeited Options shall be Tranche C Options.
(iii) Simultaneously with the delivery of the notice referred
to in Section 15(a), the Corporation (as directed by the Compensation
Committee of the Board of Directors) shall cause to be issued to the
Executive a number of replacement options ("NON-PLAN OPTIONS") which
will contain the same terms and conditions as the New Options
(including the continuation of the same vesting schedule as the New
Options) except that the exercise price of the Non-Plan Options shall
be equal to (A) $11 plus (B) the absolute value of the difference
between the Fair Market Value of a Share on the date that the Executive
exercises the Non-Plan Option and the exercise price of the option
granted to another employee pursuant to Section 15(a) hereof which
grant caused the issuance to the Executive of such Non-Plan Option.
(iv) Promptly after receipt of the notice referred to in Section
15(a), the Executive will deliver to the Corporation its Option and the
Corporation will cancel the Option and reissue (A) a new option to the
Executive for the aggregate number of Options held by the Executive
less the number of Options forfeited by the Executive and (B) a
Non-Plan Option for a number of Shares equal to the number of Options
forfeited by the Executive.
<PAGE>
1.3 RIGHT OF REPURCHASE.
The Option Agreement is hereby amended by adding a new Section 16, which
shall read in its entirety as follows:
"The Executive agrees that if he desires to exercise any New
Option which is a Vested Option, he will first offer the
Corporation the right to repurchase such Option for cash in
an amount equal to the Fair Market Value of each Share
subject to such Option less the exercise price thereof."
ARTICLE II
MISCELLANEOUS
2.1 NO OTHER CHANGES.
Except as expressly set forth in this Amendment, the Agreements shall
remain in full force and effect, enforceable in accordance with their
respective terms.
* * * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first above written.
ALLIANCE IMAGING, INC.
By: /s/ Kenneth S. Ord
--------------------------------------
Name: Kenneth S. Ord
Title: Executive Vice President and CFO
/s/ Vincent S. Pino
----------------------------------------
Executive: Vincent S. Pino
<PAGE>
As of April 29, 1998
Raymond M. Almieri
c/o Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
AGREEMENT
Ray:
1. Reference is made to (i) the Alliance Imaging, Inc. 1997 Stock
Option Plan (the "Option Plan") and (ii) the Stock Option Agreement (the
"Option Agreement") between Alliance Imaging, Inc. (the "Company") and you,
dated as of April 28, 1998. In consideration of the Company granting you
options under the Option Plan, executing and delivering the Option Agreement
and making the payments described in Paragraph 5 below, you agree that no
Competition Event (as defined below) shall occur prior to one year after the
Date of Termination (as defined in the employment agreement between the
Company and you as of the date hereof (the "Employment Agreement")). Defined
terms used but not defined herein shall have the meaning ascribed thereto in
the Employment Agreement.
2. For purposes of this letter agreement, a Competition Event shall
occur if you directly or indirectly (i) engage in any imaging business or any
other business that becomes material to the Company's business during your
employment by the Company (the "Company Business") within the United States;
(ii) compete or participate as agent, employee, consultant, advisor,
representative or otherwise in any enterprise engaged in a business which has
any operations engaged in the Company Business within the United States; or
(iii) compete or participate as a stockholder, partner or joint venturer, or
have any direct or indirect financial interest, in any enterprise which has
any material operations engaged in the Company Business within the United
States; PROVIDED, HOWEVER, that nothing contained herein shall prohibit you
from (A) owning, operating or managing any business, or acting upon any
business opportunity, after obtaining approval of a majority of the Board of
Directors of the Company and a majority of the independent members of the
Board of Directors of the Company (if any); or (B) owning no more than five
percent (5%) of the equity of any publicly traded entity with respect to
which you do not serve as an officer, director, employee, consultant or in
any other capacity other than as an investor.
<PAGE>
Raymond M. Almieri
As of April 29, 1998
Page 2
3. As a means reasonably designed to protect certain confidential
information of the Company which would otherwise inherently be utilized in
the following proscribed activities, and in partial consideration of the
Company's covenant to make the payments described in Paragraph 5, you agree
that you will not, prior to the date you cease to receive payments under
Paragraph 5 below, solicit or make any other contact with, directly or
indirectly, any customer of the Company as of the Date of Termination 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.
4. In partial consideration of the Company's covenant to make the
payments described in Paragraph 5, you agree that you will not, prior to the
date you cease to receive payments under paragraph 5, solicit or make any
other contact with, directly or indirectly, any employee of the Company on
the Date of Termination (or any person who was employed by the Company at any
time during the three-month period prior to the Date of Termination) with
respect to any employment, services or other business relationship.
5. In partial consideration of your covenants contained herein, the
Company shall, immediately following the Date of Termination, pay you an
amount equal to (A) the sum of your base salary as of the Date of
Termination, multiplied by (B) a fraction, the numerator of which is the
greater of 365 and the number of days remaining in the Term as of the Date of
Termination assuming the Term had not expired on the Date of Termination and
the denominator of which is 365. All payments under this Paragraph 5 shall be
made in equal installments on a bi-weekly basis over a period equal to the
greater of the remaining Term (assuming the Term had not expired) or one
year. Notwithstanding the foregoing, the Company shall not be obligated to
make any payments under this Paragraph 5 to you if you (x) fail to cure a
breach of this Agreement within fifteen days after receipt of notice of such
breach from the Company, or (y) if your employment with the Company is
terminated by reason of your death or disability or for Cause or by reason of
your resignation other than for Good Reason.
6. Notwithstanding paragraph 1 through 4 hereof, if the Company
shall fail to make any payment to you that the Company is obligated to make
pursuant to Paragraph 5 and such failure shall continue for more than five
days after receipt of notice from you, all future payments to you under
Paragraph 5 shall become immediately due and payable or you shall be relieved
of all obligations under this Agreement.
7. For purposes of paragraph 2 through 4 hereof, the term Company
shall include Alliance Imaging, Inc., its subsidiaries and/or its affiliates.
8. You acknowledge that irreparable damage would occur in the event
of a breach of the provisions of this Agreement by you. It is accordingly
agreed that, in addition to any other remedy to which it is entitled at law
or in equity, the Company shall be entitled to an injunction or injunctions
to prevent breaches of this letter agreement and to enforce specifically the
terms and provisions of this letter agreement.
<PAGE>
Raymond M. Almieri
As of April 29, 1998
Page 3
9. If, at the time of enforcement, any sentence, paragraph, clause,
or combination of the same of this Agreement is in violation of the law of
any state where applicable, such sentence, paragraph, clause, or combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder of this Agreement shall remain binding on the parties. In the event
that any part of any covenant of this Agreement is determined by a court of
law to be overly broad thereby making the covenant unenforceable, the parties
agree that such court shall substitute a judicially enforceable limitation in
its place, and that as so modified, the covenants shall be binding upon the
parties as if originally set forth in this Agreement.
If you are in agreement with the foregoing, please sign a copy of
this letter where indicated below.
Very truly yours,
Alliance Imaging, Inc.
By: /s/ Richard N. Zehner
------------------------------------
Name: Richard N. Zehner
Title: Chairman & CEO
Acknowledged and agreed to
as of the date first above
written:
By: /s/ Raymond M. Almieri
- --------------------------------------
Name: Raymond M. Almieri
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of April 29, 1998, by and
between Alliance Imaging, Inc., a Delaware corporation (hereinafter called
the "Corporation"), and Raymond M. Almieri (hereinafter called the
"Executive"). For purposes of this Agreement, employment with the Corporation
shall include employment with any of its affiliated companies.
WITNESSETH THAT:
The Corporation desires to employ the Executive as a Senior Vice
President (a "SVP"), and the Executive desires to accept such employment;
NOW, THEREFORE, the Corporation and the Executive, each intending to
be legally bound, hereby mutually covenant and agree as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Corporation shall employ the Executive as a SVP
of the Corporation, and the Executive shall so serve, for the term set forth
in Paragraph 1(b).
(b) Term. The term of the Executive's employment under this
Agreement shall commence on the date hereof (the "Effective Time") and shall
end on the first anniversary of the Effective Time, subject to the extension
of such term as hereinafter provided and subject to earlier termination as
provided in Paragraph 8. The expiration of the term of this Agreement shall
be extended automatically by an additional three months as of the last day of
each quarterly period following the Effective Time unless either party
desires to modify or terminate this Agreement and notifies the other party of
its desire to modify or terminate this Agreement at least 30 days prior to
any such quarterly renewal date. The period of employment as provided in this
Paragraph 1(b) is sometimes referred to herein as the "Term".
2. DUTIES.
During the Term, the Executive shall serve as a SVP of the
Corporation and have all powers and duties consistent with such position. The
Executive shall devote substantially his entire time during reasonable
business hours (reasonable sick leave and vacations excepted) and use
diligent efforts to fulfill faithfully, responsibly and to the best of his
ability his duties hereunder; 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. During the Term, Executive shall report to an executive of the
Corporation. Executive's duties shall be performed, initially, principally at
the Corporation's current offices located in Anaheim, California, or such
other locations agreed upon by the parties. Notwithstanding, the foregoing,
Executive may be required to travel in the conduct of the Corporation's
business and to discharge his duties hereunder, provided that the amount
<PAGE>
and nature of such travel is reasonably consistent with the amount and nature
of travel engaged in by Executive during the twelve-month period immediately
preceding the date of this Agreement.
3. SALARY.
The Corporation shall pay to the Executive as compensation for his
services a salary of $137,000.00 per year, payable in accordance with the
Corporation's payroll procedures. From time to time, the Board of Directors
of the Corporation or a committee thereof (the "Board") will review the
Executive's performance and compensation, and will consider adjustments
thereto.
4. ANNUAL BONUSES.
For each calendar year during the term of employment, the Executive
shall be eligible to receive a cash bonus based on the Corporation's
achievement of certain operating and/or financial or other goals established
by the Board in its sole discretion, with an initial annual target bonus
amount (based on the Corporation's achievement of a reasonable operating
budget to be approved by the Board) equal to 50% (the "Target Bonus") of the
Executive's then current annual base salary. The bonus plan shall be adopted
and administered by the Compensation Committee of the Board.
5. EQUITY INCENTIVE COMPENSATION.
During the term of employment hereunder the Executive shall be
eligible to participate in the Corporation's Stock Option Plan in effect as
of the date hereof.
6. OTHER BENEFITS.
In addition to the compensation described in Paragraphs 3 through 5,
above, the Executive shall also be entitled to the following:
(a) Expense Reimbursement. Executive will be reimbursed all
reasonable, ordinary and necessary business expenses, including expenses for
entertainment, travel and similar items that are approved by the Corporation
in accordance with its regular policy(ies) for business expense
reimbursement. The Corporation will reimburse Executive for all expenses upon
a presentation by Executive of itemized accounts of such expenditures in
accordance and in the manner and on a form reasonably prescribed by the
Corporation.
(b) Car Allowance. The Corporation shall pay to the Executive, on
the first day of each month during the term of employment, a monthly
automobile allowance (the "Automobile Allowance") of not less than $470, to
help defray the costs associated with Executive's acquisition or maintenance
(by lease or otherwise) of an automobile and the related insurance and
maintenance therefor.
(c) Vacation. The Executive shall be entitled to all legal holidays,
and paid vacation per annum, in accordance with the Corporation's current
policies.
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(d) Insurance and Benefits. The Executive and his "dependents," to
the extent eligible thereunder, shall be entitled to participate in all
employee and executive benefit plans, programs and policies currently
available to other Corporation employees of comparable status, title and
experience, as well as any plans, programs and policies adopted by the
Corporation during the Term of this Agreement.
(e) Participation in Other Benefit Plans. In addition to the
foregoing, the Executive shall be entitled to participate in all of the other
various retirement, welfare, fringe benefit, executive perquisite, and
expense reimbursement plans, programs and arrangements of the Corporation to
the same extent that employees generally of the Corporation are eligible for
participation under the terms of such plans, programs and arrangements.
7. CONFIDENTIALITY.
In view of the fact that Executive's work as an executive of the
Corporation will bring Executive into close contact with many confidential
affairs of the Corporation, 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:
(a) To keep secret all confidential matters of the Corporation
(including without limitation such matters which the Corporation 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 Corporation, either during or after Executive's
employment with the Corporation, or both, until such time as the Corporation
gives its written consent to such disclosure;
(b) To deliver promptly to the Corporation on termination of
Executive's employment by the Corporation or at any other time the
Corporation may so request, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Corporation's business
which Executive may then possess or have under Executive's control; and
(c) That violation of this Paragraph 7 would cause the Corporation
irreparable damage for which the Corporation 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 Paragraph 7, the Corporation 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 Corporation may have for damages under this
Agreement or otherwise, and all of the Corporation's rights and remedies
shall be unrestricted and cumulative.
(d) For purpose of this Paragraph 7, the term Corporation shall
include Alliance Imaging, Inc., its subsidiaries and its affiliates.
3
<PAGE>
8. TERMINATION.
Unless earlier terminated in accordance with the following
provisions of this Paragraph 8, the Corporation shall continue to employ the
Executive and the Executive shall remain employed by the Corporation during
the entire Term. Paragraph 9 hereof sets forth certain obligations of the
Corporation in the event that the Executive's employment hereunder is
terminated. Certain capitalized terms used in this Paragraph 8, Paragraph 9
and Paragraph 10 hereof are defined in Paragraph 8(d), below.
(a) Death or Disability. Except to the extent otherwise provided in
Paragraph 9 with respect to certain post-Date of Termination payment
obligations of the Corporation, this Agreement shall terminate immediately as
of the Date of Termination in the event of the Executive's death or in the
event that the Executive becomes disabled. The Executive will be deemed to be
disabled upon the earlier of (i) the end of a six (6)-consecutive month
period during which, by reason of physical or mental injury or disease, the
Executive has been unable to perform substantially all of his usual and
customary duties under this Agreement or (ii) the date that a reputable
physician selected by the Board, and as to whom the Executive has no
reasonable objection, determines in writing that the Executive will, by
reason of physical or mental injury or disease, be unable to perform
substantially all of the Executive's usual and customary duties under this
Agreement for a period of at least six (6) consecutive months. If any
question arises as to whether the Executive is disabled, upon reasonable
request therefor by the Board, the Executive shall submit to reasonable
medical examination for the purpose of determining the existence, nature and
extent of any such disability. In accordance with Paragraph 14, the Board
shall promptly give the Executive written notice of any such determination of
the Executive's disability and of any decision of the Board to terminate the
Executive's employment by reason thereof.
(b) Discharge for Cause. In accordance with the procedures
hereinafter set forth, the Board may discharge the Executive from his
employment hereunder for Cause. Except to the extent otherwise provided in
Paragraph 9 with respect to certain post-Date of Termination obligations of
the Corporation, this Agreement shall terminate immediately as of the Date of
Termination in the event the Executive is discharged for Cause. Any discharge
of the Executive for Cause shall be communicated by a Notice of Termination
to the Executive given in accordance with Paragraph 14 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement
relied upon and (ii) if the Date of Termination is to be other than the date
of receipt of such notice, specifies the termination date (which date shall
in all events be within fifteen (15) days after the giving of such notice).
In the case of a discharge of the Executive for Cause, the Notice of
Termination shall include a copy of a resolution duly adopted by the Board at
a meeting called and held for such purpose authorizing such action. No
purported termination of the Executive's employment for Cause shall be
effective without a Notice of Termination.
(c) Termination for Other Reasons. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in
accordance with Paragraph 14 at least thirty (30) days prior to the Date of
Termination. The Executive may resign from
4
<PAGE>
his employment by giving written notice to the Corporation in accordance with
Paragraph 14 at least thirty (30) days prior to the Date of Termination.
Except to the extent otherwise provided in Paragraph 9 with respect to
certain post-Date of Termination obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of Termination in the
event the Executive is discharged without Cause or resigns.
(d) Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
Termination, the sum of (A) the Executive's base salary under
Paragraph 3 through the Date of Termination to the extent not
theretofore paid, (B) the amount of any bonus, incentive
compensation, deferred compensation and other cash
compensation accrued by the Executive as of the Date of
Termination to the extent not theretofore paid and (C) any
vacation pay, expense reimbursements and other cash
entitlements accrued by the Executive as of the Date of
Termination to the extent not theretofore paid. For the
purpose of this Paragraph 8(d)(i), accrued bonus shall be
equal to (A) the amount up to, but not to exceed, the Target
Bonus, based upon the Executive's regional and personal
performance requirements contained in the Corporation's
incentive compensation plan (such calculation shall be made as
of the last completed month preceding the Date of
Termination), multiplied by (B) a fraction equal to the number
of days in such year preceding the Date of Termination divided
by 365, less (C) any payments previously made with respect to
such Target Bonus.
(ii) "Cause" means that any of the following has occurred with
respect to Executive: (A) Executive has committed a felony
(other than a motor vehicle moving violation); (B) Executive
has stolen funds or property from the Corporation or otherwise
engaged in fraudulent conduct against the Corporation; (C)
Executive has engaged in knowing and willful misconduct which
is materially injurious to the Corporation; (D) Executive has
failed or refused to comply with the directions of the Board
that are reasonably consistent with Executive's current
executive employee title and the terms of this Agreement, the
failure with which to comply is materially injurious to the
Corporation; or (E) Executive has repeatedly failed or refused
to comply with the directions of the Board that are reasonably
consistent with Executive's current executive employee title
and the terms of this Agreement. Notwithstanding clause (E) of
the preceding sentence, no act or omission by the Executive
shall constitute Cause hereunder unless the Corporation has
given detailed written notice thereof to the Executive, and
the Executive has failed to remedy such act or omission within
a reasonable time after receiving such notice.
(iii) "Date of Termination" shall mean (A) in the event of a
discharge of the Executive by the Board for Cause, the date
the Executive receives a Notice of Termination, or any later
date specified in such Notice of Termination,
5
<PAGE>
as the case may be, (B) in the event of a discharge of the
Executive without Cause or a resignation by the
Executive, the date specified in the written notice to
the Executive (in the case of discharge) or the
Corporation (in the case of resignation), which date
shall be no less than thirty (30) days from the date of
such written notice, (C) in the event of the Executive's
death, the date of the Executive's death, and (D) in the
event of termination of the Executive's employment by
reason of disability pursuant to Paragraph 8(a), the date
the Executive receives written notice of such termination
(or, if earlier, six (6) months following the date the
Executive's disability began).
(iv) "Good Reason" shall mean any of the following:
(A) the Corporation reduces Executive's base salary; or
(B) the assignment to the Executive of any duties
inconsistent in any material respect with the
Executive's positions with the Corporation as set
forth in this Agreement (including status, offices,
titles and reporting requirements), authority, duties
or responsibilities as contemplated by Paragraph 2;
or
(C) any material failure by the Corporation to comply
with any of the provisions of this Agreement, which
is not remedied within 15 days after notice thereof
from the Executive.
(D) the Corporation requires Executive to change the
location of his principal office or offices in a
manner inconsistent with Paragraph 2 hereof;
(E) the Corporation or the Board shall notify the
Executive that it does not want to renew the Term
pursuant to Paragraph 1(b); or
(F) the Corporation 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.
9. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
The following provisions describe the obligations of the Corporation to
the Executive under this Agreement upon termination of his employment.
(a) Death, Disability, Discharge for Cause, or Resignation Without Good
Reason. In the event this Agreement terminates pursuant to Paragraph 8(a) by
reason of the death or disability of the Executive, or pursuant to Paragraph
8(b) by reason of the discharge of the Executive by the Corporation for Cause,
or pursuant to Paragraph 8(c) by reason of the resignation of the Executive
other than for Good Reason, the Corporation shall pay to the Executive, or his
heirs or estate, in the event of the Executive's death, all Accrued
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<PAGE>
Obligations in a lump sum in cash within thirty (30) days after the Date of
Termination; provided further that in the event this Agreement terminates
pursuant to Paragraph 8(a) by reason of the disability of the Executive, the
Corporation shall continue to provide to the Executive, for a period of
twenty-four (24) months from the commencement of such disability, all health
benefits at least equal to those which would have been provided to Executive
in accordance with the plans, programs and arrangements referred to in
Paragraph 7 of this Agreement, in addition to any other benefits or payments
to which Executive is entitled hereunder or otherwise.
(b) Discharge Without Cause or Resignation with Good Reason. In the
event that this Agreement terminates pursuant to Paragraph 8(c) by reason of
the discharge of the Executive by the Corporation other than for Cause, death
or disability or by reason of the resignation of the Executive for Good
Reason (any such termination, a "Severance"):
(i) The Corporation shall pay all Accrued Obligations to the
Executive in a lump sum in cash within thirty (30) days after
the Date of Termination;
(ii) For a period equal to the greater of one year and the
remainder of the Term (assuming the Term had not expired on
the Date of Termination), the Corporation shall continue to
provide benefits to the Executive and/or the Executive's
dependents at least equal to those which would have been
provided to them in accordance with the plans, programs and
arrangements referred to in Paragraph 6 of this Agreement; and
(iii) The Corporation shall, at its sole expense (not to exceed
$25,000), provide the Executive with outplacement services the
scope and provider of which shall be selected by the
Executive.
10. DEFRA LIMITATION.
(a) 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 any payment or
benefit received or to be received by Executive in connection with a
termination of the Executive's employment with the Corporation, then the
total amount of payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest amount such
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. Pending such determination, the Corporation
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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(b) Recharacterization of Payments. Due to the complexity in the
application of Section 280(G) of the Internal Revenue Code of 1986, as
amended (the "Code") it is possible that payments made or benefits received
hereunder should not have been made under Paragraph 10(a) (an "Overpayment").
In the event that it is determined in writing by the Corporation's outside
auditors in their reasonable good faith judgment or by any court of competent
jurisdiction that an Overpayment has been made resulting in an "Excess
Parachute Payment" as defined in Section 280G(b)(1) of the Code, then any
such Overpayment shall be treated for all purposes as an unsecured, long-term
loan from the Corporation to the Executive, his personal representative, his
successors or assigns, as the case may be, that is payable, together with
accrued interest from the date of the making of the Overpayment at the rate
of 8% per annum on the later to occur of the third anniversary of the payment
of such Overpayment, or 6 months following the date upon which it is
determined an Overpayment was made. Should it be determined that such an
Overpayment has been made, the Executive shall determine, in the exercise of
his sole discretion, which payments or benefits shall be deemed to constitute
the Overpayment.
11. NO SET-OFF OR MITIGATION.
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Corporation may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment.
12. PAYMENT OF CERTAIN EXPENSES.
The losing party in any suit or proceeding to enforce this Agreement
shall reimburse the prevailing party for all reasonable costs and expenses
incurred in connection with such suit or proceeding.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Corporation. The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition
of property or stock, liquidation, or otherwise) to all or a substantial
portion of its assets, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation
would be required to perform this Agreement if no such succession had taken
place. Regardless of whether such an agreement is executed, this Agreement
shall be binding upon any successor of the Corporation in accordance with the
operation of law, and such successor shall be deemed the "Corporation" for
purposes of this Agreement.
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14. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(a) If to the Board or the Corporation, to:
Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
Attention: President
Facsimile: (714) 688-3377
with a copy to:
Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, NY 10019
Attention: Joshua Harris
Facsimile: (212) 261-4102
(b) If to the Executive, to:
Raymond M. Almieri
6021 Shadowbrook Circle
Huntington Beach, CA 92648
Such addresses may be changed by written notice sent to the other party at
the last recorded address of that party.
15. INDEMNIFICATION.
The Corporation agrees to indemnify the Executive to the fullest
extent permitted by law for his services to, or on behalf of the Corporation,
as an Executive hereunder, as a director (as applicable) and in any and every
other capacity in which he may serve the Corporation or its interests. In
furtherance of such agreement to indemnify, but not by way of limitation, the
terms of the Corporation's certificate of incorporation and by-laws providing
for such indemnification and payment of expenses, as in effect on the date
hereof (and, which are attached hereto as Exhibit A), are hereby incorporated
by reference as if fully stated herein. For the purpose of this Agreement,
any amendment to said certificate of incorporation or by-laws shall not be
effective to reduce, qualify or otherwise limit the scope, benefit or
enforceability of this provision; provided, however, if any such amendment
extends or improves the scope, benefit or enforceability of the
indemnification and payment of expenses contained in such certificate of
incorporation or
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by-laws for any officer, director, employee or agent, such extended or
improved provisions shall be deemed to be incorporated by reference herein
for the benefit of the Executive without any further action by the
Corporation or the Executive.
16. TAX WITHHOLDING.
The Corporation shall provide for the withholding of any taxes
required to be withheld by federal, state, or local law with respect to any
payment in cash, shares of stock and/or other property made by or on behalf
of the Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option: (a) withhold such
taxes from any cash payments owing from the Corporation to the Executive, (b)
require the Executive to pay to the Corporation in cash such amount as may be
required to satisfy such withholding obligations and/or (c) make other
satisfactory arrangements with the Executive to satisfy such withholding
obligations.
17. ARBITRATION.
Except as to any controversy or claim which the Executive elects, by
written notice to the Corporation, to have adjudicated by a court of
competent jurisdiction, any controversy or claim arising out of or relating
to this Agreement or the breach hereof shall be settled by arbitration in Los
Angeles, California in accordance with the laws of the State of California.
The arbitration shall be conducted in accordance with the rules of the
American Arbitration Association. The costs and expenses of the arbitrator(s)
shall be borne by the Corporation. The award of the arbitrator(s) shall be
binding upon the parties. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
18. NO ASSIGNMENT.
Except as otherwise expressly provided herein, this Agreement is not
assignable by any party and no payment to be made hereunder shall be subject
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or other charge.
19. EXECUTION IN COUNTERPARTS.
This Agreement may be executed by the parties hereto in two (2) or
more counterparts, each of which shall be deemed to be an original, but all
such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
20. JURISDICTION AND GOVERNING LAW.
Except as provided in Paragraph 17, jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
California, and this Agreement shall be construed and interpreted in
accordance with and governed by the laws of the State of California, other
than the conflict of laws provisions of such laws.
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21. SEVERABILITY.
If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be invalid or unenforceable for any reason, such
judgment shall not affect, impair or invalidate the remainder of this
Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and the
Executive consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
22. PRIOR UNDERSTANDINGS.
This Agreement embodies the entire understanding of the parties
hereto and, upon its effectiveness, will supersede all other oral or written
agreements or understandings between them regarding the subject matter
hereof. THIS AGREEMENT SHALL SUPERSEDE AND REPLACE THAT CERTAIN EXECUTIVE
EMPLOYMENT AGREEMENT BY AND BETWEEN EXECUTIVE AND THE CORPORATION'S
WHOLLY-OWNED SUBSIDIARY, MOBILE TECHNOLOGY INC., DATED AS OF DECEMBER 31,
1996. No change, alteration or modification hereof may be made except in a
writing, signed by each of the parties hereto. The headings in this Agreement
are for convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Attest: ALLIANCE IMAGING, INC.
/s/ RUSSELL D. PHILLIPS, JR. By: /s/ RICHARD N. ZEHNER
- -------------------------------- --------------------------------
Name: Russell D. Phillips, Jr. Name: Richard N. Zehner
Title: Chairman and Chief
Executive Officer
EXECUTIVE
By: /s/ RAYMOND M. ALMIERI
--------------------------------
Name: Raymond M. Almieri
Senior Vice President
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of April 29, 1998, by and
between Alliance Imaging, Inc., a Delaware corporation (hereinafter called
the "Corporation"), and Russell D. Phillips, Jr. (hereinafter called the
"Executive").
WITNESSETH THAT:
The Corporation desires to employ the Executive as its General
Counsel ("GC"), and the Executive desires to accept such employment;
NOW, THEREFORE, the Corporation and the Executive, each intending to
be legally bound, hereby mutually covenant and agree as follows:
1. EMPLOYMENT AND TERM.
(a) Employment. The Corporation shall employ the Executive as the GC
of the Corporation, and the Executive shall so serve, for the term set forth
in Paragraph 1(b).
(b) Term. The term of the Executive's employment under this
Agreement shall commence on the date hereof (the "Effective Time") and shall
end on the second anniversary of the Effective Time, subject to the extension
of such term as hereinafter provided and subject to earlier termination as
provided in Paragraph 8. The expiration of the term of this Agreement shall
be extended automatically by an additional three months as of the last day of
each quarterly period following the Effective Time unless either party
desires to modify or terminate this Agreement and notifies the other party of
its desire to modify or terminate this Agreement at least 30 days prior to
any such quarterly renewal date. The period of employment as provided in this
Paragraph 1(b) is sometimes referred to herein as the "Term".
2. DUTIES.
During the Term, the Executive shall serve as GC of the Corporation
and have all powers and duties consistent with such position. The Executive
shall devote substantially his entire time during reasonable business hours
(reasonable sick leave and vacations excepted) and use diligent efforts to
fulfill faithfully, responsibly and to the best of his ability his duties
hereunder; 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.
During the Term, Executive shall report to the Chairman and Chief Executive
Officer of the Corporation. Executive's duties shall be performed, initially,
principally at the Corporation's current offices located in Anaheim,
California, unless Executive otherwise agrees in writing. Notwithstanding,
the foregoing, Executive may be required to travel in the conduct of the
Corporation's business and to discharge his duties hereunder, provided that
the amount and nature of such travel is reasonably consistent with the amount
and
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nature of travel engaged in by other senior executives of the Corporation
during the twelve-month period immediately preceding the date of this
Agreement.
3. SALARY.
The Corporation shall pay to the Executive as compensation for his
services a salary of $125,000 per year, payable in accordance with the
Corporation's payroll procedures. From time to time, the Board of Directors
of the Corporation or a committee thereof (the "Board") will review the
Executive's performance and compensation, and will consider adjustments
thereto.
4. ANNUAL BONUSES.
For each calendar year during the term of employment, the Executive
shall be eligible to receive a cash bonus based on the Corporation's
achievement of certain operating and/or financial or other goals established
by the Board in its sole discretion, with an annual target bonus amount
(based on the Corporation's achievement of a reasonable operating budget to
be approved by the Board) equal to 30% (the "Target Bonus") of the
Executive's then current annual base salary. The bonus plan shall be adopted
and administered by the Compensation Committee of the Board.
5. EQUITY INCENTIVE COMPENSATION.
During the term of employment hereunder the Executive shall be
eligible to participate in the Corporation's Stock Option Plan in effect as
of the date hereof.
6. OTHER BENEFITS.
In addition to the compensation described in Paragraphs 3 through 5,
above, the Executive shall also be entitled to the following:
(a) Expense Reimbursement. Executive will be reimbursed all
reasonable, ordinary and necessary business expenses, including expenses for
entertainment, travel and similar items that are approved by the Corporation
in accordance with its regular policy(ies) for business expense
reimbursement. The Corporation will reimburse Executive for all expenses upon
a presentation by Executive of itemized accounts of such expenditures in
accordance and in the manner and on a form reasonably prescribed by the
Corporation.
(b) Car Allowance. The Corporation shall pay to the Executive, on
the first day of each month during the term of employment, a monthly
automobile allowance (the "Automobile Allowance") of not less than $400, to
help defray the costs associated with Executive's acquisition or maintenance
(by lease or otherwise) of an automobile and the related insurance and
maintenance therefor.
(c) Vacation. The Executive shall be entitled to all legal holidays,
and three weeks paid vacation per annum, in accordance with the Corporation's
policies.
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(d) Insurance and Benefits. The Executive and his "dependents," to
the extent eligible thereunder, shall be entitled to participate in all
employee and executive benefit plans, programs and policies currently
available to other Corporation employees of comparable status, title and
experience, as well as any plans, programs and policies adopted by the
Corporation during the Term of this Agreement.
(e) Participation in Other Benefit Plans. In addition to the
foregoing, the Executive shall be entitled to participate in all of the other
various retirement, welfare, fringe benefit, executive perquisite, and
expense reimbursement plans, programs and arrangements of the Corporation to
the same extent that employees generally of the Corporation are eligible for
participation under the terms of such plans, programs and arrangements.
7. CONFIDENTIALITY.
In view of the fact that Executive's work as an executive of the
Corporation will bring Executive into close contact with many confidential
affairs of the Corporation, 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:
(a) To keep secret all confidential matters of the Corporation
(including without limitation such matters which the Corporation 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 Corporation, either during or after Executive's
employment with the Corporation, or both, until such time as the Corporation
gives its written consent to such disclosure;
(b) To deliver promptly to the Corporation on termination of
Executive's employment by the Corporation or at any other time the
Corporation may so request, all memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Corporation's business
which Executive may then possess or have under Executive's control; and
(c) That violation of this Paragraph 7 would cause the Corporation
irreparable damage for which the Corporation 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 Paragraph 7, the Corporation 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 Corporation may have for damages under this
Agreement or otherwise, and all of the Corporation's rights and remedies
shall be unrestricted and cumulative.
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8. TERMINATION.
Unless earlier terminated in accordance with the following
provisions of this Paragraph 8, the Corporation shall continue to employ the
Executive and the Executive shall remain employed by the Corporation during
the entire Term. Paragraph 9 hereof sets forth certain obligations of the
Corporation in the event that the Executive's employment hereunder is
terminated. Certain capitalized terms used in this Paragraph 8, Paragraph 9
and Paragraph 10 hereof are defined in Paragraph 8(d), below.
(a) Death or Disability. Except to the extent otherwise provided in
Paragraph 9 with respect to certain post-Date of Termination payment
obligations of the Corporation, this Agreement shall terminate immediately as
of the Date of Termination in the event of the Executive's death or in the
event that the Executive becomes disabled. The Executive will be deemed to be
disabled upon the earlier of (i) the end of a six (6)-consecutive month
period during which, by reason of physical or mental injury or disease, the
Executive has been unable to perform substantially all of his usual and
customary duties under this Agreement or (ii) the date that a reputable
physician selected by the Board, and as to whom the Executive has no
reasonable objection, determines in writing that the Executive will, by
reason of physical or mental injury or disease, be unable to perform
substantially all of the Executive's usual and customary duties under this
Agreement for a period of at least six (6) consecutive months. If any
question arises as to whether the Executive is disabled, upon reasonable
request therefor by the Board, the Executive shall submit to reasonable
medical examination for the purpose of determining the existence, nature and
extent of any such disability. In accordance with Paragraph 14, the Board
shall promptly give the Executive written notice of any such determination of
the Executive's disability and of any decision of the Board to terminate the
Executive's employment by reason thereof.
(b) Discharge for Cause. In accordance with the procedures
hereinafter set forth, the Board may discharge the Executive from his
employment hereunder for Cause. Except to the extent otherwise provided in
Paragraph 9 with respect to certain post-Date of Termination obligations of
the Corporation, this Agreement shall terminate immediately as of the Date of
Termination in the event the Executive is discharged for Cause. Any discharge
of the Executive for Cause shall be communicated by a Notice of Termination
to the Executive given in accordance with Paragraph 14 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement
relied upon and (ii) if the Date of Termination is to be other than the date
of receipt of such notice, specifies the termination date (which date shall
in all events be within fifteen (15) days after the giving of such notice).
In the case of a discharge of the Executive for Cause, the Notice of
Termination shall include a copy of a resolution duly adopted by the Board at
a meeting called and held for such purpose authorizing such action. No
purported termination of the Executive's employment for Cause shall be
effective without a Notice of Termination.
(c) Termination for Other Reasons. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in
accordance with Paragraph 14 at least thirty (30) days prior to the Date of
Termination. The Executive may resign from
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his employment by giving written notice to the Corporation in accordance with
Paragraph 14 at least thirty (30) days prior to the Date of Termination.
Except to the extent otherwise provided in Paragraph 9 with respect to
certain post-Date of Termination obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of Termination in the
event the Executive is discharged without Cause or resigns.
(d) Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
Termination, the sum of (A) the Executive's base salary under
Paragraph 3 through the Date of Termination to the extent not
theretofore paid, (B) the amount of any bonus, incentive
compensation, deferred compensation and other cash
compensation accrued by the Executive as of the Date of
Termination to the extent not theretofore paid and (C) any
vacation pay, expense reimbursements and other cash
entitlements accrued by the Executive as of the Date of
Termination to the extent not theretofore paid. For the
purpose of this Paragraph 8(d)(i), the amount of bonus accrued
shall be equal to (A) the Average Bonus, multiplied by (B) a
fraction equal to the number of days in such year preceding
the Date of Termination divided by 365.
(ii) "Average Bonus" means (A) if a termination of employment of
the Executive occurs prior to January 1, 1999, the Target
Bonus of the Executive payable in respect of the calendar year
in which such termination occurs and (B) if a termination of
employment of the Executive occurs on or after January 1,
1999, the actual cash bonus earned by the Executive pursuant
to Section 4 for the calendar year completed immediately prior
to the time in question.
(iii) "Cause" means that any of the following has occurred with
respect to Executive: (A) Executive has committed a felony
(other than a motor vehicle moving violation); (B) Executive
has stolen funds or property from the Corporation or otherwise
engaged in fraudulent conduct against the Corporation; (C)
Executive has engaged in knowing and willful misconduct which
is materially injurious to the Corporation; (D) Executive has
failed or refused to comply with the directions of the Board
that are reasonably consistent with Executive's current
executive employee title and the terms of this Agreement, the
failure with which to comply is materially injurious to the
Corporation; or (E) Executive has repeatedly failed or refused
to comply with the directions of the Board that are reasonably
consistent with Executive's current executive employee title
and the terms of this Agreement. Notwithstanding clause (E) of
the preceding sentence, no act or omission by the Executive
shall constitute Cause hereunder unless the Corporation has
given detailed written notice thereof to the Executive, and
the Executive has failed to remedy such act or omission within
a reasonable time after receiving such notice.
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(iv) "Date of Termination" shall mean (A) in the event of a
discharge of the Executive by the Board for Cause, the date
the Executive receives a Notice of Termination, or any later
date specified in such Notice of Termination, as the case may
be, (B) in the event of a discharge of the Executive without
Cause or a resignation by the Executive, the date specified in
the written notice to the Executive (in the case of discharge)
or the Corporation (in the case of resignation), which date
shall be no less than thirty (30) days from the date of such
written notice, (C) in the event of the Executive's death, the
date of the Executive's death, and (D) in the event of
termination of the Executive's employment by reason of
disability pursuant to Paragraph 8(a), the date the Executive
receives written notice of such termination (or, if earlier,
six (6) months following the date the Executive's disability
began).
(v) "Good Reason" shall mean any of the following:
(A) the Corporation reduces Executive's base salary; or
(B) the assignment to the Executive of any duties
inconsistent in any material respect with the
Executive's positions with the Corporation as set
forth in this Agreement (including status, offices,
titles and reporting requirements), authority, duties
or responsibilities as contemplated by Paragraph 2;
or
(C) any material failure by the Corporation to comply
with any of the provisions of this Agreement, which
is not remedied within 15 days after notice thereof
from the Executive.
(D) the Corporation requires Executive to change the
location of his principal office or offices in a
manner inconsistent with Paragraph 2 hereof;
(E) the Corporation or the Board shall notify the
Executive that it does not want to renew the Term
pursuant to Paragraph 1(b); or
(F) the Corporation 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.
9. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
The following provisions describe the obligations of the Corporation to
the Executive under this Agreement upon termination of his employment.
(a) Death, Disability, Discharge for Cause, or Resignation Without Good
Reason. In the event this Agreement terminates pursuant to Paragraph 8(a) by
reason of the death or disability of the Executive, or pursuant to Paragraph
8(b) by reason of the discharge of
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the Executive by the Corporation for Cause, or pursuant to Paragraph 8(c) by
reason of the resignation of the Executive other than for Good Reason, the
Corporation shall pay to the Executive, or his heirs or estate, in the event
of the Executive's death, all Accrued Obligations in a lump sum in cash
within thirty (30) days after the Date of Termination; provided further that
in the event this Agreement terminates pursuant to Paragraph 8(a) by reason
of the disability of the Executive, the Corporation shall continue to provide
to the Executive, for a period of twenty-four (24) months from the
commencement of such disability, all health benefits at least equal to those
which would have been provided to Executive in accordance with the plans,
programs and arrangements referred to in Paragraph 7 of this Agreement, in
addition to any other benefits or payments to which Executive is entitled
hereunder or otherwise.
(b) Discharge Without Cause or Resignation with Good Reason. In the
event that this Agreement terminates pursuant to Paragraph 8(c) by reason of
the discharge of the Executive by the Corporation other than for Cause, death
or disability or by reason of the resignation of the Executive for Good
Reason (any such termination, a "Severance"):
(i) The Corporation shall pay all Accrued Obligations to the
Executive in a lump sum in cash within thirty (30) days after
the Date of Termination;
(ii) For a period equal to the greater of two years and the
remainder of the Term (assuming the Term had not expired on
the Date of Termination), the Corporation shall continue to
provide benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided
to them in accordance with the plans, programs and
arrangements referred to in Paragraph 6 of this Agreement; and
(iii) The Corporation shall, at its sole expense (not to exceed
$25,000), provide the Executive with outplacement services the
scope and provider of which shall be selected by the
Executive.
10. DEFRA LIMITATION.
(a) 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 any payment or
benefit received or to be received by Executive in connection with a
termination of the Executive's employment with the Corporation, then the
total amount of payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest amount such
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. Pending such determination, the Corporation
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
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of any parachute payments such that the provisions of DEFRA relating to
"excess parachute payments" shall no longer be applicable.
(b) Recharacterization of Payments. Due to the complexity in the
application of Section 280(G) of the Internal Revenue Code of 1986, as
amended (the "Code") it is possible that payments made or benefits received
hereunder should not have been made under Paragraph 10(a) (an "Overpayment").
In the event that it is determined in writing by the Corporation's outside
auditors in their reasonable good faith judgment or by any court of competent
jurisdiction that an Overpayment has been made resulting in an "Excess
Parachute Payment" as defined in Section 280G(b)(1) of the Code, then any
such Overpayment shall be treated for all purposes as an unsecured, long-term
loan from the Corporation to the Executive, his personal representative, his
successors or assigns, as the case may be, that is payable, together with
accrued interest from the date of the making of the Overpayment at the rate
of 8% per annum on the later to occur of the third anniversary of the payment
of such Overpayment, or 6 months following the date upon which it is
determined an Overpayment was made. Should it be determined that such an
Overpayment has been made, the Executive shall determine, in the exercise of
his sole discretion, which payments or benefits shall be deemed to constitute
the Overpayment.
11. NO SET-OFF OR MITIGATION.
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Corporation may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment.
12. PAYMENT OF CERTAIN EXPENSES.
The losing party in any suit or proceeding to enforce this Agreement
shall reimburse the prevailing party for all reasonable costs and expenses
incurred in connection with such suit or proceeding.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of
the Corporation. The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition
of property or stock, liquidation, or otherwise) to all or a substantial
portion of its assets, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation
would be required to perform this Agreement if no such succession had taken
place. Regardless of whether such an agreement is executed, this Agreement
shall be binding upon any
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successor of the Corporation in accordance with the operation of law, and
such successor shall be deemed the "Corporation" for purposes of this
Agreement.
14. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(a) If to the Board or the Corporation, to:
Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
Attention: President
Facsimile: (714) 688-3377
with a copy to:
Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, NY 10019
Attention: Joshua Harris
Facsimile: (212) 261-4102
(b) If to the Executive, to:
Russell D. Phillips, Jr.
8162 Manitoba St., Unit 320
Playa del Rey, CA 90293
Such addresses may be changed by written notice sent to the other party at
the last recorded address of that party.
15. INDEMNIFICATION.
The Corporation agrees to indemnify the Executive to the fullest
extent permitted by law for his services to, or on behalf of the Corporation,
as an Executive hereunder, as a director (as applicable) and in any and every
other capacity in which he may serve the Corporation or its interests. In
furtherance of such agreement to indemnify, but not by way of limitation, the
terms of the Corporation's certificate of incorporation and by-laws providing
for such indemnification and payment of expenses, as in effect on the date
hereof (and, which are attached hereto as Exhibit A), are hereby incorporated
by reference as if fully stated herein. For the purpose of this Agreement,
any amendment to said certificate of incorporation or by-laws shall not be
effective to reduce, qualify or
9
<PAGE>
otherwise limit the scope, benefit or enforceability of this provision;
provided, however, if any such amendment extends or improves the scope,
benefit or enforceability of the indemnification and payment of expenses
contained in such certificate of incorporation or by-laws for any officer,
director, employee or agent, such extended or improved provisions shall be
deemed to be incorporated by reference herein for the benefit of the
Executive without any further action by the Corporation or the Executive.
16. TAX WITHHOLDING.
The Corporation shall provide for the withholding of any taxes
required to be withheld by federal, state, or local law with respect to any
payment in cash, shares of stock and/or other property made by or on behalf
of the Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option: (a) withhold such
taxes from any cash payments owing from the Corporation to the Executive, (b)
require the Executive to pay to the Corporation in cash such amount as may be
required to satisfy such withholding obligations and/or (c) make other
satisfactory arrangements with the Executive to satisfy such withholding
obligations.
17. ARBITRATION.
Except as to any controversy or claim which the Executive elects, by
written notice to the Corporation, to have adjudicated by a court of
competent jurisdiction, any controversy or claim arising out of or relating
to this Agreement or the breach hereof shall be settled by arbitration in Los
Angeles, California in accordance with the laws of the State of California.
The arbitration shall be conducted in accordance with the rules of the
American Arbitration Association. The costs and expenses of the arbitrator(s)
shall be borne by the Corporation. The award of the arbitrator(s) shall be
binding upon the parties. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
18. NO ASSIGNMENT.
Except as otherwise expressly provided herein, this Agreement is not
assignable by any party and no payment to be made hereunder shall be subject
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or other charge.
19. EXECUTION IN COUNTERPARTS.
This Agreement may be executed by the parties hereto in two (2) or
more counterparts, each of which shall be deemed to be an original, but all
such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
10
<PAGE>
20. JURISDICTION AND GOVERNING LAW.
Except as provided in Paragraph 17, jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
California, and this Agreement shall be construed and interpreted in
accordance with and governed by the laws of the State of California, other
than the conflict of laws provisions of such laws.
21. SEVERABILITY.
If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be invalid or unenforceable for any reason, such
judgment shall not affect, impair or invalidate the remainder of this
Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and the
Executive consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
22. PRIOR UNDERSTANDINGS.
This Agreement embodies the entire understanding of the parties
hereto and, upon its effectiveness, will supersede all other oral or written
agreements or understandings between them regarding the subject matter
hereof. No change, alteration or modification hereof may be made except in a
writing, signed by each of the parties hereto. The headings in this Agreement
are for convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Attest: ALLIANCE IMAGING, INC.
/s/ EVELYN CASHMAN By: /s/ RICHARD N. ZEHNER
- ------------------------------- -------------------------------
Name: Evelyn Cashman Name: Richard N. Zehner
Title: Chairman and Chief
Executive Officer
EXECUTIVE
By: /s/ RUSSELL D. PHILLIPS, JR.
-------------------------------
Name: Russell D. Phillips, Jr.
General Counsel
12
<PAGE>
As of April 29, 1998
Russell D. Phillips, Jr.
c/o Alliance Imaging, Inc.
1065 North PacifiCenter Drive, Suite 200
Anaheim, CA 92806
AGREEMENT
Russell:
1. Reference is made to (i) the Alliance Imaging, Inc. 1997 Stock
Option Plan (the "Option Plan") and (ii) the Stock Option Agreement (the
"Option Agreement") between Alliance Imaging, Inc. (the "Company") and you,
dated as of April 28, 1998. In consideration of the Company granting you
options under the Option Plan, executing and delivering the Option Agreement
and making the payments described in Paragraph 5 below, you agree that no
Competition Event (as defined below) shall occur prior to two years after the
Date of Termination (as defined in the employment agreement between the
Company and you as of the date hereof (the "Employment Agreement")). Defined
terms used but not defined herein shall have the meaning ascribed thereto in
the Employment Agreement.
2. For purposes of this letter agreement, a Competition Event shall
occur if you directly or indirectly (i) engage in any imaging business or any
other business that becomes material to the Company's business during your
employment by the Company (the "Company Business") within the United States;
(ii) compete or participate as agent, employee, consultant, advisor,
representative or otherwise in any enterprise engaged in a business which has
any operations engaged in the Company Business within the United States; or
(iii) compete or participate as a stockholder, partner or joint venturer, or
have any direct or indirect financial interest, in any enterprise which has
any material operations engaged in the Company Business within the United
States; PROVIDED, HOWEVER, that nothing contained herein shall prohibit you
from (A) owning, operating or managing any business, or acting upon any
business opportunity, after obtaining approval of a majority of the Board of
Directors of the Company and a majority of the independent members of the
Board of Directors of the Company (if any); or (B) owning no more than five
percent (5%) of the equity of any publicly traded entity with respect to
which you do not serve as an officer, director, employee, consultant or in
any other capacity other than as an investor.
<PAGE>
Russell D. Phillips, Jr.
As of April 29, 1998
Page 2
3. As a means reasonably designed to protect certain confidential
information of the Company which would otherwise inherently be utilized in
the following proscribed activities, and in partial consideration of the
Company's covenant to make the payments described in Paragraph 5, you agree
that you will not, prior to the date you cease to receive payments under
Paragraph 5 below, solicit or make any other contact with, directly or
indirectly, any customer of the Company as of the Date of Termination 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.
4. In partial consideration of the Company's covenant to make the
payments described in Paragraph 5, you agree that you will not, prior to the
date you cease to receive payments under paragraph 5, solicit or make any
other contact with, directly or indirectly, any employee of the Company on
the Date of Termination (or any person who was employed by the Company at any
time during the three-month period prior to the Date of Termination) with
respect to any employment, services or other business relationship.
5. In partial consideration of your covenants contained herein, the
Company shall, immediately following the Date of Termination, pay you an
amount equal to (A) the sum of your base salary as of the Date of Termination
and your Average Bonus, multiplied by (B) a fraction, the numerator of which
is the greater of 730 and the number of days remaining in the Term as of the
Date of Termination assuming the Term had not expired on the Date of
Termination and the denominator of which is 365. All payments under this
Paragraph 5 shall be made in equal installments on a bi-weekly basis over a
period equal to the greater of the remaining Term (assuming the Term had not
expired) or two years. Notwithstanding the foregoing, the Company shall not
be obligated to make any payments under this Paragraph 5 to you if you (x)
fail to cure a breach of this Agreement within fifteen days after receipt of
notice of such breach from the Company, or (y) if your employment with the
Company is terminated by reason of your death or disability or for Cause or
by reason of your resignation other than for Good Reason.
6. Notwithstanding paragraph 1 through 4 hereof, if the Company
shall fail to make any payment to you that the Company is obligated to make
pursuant to Paragraph 5 and such failure shall continue for more than five
days after receipt of notice from you, all future payments to you under
Paragraph 5 shall become immediately due and payable or you shall be relieved
of all obligations under this Agreement.
You acknowledge that irreparable damage would occur in the event of
a breach of the provisions of this Agreement by you. It is accordingly agreed
that, in addition to any other remedy to which it is entitled at law or in
equity, the Company shall be entitled to an injunction or injunctions to
prevent breaches of this letter agreement and to enforce specifically the
terms and provisions of this letter agreement.
7. If, at the time of enforcement, any sentence, paragraph, clause,
or combination of the same of this Agreement is in violation of the law of
any state where applicable, such sentence, paragraph, clause, or combination
of the same shall be void in the
<PAGE>
Russell D. Phillips, Jr.
As of April 29, 1998
Page 3
jurisdictions where it is unlawful, and the remainder of this Agreement shall
remain binding on the parties. In the event that any part of any covenant of
this Agreement is determined by a court of law to be overly broad thereby
making the covenant unenforceable, the parties agree that such court shall
substitute a judicially enforceable limitation in its place, and that as so
modified, the covenants shall be binding upon the parties as if originally
set forth in this Agreement.
If you are in agreement with the foregoing, please sign a copy of
this letter where indicated below.
Very truly yours,
Alliance Imaging, Inc.
By: /s/ Richard N. Zehner
-------------------------------
Name: Richard N. Zehner
Title: Chairman & CEO
Acknowledged and agreed to
as of the date first above
written:
By: /s/ Russell D. Phillips, Jr.
-------------------------------
Name: Russell D. Phillips, Jr.
<PAGE>
Exhibit 21.0
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Registrant. The following is a listing of the
active subsidiaries of the Registrant, or if indented, subsidiaries of the
subsidiary under which they are listed:
<TABLE>
<CAPTION>
INCORPORATION
-------------
<S> <C>
Alliance Imaging of Central Georgia, Inc. Georgia
Royal Medical Health Services, Inc. Pennsylvania
Alliance Imaging of Ohio, Inc. Delaware
Alliance Imaging of Michigan, Inc. Delaware
Mobile Technology Inc. Delaware
Embarcadero Holding Corp. I Delaware
CuraCare, Inc. Delaware
Embarcadero Holding Corp. II Delaware
Medical Diagnostics, Inc. Delaware
MDI - New York, Inc. New York
Western Massachusetts Magnetic Resonance Services, Inc. Massachusetts
MRI Associates, Inc. Massachusetts
Greater Boston MRI Services, Inc. Massachusetts
Central Massachusetts MRI Services, Inc. Massachusetts
Mobile MRI of Western Massachusetts, Inc. Massachusetts
Greater Springfield MRI, Inc. Massachusetts
Meritus PLS, Inc. Virginia
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-22333) pertaining to the 1991 Amended and Restated Stock
Option Plan and the Long Term Executive Incentive Plan of Alliance Imaging, Inc.
of our report dated March 5, 1999, with respect to the consolidated financial
statements and schedule of Alliance Imaging, Inc. included in the Annual Report
(Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Orange County, California
March 27, 1999
55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,681
<SECURITIES> 0
<RECEIVABLES> 41,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,680
<PP&E> 273,074
<DEPRECIATION> (78,811)
<TOTAL-ASSETS> 456,166
<CURRENT-LIABILITIES> 51,353
<BONDS> 431,247
16,673
0
<COMMON> 41
<OTHER-SE> (82,251)
<TOTAL-LIABILITY-AND-EQUITY> 456,166
<SALES> 0
<TOTAL-REVENUES> 199,401
<CGS> 0
<TOTAL-COSTS> 97,187
<OTHER-EXPENSES> 56,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,488
<INCOME-PRETAX> 9,842
<INCOME-TAX> 4,973
<INCOME-CONTINUING> 4,869
<DISCONTINUED> 0
<EXTRAORDINARY> (2,271)
<CHANGES> 0
<NET-INCOME> 2,598
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
